A shopper leaves a Best Buy store during Black Friday sales on Nov. 26, 2021 in Brooklyn, New York.
Brendan McDermid | Reuters
Best Buy It said on Thursday it would double down on its membership program as consumers buy fewer non-essential items.
The consumer electronics retailer said that starting June 27, the program will have three tiers and include lower-priced options with exclusive discounts and extra deals on popular products. The program will also have a new name: My Best Buy Membership.
Best Buy is looking for ways to make money and increase customer loyalty as it grapples with falling demand. Consumers are buying fewer electronics as prices for food and essentials rise, with some prioritizing spending on travel, restaurants and other services. Plus, many shoppers flocked to buy new laptops, home theater systems, and kitchen appliances in the early years of the pandemic — items that people won’t be repurchasing very often in the short term.
The company said in March that it expects to generate between $43.8 billion and $45.2 billion in revenue for the current fiscal year. The total would be down from $46.3 billion a year earlier and $51.8 billion the year before, but revenue would be up from before the pandemic.
Best Buy expects this calendar year to “be the bottom of the decline” in technology demand, CEO Cory Barry told investors on an earnings call in March. Spending will rebound, she said, as U.S. households own a record number of tech devices and look to upgrade or replace them, especially as suppliers introduce innovative products.
Meanwhile, Best Buy has also taken steps to cut costs. It made at least two rounds of layoffs, one in August and one in April. The company confirmed the layoffs but declined to disclose any numbers.
best buy leans toward loyalty
Best Buy It launched its membership program, TotalTech, nationwide two years ago. By late January, the program had grown to 5.8 million members and totaled nearly $1.2 billion in annual revenue. This is up from 4.6 million members the previous year.
Paid members are a fraction of the approximately 100 million people in a retailer’s loyalty program, of whom 40 million to 45 million are active.
As part of its relaunch, Best Buy’s TotalTech will be a top-tier membership program with a different name: My Best Buy Total. Its price will also drop from $199.99 to $179.99 per year. This top-tier service includes 24/7 technical support, up to two years of product protection and a 20% discount on repairs, among other benefits.
The other two tiers are the retailer’s free loyalty program, which includes free shipping with no minimum purchase, or an option in the middle: My Best Buy Plus. The new $44.99 annual subscription includes member-only pricing, free two-day shipping with no minimum spend, and an extended return policy.
Best Buy found that its different customers wanted different perks, said Patrick McGinnis, senior vice president of membership. Older customers tend to use 24/7 technical support, while younger customers sign up for member-only discounts and extended product protection.
McGinnis says the revised program better fits these different budgets and needs. He declined to disclose the updated membership totals and the program’s renewal rate.
On an earnings call in March, Barry said Best Buy was pleased with the program’s results. Members shop more at the company, buy more across categories, and rate their experience higher than nonmembers, she said.
But she added that the retailer is still working to keep costs down. For example, it added restocking fees for some product returns and eliminated the same-day delivery benefit, the CEO said.
Retail analyst Joe Feldman of Telsey Advisory Group recently downgraded the stock to market perform from outperform and lowered his price target to $81. He said Best Buy is a well-run company with a good strategy, but “they’re in a tough market right now.”
“People just don’t buy electronics right now, and you see it across everything, whether it’s Walmart, Target, Costco, or Amazon,” Feldman said. “Electronics just don’t sell — especially High-priced electronics — that’s been a pressure point for the last half year or so.”
So far, he said, the loyalty program “hasn’t been a huge success,” given how many customers Best Buy has.
He added that if shoppers aren’t buying new devices, it will be harder to pay for services that tout tech support and extended protection.
The program is “often tied to purchases, so some of it is a chicken and an egg,” Feldman said. “That makes it a challenge.”
Shares of Best Buy have fallen about 10% so far this year. The stock closed at $72.22 on Wednesday, down about 23% from its 52-week high.
Best Buy will report its fiscal first-quarter earnings later this month.