In the summer, leaders at Best Buy saw TV and laptop sales pick up and thought it might be a signal that the downward trend in electronics sales was close to an end.
Instead, as summer turned to fall, the trend softened and the Richfield-based retailer ended up with comparable sales dropping 6.9% in August, September and October, company officials said Tuesday.
It was the eighth straight quarter of sales slumps, as cash-strapped consumers continued to opt for necessities and other purchases this fall over electronics.
The sales drop was worse than what executives had predicted, and Best Buy lowered its outlook for the end of the year, the crucial holiday season that kicks off this week with Black Friday. Overall consumer spending in the U.S. dropped in October, and surveys show consumers will be much pickier and budget-conscious during the holidays.
"Overarchingly, the consumer is still spending," said Best Buy CEO Corie Barry, in a call with investors and analysts. "But, as we have said before, they are making careful choices and tradeoffs right for their household given the sustained inflationary pressure on the basics like food, fuel and lodging and the ongoing preference towards services spending like restaurants, concert tickets and vacations."
For example, customers are buying cheaper televisions.
Best Buy is the latest major store to pessimistically paint the holiday season. Retailers from Walmart to Lowe's say they are viewing the season cautiously as student loans repayments resumed this fall, interest rates are higher and inflation, while lower, still persists.
The electronics sector has felt an outsized amount of pullback from shoppers after a pandemic boom and a lack of major tech innovation from the industry.
Best Buy's total revenue of nearly $9.8 billion for its third quarter was 7% lower than what the company reported for the same time last year. It was slightly lower than the $9.9 billion in sales that Wall Street analysts expected.
Still, Best Buy eked out profits that were better than analysts predicted. The company earned $263 million, with its adjusted per-share profit totaling $1.21, which was better than the $1.18 analysts forecast for the quarter. They were down from $277 million, or $1.22 a share, in the same period last year.
Best Buy's share prices were down less than 1% Tuesday.
Despite the lowered guidance, there were some signs of stabilization in television sales, and Best Buy leaders said there could be growth in computers and home theater devices in the fourth quarter. And while many product categories from appliances to mobile phones saw sizable declines in the third quarter, the gaming category was a bright spot.
"I think they misjudged last quarter, the pattern of recovery," said Neil Saunders, managing director of the retail division of data analytics and consulting company GlobalData. "They obviously saw some signals, and I think they called it too early. And it was always kind of obvious that things weren't getting better because the consumer was slowing down and a lot of the dynamics in the market just aren't favorable for the electronics segment."
While the likelihood of the electronics market turning around in the short term are slim, Best Buy needs to figure out a strong, forward-looking strategy in the interim, he said.
"Because for me, one of the dangers is that Best Buy yes loses sales because the market is tough, but I think it also loses relevance," Saunders said.
The retailer needs to think more creatively about how to get more people inside its stores — even during a time when they aren't buying as many electronic devices — so it stays on customers' radar, Saunders said.
According to foot traffic firm Placer.ai, visits to Best Buy stores were down more than 8% in the third quarter compared with last year. That was a small improvement over the second quarter when foot traffic was down closer to 10%.
Best Buy has revised its fourth quarter sales forecast to include a wider range of sales declines, with sales predicted to be down between 3% and 7%.
For the holidays, Best Buy is experimenting with different types of sales including its first livestreamed shopping events. In stores, Best Buy has created better vendor displays like new Lego and Therabody "shop-in-shops."
On Tuesday, Barry said the company still expects an industry recovery next year with possible sales growth in the back half of 2024.
"If you're seeing a consumer that seems like they are already pulling back a bit here as we exit this year, I think we're just trying to be pragmatic and say we think that consumer might continue to be a little more deal and value oriented in the first part of next year," she said, in a call with media.