Dive Brief:
- Supply chain investments and transportation costs were an important drag on Best Buy's margins in the second quarter though overall sales were up, according to a recent conference call with investors.
- One such investment includes recently moving a major west coast distribution center (DC) to Compton, California, in order to increase both the speed and efficiency of deliveries, with increased space for larger items like TVs and appliances.
- "We’re also using a section of this 600,000 square foot facility to build out a completely new automated system that will facilitate faster and more efficient online order delivery to the local metro area as well as the whole West Coast," said CEO Hubert Joly.
Dive Insight:
Best Buy has avoided the fate of several direct competitors like Circuit City and Radioshack.
From 2012 to 2017, the retailer had a lot of work to do to bring margins back to health and figure out how to drive sales in the new omnichannel retail environment. In September, the company announced that the era of rebuilding was over and that growth was the new focus. And a rising chorus of analysts is beginning to concur that the chain has survived its most dire threats from e-commerce and generalist big box retailers.
Much of this work has focused on bringing unique value to the in-store experience like hiring more knowledgeable associates, getting way out in front of the buy online pick up in store (BOPIS) trend and focusing on premium items that consumers buy infrequently but want help making decisions about.
But upgrades to the retailer's supply chain have played a major role in the turnaround, too. In addition to the new Compton DC, the company turned some of the 292 locations it closed in recent years into distribution centers.
"We've also begun a multi-year transformation of our supply chain designed to expand our bandwidth for growth and speed," said Joly on an investor call in May.
Faster, more efficient delivery was a theme on second-quarter earnings calls last month, and bulky, hard-to-deliver items have come up more than once as well. Joly explained that moving the West Coast DC was serving both.
"Compared to the old center we were leasing in Chino, California, the new distribution center is wholesale to consumers with 50 million consumers within 50 miles," said Joly.
