Best Buy last week lowered its annual sales forecast in anticipation of weak holiday demand. Based on third-quarter and November sales, the company is forecasting a comparable sales decline of 6.0%–7.5% for the entire fiscal year, up from its previous estimate of a 4.5%–6% decline.
“In the more recent macro environment, consumer demand has been even more uneven and difficult to predict,” Best Buy CEO Corie Barry said in a news release. “Based on the sales trends in Q3 and so far in November, we believe it is prudent to lower our annual revenue outlook.”
Low tech: While Best Buy isn’t alone in anticipating a lackluster fourth quarter, it is dealing with the added pressure of a multi-year slump in the product category that remains its bread and butter: consumer electronics.
The story is now familiar among retail-watchers: During the pandemic, homebound consumers increased their spending on electronics, which pulled forward demand that would have likely come more gradually over the next two years. The trend led to a two-year run of lower electronic sales that bit into the bottom line of companies such as Best Buy.
- Indeed, the latest federal data shows that sales at electronics and appliance stores in the first 10 months of the year were down 1.7% from the same period in 2022.
The company affirmed this narrative in its Q2 report and predicted that 2023 would be “the low point in tech demand” before recovering somewhat in 2024.
“Next year, the consumer electronics industry should see stabilization and possibly growth driven by the natural upgrade and replacement cycles and the normalization of tech innovation,” Barry said at the time.
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Revenge of the replacement cycle: In layperson’s terms, Best Buy predicts that consumers will be ready to buy again as new products hit the market and their previous purchases age into being ready for replacement.
Recent data from The NPD Group suggests that technology industry sales will decline an additional 5% year over year in 2023, flattening in 2024, and return to a growth rate of around 2% in 2025.
Paul Gagnon, VP and technology industry advisor for NPD, noted that the replacement cycle for most tech products is between 3–4 years and that “upgrade cycles for pandemic-driven purchases will ramp up in 2024, creating opportunity.”
Digging in with discounts: In the meantime, tech retailers are relying more heavily on discounts to encourage cost-sensitive customers into stores this holiday season.
- Adobe Analytics found that electronics discounts are expected to reach 30% off listed prices. This is up from 25% in 2022, and second only to toys (35%) as the most discounted category.
- As Barry noted in Best Buy’s Q3 earnings report, the company is preparing for “a customer who is very deal-focused with promotions and deals for all budgets.”
James Fishler, SVP at Samsung Electronics America, told Retail Brew that there’s a “righting of the industry” taking place. He explained that, from Samsung’s perspective, consumers are still buying tech but are seeking value with better products. He added that higher-end TVs, for example, are one of the company’s top performers.
“I think really what happened was people upgraded more quickly during the pandemic, and it was pulling some of that purchase forward,” he said.