Sharing the cost with consumers and vendors
By Alan Wolf, YSN
Best Buy is working with its vendors to temper the impact of probable tariffs on Chinese- and Mexican-made goods, which make up most of its merchandise.
On a Nov. 26 earnings call with analysts, CEO Corie Barry acknowledged that China accounts for about 60% of Best Buy’s cost of goods sold, and that Mexico is the retailer’s second largest country of import.
“There’s very little in the consumer electronics space that is not imported,” she said, and noted that attempts to shift sourcing away from China during the first Trump administration were hampered by the supply chain disruptions of the pandemic. Now, as President-elect Donald Trump prepares to take office, he has vowed to up the import ante by imposing a 25% tariff on Canadian and Mexican merchandise and to collect an additional 10% on Chinese-made goods to stem the tide of illegal drugs and immigrants.
To prepare for the incoming president’s day-one promise, Best Buy is implementing multiple tactics including sourcing changes, certain promotional and pricing strategies and purchasing inventory ahead of the tariffs. “This is where our close vendor relationships really tend to pay off for us,” Barry said. “We are already planning for and working with our vendor partners on next steps.”
While manufacturers and Best Buy will bear some of the costs, the consumer will ultimately pay more at checkout. “We’ve seen this before, and for us, that’s the hardest part,” Barry said. “These are goods that people need and higher prices are not helpful.”
Separately, Best Buy reported a nearly 15% decline in same-store sales of appliances for its fiscal third quarter ended Oct. 28. The decrease — attributed to steep promotions and soft demand amid “overall ongoing macro uncertainty” — reduced the category’s revenue contribution from 14% to 12% of the mix year over year.
“Similar to prior quarters in this environment, many categories including major appliances were very promotional in pursuit of stimulating interest and sales,” Barry said. “We went into the year saying we’re going to make price investments so we could maintain our share position in some of those really key categories for us, like computing and TVs and appliances.”
Nevertheless, “It can be very hard to stimulate demand [during sales troughs] because the customer, almost regardless of price point, is just not as interested in the product,” she said. “I think our teams have done a very nice job of tweaking the promotional plan throughout the year … and making good decisions when the consumer doesn’t seem as likely to want to make purchases.
“We continue to be targeted and thoughtful regarding where and when we make our promotional investments,” she added, “strategically balancing profitability and sales.”
Best Buy’s total U.S. sales slipped 3.3% for the quarter to $8.7 billion, driven primarily by an appliance-led decline of 2.8% in same-store sales, the company reported. Still, net earnings rose 4% to $273 million, due primarily to improved financial performance from the company’s services category, including its membership offerings.
