Business
Best Buy unveils plans to grow sales, cash in on AI
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Microsoft PCs on display at a Best Buy store in Secaucus, N.J.
Melissa Repko | CNBC
Best Buy on Tuesday announced new plans to try to reverse a two-year sales slump and cash in on a much-awaited replacement cycle of pandemic-era purchases and a fresh wave of innovation.
The consumer electronics retailer said it would add trained sales teams to key parts of its stores, create more YouTube videos to pique customers’ curiosity and kick off a marketing campaign with a fresh tagline: “Imagine that.”
In an interview with CNBC, CEO Corie Barry said customers told Best Buy that retailers’ store experiences and the technology they offer have “lost a bit of [their] sparkle.” She added the consumer electronics innovation has hit a dry spell.
“That is our big focus this year,” she said. “Getting all of that ‘new’ back in there.”
One of Best Buy’s major hopes to drive sales comes from artificial intelligence-enabled laptops and smartphones.
Still, the retailer doesn’t expect its sales to improve overnight. The company has reported 10 consecutive quarters of declining comparable sales, a key metric that takes out the impact of store openings and closures. Best Buy said in May that it expects comparable sales for the full year to be roughly flat or to drop by as much as 3% compared to the prior year.
Best Buy expects revenue to range from $41.3 billion to $42.6 billion, a decline from $46.3 billion last year. The range would put its revenue slightly below the $43.6 billion for the pre-pandemic fiscal year that ended in early 2020.
Barry said consumers are still “making very clear, value-based decisions.”
Shares of Best Buy have reflected the sales struggles: As of Monday’s close, the stock has fallen about 36% from its all-time high of $138, which shares hit during the Covid pandemic.
Steven Zaccone, an equity research analyst who covers retail for Citi Research, upgraded Best Buy’s stock from sell to buy in early June, in part due to an expected wave of new products.
But he acknowledged trends have become tougher to predict as consumers watch their wallets after the highest inflation in decades and get distracted by the uncertainty of this year’s presidential election.
“People who are focused on the near term would say the category is still declining,” he said. “So the call is based on the hope that you’re going to have a pivot to growth.”
Wearable tech on display at the Best Buy store in Secaucus, N.J.
Melissa Repko | CNBC
Rooting for a replacement cycle
Best Buy executives and investors have reason to feel optimistic. In each of the past two quarters, Best Buy’s laptop sales were higher than the year-earlier periods, early signs that a replacement and upgrade cycle may be starting.
Last week, shoppers’ purchases of consumer electronics like tablets, TVs and Bluetooth speakers helped drive sales to a record $14.2 billion across U.S. retailers’ websites during Amazon’s two-day Prime event, according to Adobe Analytics. It was a shift from last year when shoppers worn down by inflation took advantage of deals on household essentials. (Best Buy is among the retailers that have participated in the Amazon-created retail holiday by offering up its own deals.)
Best Buy’s ability to drive sales partly depends on its vendors. It’s been hungry for innovation that gives customers fresh reasons to come to its stores or website.
Over the past few months, Apple, Samsung and Microsoft have announced fresh launches that could create hype and drive customer traffic. Apple launched a collection of new iPads in May. Earlier this month, Samsung debuted its first “smart rings” with health-tracking features to compete with Oura’s own ring and Apple’s watch.
Elsewhere, Microsoft announced a collection of new PCs in May that include Copilot, an artificial intelligence-powered chatbot. The collection, which includes roughly 40 different items with about 40% exclusive to Best Buy, began to get delivered in mid-June.
Barry said the retail chain will benefit as customers see those leaps in technology and stores offer entirely new lines of business like rings that can track sleep, physical activity and more.
“Five years ago, we would have never carried jewelry in our stores and now we’re going to have a whole section of wellness-oriented products that you can wear in really unique ways,” she said.
Best Buy is kicking off a new marketing campaign this back-to-school season, which features a “spokeshologram” named Gram and a new tagline “Imagine that.”
Courtesy: Best Buy
Less tech specs, more discovery
Instead of rattling off TV and laptop dimensions, Best Buy staff will instead focus on helping customers understand how items can save them time or make life easier, Barry said.
At stores, customers will see more experiential displays that show off products including Tesla chargers, GoPro video equipment and Lovesac’s furniture later this summer. It will also add dedicated teams to its computing, appliance and home theater parts of the store, three key areas where Barry said customers tend to need support.
Barry said those store employees will underscore unique features that customers may not know about, such as a laptop with more than double the battery life, a washer/dryer combo that allows them to do two laundry loads at once or a home theater system that can make a workout space feel like a spinning studio.
On Best Buy’s app, customers will see a personalized home screen, a new “Discover” tab and an ability to set alerts for when an item on their wish list goes on sale.
The company plans to roll out more than 500 videos by the end of year on its YouTube channel, app and website. That’s triple the number that it added last year.
And as it gears up for back-to-school season, Best Buy will run advertising spots online, on streaming services and on social media that feature a “spokeshologram” named Gram.
“We are absolutely doubling down on what makes us different and I think we’re the only ones to kind of help bring that ‘What if?’ question to life for our customers,” Barry said.
Yet, Best Buy will be rolling out this sharper customer strategy on a tighter budget. Barry said on the company’s earnings call in May that the retailer plans about $750 million in capital expenditures this fiscal year, about $50 million less than last year. It is cutting spending with “refreshes” of all of its approximately 900 U.S. stores instead of major remodels and new store openings, she said.
The company’s dedicated teams in part of the store will be made up of its existing workforce and supplemented with employees from its vendors, she told CNBC.
A Best Buy store in Woodbridge, Virginia, US, on Tuesday, May 21, 2024.
Nathan Howard | Bloomberg | Getty Images
‘Murphy’s law of headwinds’
Best Buy has faced a “Murphy’s law of headwinds” over the past three years, said Scot Ciccarelli, an equity research analyst at Truist Securities, referring to the adage that “Anything that can go wrong will go wrong.”
Among the company’s challenges, consumers have pulled back on pricier purchases like smartphones as everyday costs like food, gas and rent have gone up. Slower turnover in the housing market fueled by higher interest rates has dampened demand for home-related purchases like a bigger TV or new kitchen appliances.
But Ciccarelli said Best Buy’s unusually high sales during the pandemic have haunted the retailer the most. It threw off the typical cadence of shoppers replacing smartphones, laptops, home appliances and more, since many of them bought that tech when setting up their home offices, gyms and kitchens during the Covid lockdown.
Plus, as consumer electronics brands contended with temporarily shuttered factories and clogged supply chains during the pandemic, they debuted less game-changing tech. Without those advancements, Best Buy has been stuck competing on price as it sells roughly the same devices as competitors like Amazon and Walmart, particularly if customers have little reason to touch or feel a product before buying, Ciccarelli said.
Consumer electronics have been a weaker category of retail, as sales had fallen 4% in dollars and 5% in units year to date as of the end of June compared to the year-ago period, according to Circana, a market research firm that tracks point-of-sale data across major U.S. retailers. The market research firm’s definition includes most major devices like TVs, tablets and audio equipment, but excludes some categories that Best Buy sells, like home appliances.
However, consumer electronics spending is up 5% this year compared with the same pre-pandemic period in 2019, according to Circana.
Some of increase comes from higher prices of computers, TVs and other items, said Paul Gagnon, consumer technology industry advisor for Circana. For example, he said the average price spent on items in the headphones category has jumped 60% compared with 2019 as customers gravitated toward wireless ear buds like Apple’s Airpods or headband-style wireless headphones.
Consumer electronics’ biggest sales season is still ahead. About 57% of the category’s sales have historically come in the second half of the year, according to Circana data.
And the biggest days for consumer electronics are still ahead in the back-to-school and holiday seasons.
Business
Russia economy: Relying more China’s yuan is backfiring
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After the U.S. and its allies sanctioned Russia in 2022 for its invasion of Ukraine, Moscow turned away from the dollar and euro in international transactions and relied more on China’s yuan.
That coincided with more trade between the two countries as Russia was largely shut out of Western markets as well as the global financial system.
By June, the yuan accounted for 99.6% of the Russian foreign exchange market, according to Bloomberg, which cited data from Russia’s central bank. And Russian commercial banks ramped up corporate loans denominated in yuan.
But this dependence on the yuan is now backfiring as top Russian banks are running out of the Chinese currency, Reuters reported on Thursday.
“We cannot lend in yuan because we have nothing to cover our foreign currency positions with,” German Gref, CEO of top Russian lender Sberbank, said at an economic forum.
That’s because the U.S. expanded its definition of Russia’s military industry earlier this year, thereby widening the potential scope of Chinese firms that could get hit with secondary sanctions for doing business with Moscow.
As a result, Chinese banks have been reluctant to transfer yuan to Russian counterparts while servicing foreign trade payments, leaving transactions in limbo for months. With yuan liquidity drying up from China, Russian companies have tapped the central bank for yuan via currency swaps.
At the start of this month, banks raised a record 35 billion yuan from Russian’s central bank through these swaps, according to Reuters. And banks were expecting more help.
“I think the central bank can do something,” Andrei Kostin, CEO of second-largest bank VTB, said Thursday. “They hopefully understand the need to increase the liquidity offer through swaps.”
But on Friday, Russia’s central bank dashed those hopes, calling on banks to curb corporate loans denominated in yuan.
The Bank of Russia also said in a report that swaps are only meant for short-term stabilization of the domestic currency market and are not a long-term source of funding, according to Bloomberg. But rather than simply filling the roles that dollars and euros did, yuan loans have expanded.
“The increase in yuan lending was partly caused by the replacement of loans in ‘toxic’ currencies, but 41% of the increase was down to new currency loans,” the bank said.
The central bank also released a survey that showed a quarter of Russian exporters had trouble with foreign counterparts, including blocked or returned payments even when dealing in supposedly friendly countries. And about half of exporters said the problems got worse in the second quarter from the prior quarter.
The overall Russian economy has been propped up by the government’s wartime spending as well as oil exports to China and India. But the combination of busy factories and labor shortages due to military mobilizations have stoked more inflation.
Researchers led by Yale’s Jeffrey Sonnenfeld warned the seemingly robust GDP data mask deeper problems in the economy.
“Simply put, Putin’s administration has prioritized military production over all else in the economy, at substantial cost,” they wrote. “While the defense industry expands, Russian consumers are increasingly burdened with debt, potentially setting the stage for a looming crisis. The excessive focus on military spending is crowding out productive investments in other sectors of the economy, stifling long-term growth prospects and innovation.”
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Business
ETFs are set to hit record inflows, but this wild card could change it
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![ETF Edge, September 4, 2024](https://image.cnbcfm.com/api/v1/image/108029268-1725475250ETF-FULL-090424.jpg?v=1725475249&w=750&h=422&vtcrop=y)
Exchange-traded fund inflows have already topped monthly records in 2024, and managers think inflows could see an impact from the money market fund boom before year-end.
“With that $6 trillion plus parked in money market funds, I do think that is really the biggest wild card for the remainder of the year,” Nate Geraci, president of The ETF Store, told CNBC’s “ETF Edge” this week. “Whether it be flows into REIT ETFs or just the broader ETF market, that’s going to be a real potential catalyst here to watch.”
Total assets in money market funds set a new high of $6.24 trillion this past week, according to the Investment Company Institute. Assets have hit peak levels this year as investors wait for a Federal Reserve rate cut.
“If that yield comes down, the return on money market funds should come down as well,” said State Street Global Advisors’ Matt Bartolini in the same interview. “So as rates fall, we should expect to see some of that capital that has been on the sidelines in cash when cash was sort of cool again, start to go back into the marketplace.”
Bartolini, the firm’s head of SPDR Americas Research, sees that money moving into stocks, other higher-yielding areas of the fixed income marketplace and parts of the ETF market.
“I think one of the areas that I think is probably going to pick up a little bit more is around gold ETFs,” Bartolini added. “They’ve had about 2.2 billion of inflows the last three months, really strong close last year. So I think the future is still bright for the overall industry.”
Meanwhile, Geraci expects large, megacap ETFs to benefit. He also thinks the transition could be promising for ETF inflow levels as they approach 2021 records of $909 billion.
“Assuming stocks don’t experience a massive pullback, I think investors will continue to allocate here, and ETF inflows can break that record,” he said.
Business
Tens of thousands in South Korea protest lack of climate progress By Reuters
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By Sebin Choi and Daewoung Kim
SEOUL (Reuters) – More than 30,000 protesters gathered in South Korea’s capital in broiling heat on Saturday, demanding more aggressive action by the government to combat global warming.
With temperatures exceeding 30 degrees Celsius (86 degrees Fahrenheit), protesters young and old marched in the country’s biggest demonstration so far this year, snarling traffic in central Seoul.
They waved large banners reading “Climate justice,” “Protect our lives!” and “NO to climate villain (President) Yoon Suk Yeol’s administration”.
“Truth is, without the air conditioner this summer was not liveable and people could not live like people,” said Yu Si-yun, an environmental activist leading the protest.
“We are facing a problem not unique to a country or an individual. We need systemic change and we are running out of time to act.”
Organised by the 907 Climate Justice March Group Committee, the protest followed a ruling last month by South Korea’s top court that the nation’s climate change law fails to protect basic human rights and lacks targets to shield future generations.
The 200 plaintiffs, including young climate activists and even some infants, told the constitutional court that the government was violating citizens’ human rights by not doing enough on climate change.
South Korea, which aims to be carbon-neutral by 2050, is the biggest coal polluter after Australia among the Group of 20 big economies, with a slow adoption of renewable energy. The government last year lowered its 2030 targets for curbing industrial greenhouse-gas emissions but kept its national goal of cutting emissions by 40% from 2018 levels.
Even South Korea’s kimchi has fallen victim to climate change. Farmers and manufacturers say the quality and quantity of the napa cabbage used in the ubiquitous pickled dish is suffering due to intensifying heat.
“Feel how long this summer is,” said Kim Ki-chang, a 46-year-old novelist who was participating in the protest for a third straight year.
“This would be a much bigger threat and survival issue to younger generations than the older ones, so I think the older generation should do something more actively for the next generation.”
Seoul has had a record 20 consecutive nights defined as “tropical”, with low temperatures remaining above 25 C (77 F).
Protest organising committee member Kim Eun-jung said the demonstrators chose the popular Gangnam financial and shopping area this year, not the Gwanghwamun area they used last year, to have their voices heard by the many big corporations there that the group blames for carbon emissions.
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