Best Buy said Thursday that it will double down on its membership program as consumers buy fewer discretionary items.
Starting June 27, the program will have three tiers, including a lower-priced option that offers perks like exclusive discounts and access to hot products, the consumer electronics retailer said. The program will also have a new name: My Best Buy memberships.
Best Buy is looking for ways to make money and drive customer loyalty as it deals with a drop in demand. Consumers are buying fewer electronics as they cope with higher prices of food and essentials, and some prioritize spending on travel, restaurants and other services. Plus, during the early years of the pandemic, many shoppers sprang for new laptops, home-theater systems and kitchen appliances — the kinds of purchases that people don’t often repeat in the near term.
The company said in March that it expects revenue to range between $43.8 billion and $45.2 billion this fiscal year. The total would represent a drop from $46.3 billion from the year-earlier period, and from $51.8 billion the year before that — but a revenue increase from before the pandemic.
CEO Corie Barry told investors on a March earnings call that Best Buy expects this calendar year to “be the bottom for the decline in tech demand.” She said spending will bounce back because U.S. households have a record number of tech devices and will want to upgrade or replace them, especially as vendors debut innovative products.
In the meantime, Best Buy also has taken steps to cut costs. It has had at least two rounds of layoffs, one in August and one in April. The company confirmed the job cuts, but declined to share any numbers.
Best Buy leans into loyalty
Best Buy debuted its membership program, TotalTech, nationwide two years ago. The program grew to 5.8 million members by late January — adding up to nearly $1.2 billion in annual revenue. That’s up from 4.6 million members the prior year.
The paying members are a fraction of the about 100 million people in the retailer’s loyalty program, of which 40 million to 45 million are active.
As part of its relaunch, Best Buy’s TotalTech will become the top tier of the membership program, but with a different name: My Best Buy Total. Its price will also drop from $199.99 per year to $179.99. That top tier includes round-the-clock tech support, up to two years of product protection and 20% off 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 per year subscription includes members-only prices, free two-day shipping with no minimum purchase and an extended return policy.
Best Buy found that its varied customers wanted different perks, said Patrick McGinnis, senior vice president of memberships. Older customers tended to use the 24/7 tech support, while younger ones signed up for the members-only discounts and extended product protection.
McGinnis said the revamped program better fits those different budgets and needs. He declined to share an updated membership total and the program’s renewal rate.
On an earnings call in March, Barry said Best Buy is pleased with the program’s results. She said members shop more with the company, buy more across categories and rate their experience higher than nonmembers.
But she added the retailer is still tinkering to reduce costs. For instance, it added restocking fees for some product returns and removed same-day delivery as a benefit, the CEO said.
Joe Feldman, a retail analyst for the Telsey Advisory Group, recently downgraded the company’s stock from outperform to market perform and cut the 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 aren’t buying electronics these days and you’re seeing it across the spectrum, whether it’s Walmart, Target, Costco, Amazon,” Feldman said. “Electronics just aren’t selling — especially big ticket electronics — and that’s been a pressure point for the past half a year or so.”
So far, he said the membership program “has not been a gangbusters success” when you consider how many customers Best Buy has.
Paying for a service that touts tech support and extended protection is a tougher sell if shoppers aren’t buying new devices, he added.
The program “often gets associated with a purchase, so some of it is chicken and egg,” Feldman said. “It makes it a challenge.”
Best Buy’s shares have fallen about 10% so far this year. Shares closed Wednesday at $72.22, down about 23% from its 52-week high.
Best Buy will report its fiscal first-quarter earnings later this month.