Why Renew Blue Matters For This Giant Retailer

Nick is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Best Buy (NYSE: BBY) has improved significantly since its last CEO’s departure more than a year ago, and the stock price has more than doubled since then. The New CEO, Hubert Joly, continues to turn around and transform Best Buy with solid executions.

“Renew Blue”

Renew Blue is the blueprint which Best Buy follows to transform itself, helping the company to refocus. Consequently, Best Buy has successfully been reducing cost and boosting its investment in e-commerce.

Renew Blue is aiming to solve two major problems, declining comps and declining operating margins and to transform Best Buy into the preferred authority and destination for technology products and services. Renew Blue is based on five pillars, mainly to enhance the customer experience, attract and inspire employees, work with vendors, increase return on investment capital and maintain Best Buy’s leadership role.

Store-within-stores

With the progress of Renew Blue, Best Buy has also signed an agreement with Microsoft (NASDAQ: MSFT) to open in-house stores for Microsoft, following Apple's and Samsung's examples.

Windows store-within-stores, on average, will be ten times large than the Apple stores in Best Buy, and five times larger than the Samsung ones. Microsoft will be opening its stores within 500 Best Buy location in the United States and 100 more in Best Buy and Future Shop stores in Canada. Microsoft will be displaying its products, ranging from Windows tablets and Windows phones to Xbox consoles and PC products. At the same time, Best Buy is also running an online version of Windows stores. Both companies have invested heavily into this venture, which will benefit Microsoft’s exposure while helping Best Buy to utilize its space more effectively.

Improving numbers

With the success of Renew Blue, Best Buy has recorded two consecutive quarters of nearly flat comps in its US business. The online sales also grew 16% in the last quarter, while the company continues to gain market share. Best Buy’s net promoter score, NPS, which measures customer satisfaction, has also improved significantly since last November.

As for the cost reduction, the company has managed to cut $325 million in the overall cost by increasing its focus and efficiencies, as well as delivering the organization. Best Buy is also entering a definitive agreement to sell its European joint venture, thus to simplify the company and boost profitability.

What now?

Best Buy continues to face strong competition online while its competitors, such as Amazon (NASDAQ: AMZN), continues to evolve and adapt. Amazon, which offers one of the largest selections online, continues to expand on all fronts, including the opening of 3D printing stores and the partnership with Viacom to offer thousands of shows from Nickelodeon and Comedy Central on its Amazon Prime Instant Video platform. Amazon continues to aiming for the growth of sales volume and subscribers.

Amazon remains a growth company, as its net sales grew 22% to $16.07 billion in Q1 as compared with $13.18 billion in first quarter of 2012. However, its net income decreased 37% in the same period. Amazon continues to sacrifice profit for growth and maintain its leadership position. By boosting up its Prime Instant Video offerings, upgrading its Kindle tablets and enhancing its Amazon Web Services (AWS), Amazon remains a solid growth play with 20% plus expected annual revenue growth for 2013 and 2014.

Best Buy needs to accelerate its online growth and enhance the multi-channel customer experiences continuously. Best Buy is upgrading its onsite search capability while trying to create better customer experiences across mobile and PC devices. On the other hand, Best Buy starts to tackle the out-of-stock issues for its online operation by maximizing the store capability. By enabling the fulfillment of its online orders through all of Best Buy’s distribution centers, Best Buy can further leverage its scale. The company is also seeking to improve its supply chain by working on its reverse logistic.

Moreover, Best Buy is replacing low margin categories in the stores with higher margin, higher growth ones, such as mobile, appliances and accessories. Lastly, the company is taking more initiatives to optimize its US real estate portfolio, renegotiate the rent reductions for some stores, as well as decrease SG&A costs.

Bottom line

With Renew Blue, Best Buy has significantly improved its operation, becoming a better multi-channel retailer. By becoming more competitive online and improving its bottom line, Best Buy will become more profitable.

It's incredible to think just how much of our digital and technological lives are almost entirely shaped and molded by just a handful of companies. Find out "Who Will Win the War Between the 5 Biggest Tech Stocks?" in The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged by the five kings of tech. Click here to keep reading.


Nick Chiu has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus