Demand for big-ticket electronic items is falling but easing supply chain issues are helping retailers such as Best Buy stay flexible as they head into an uncertain holiday season.
As Best Buy CEO Corie Barry put it in a Tuesday earnings call, the impact of the macroeconomic situation on consumers is "uneven and unsettled."
"Each customer is making trade-offs, especially with the significant impact of inflation on the basics like food, fuel, and lodging," she said. "Across consumers, we can also see that savings are being drawn down, and credit usage is going up. And value clearly matters to everyone."
Despite these headwinds, Best Buy's third quarter earnings beat Wall Street estimates. Earnings and revenue came in higher than expected, and the company provided a more optimistic sales forecast for the entire year.
The earnings beat doesn't reverse the longer-term trend, however, as Best Buy still expects sales to decline 10 percent for the year.
This tracks with recent federal data showing sales at electronics and appliance stores down 12.1 percent in October from the year before. They also fell 0.3 percent from the month before, despite many consumers being urged to begin their holiday shopping as early as September.
Experts expect this trend to continue into the holiday season. A recent report from the retail tracker NPD Group, which predicts that 36 percent of customers will purchase consumer technology (CE) this holiday season, down from 37 percent last year.
“After two years of strong growth supported by at-home pandemic-era needs, consumers expect to spend fewer dollars this holiday season on CE,” said Paul Gagnon, a vice president for NPD, in a news release.
One upside for retailers, however, is that supply chain issues are rapidly easing, making it easier for retailers to adjust to demand in real-time.
"From an inventory perspective, we have approached holidays strategically, placing bets in areas that require a longer lead time and taking a more flexible approach in other areas," said Barry.
She added that Best Buy continues to rely on promotions to clear out excess products, but that inventory was down 15 percent from the same time last year when the company was stocking up in anticipation of shortages.
It's sort of a goldilocks situation, as retailers try to avoid overbuying — as many did in 2021 — while also keeping shelves stocked with new items.
In the meantime, Best Buy is looking beyond electronics into other categories for sales growth. Outdoor furniture, electronic bikes, and hearing aids, for example, all performed better than expected.
"While sales are down in our signature categories, as we lap the strong growth of the pandemic years, our initiative to expand our presence in adjacent categories is driving sales growth," Barry said.
The company also pointed out that the decline in sales is relative to the red-hot demand seen earlier in the pandemic. Taking the longer view, consumers continue to buy more electronics than they have in the past.
Best Buy's revenue growth is still up 8 percent over fiscal year 2020.
For now, investors seem to appreciate the company's relatively strong earnings and arguably cautious approach to the macroeconomic situation. The stock popped around 11 percent Tuesday.
