A shopper walks out of a Best Buy store during the Black Friday sales in Brooklyn, New York on November 26, 2021.
Brendan McDermid | Reuters
best buy said Thursday it would double its membership program as consumers buy fewer discretionary items.
Starting June 27, the program will have three tiers, including a low-cost option that offers perks like exclusive discounts and access to top products, the consumer electronics retailer said. The program will also have a new name: My Best Buy Subscriptions.
Best Buy is looking for ways to make money and build customer loyalty in the face of declining demand. Consumers are buying fewer electronics as they face rising prices for food and basic necessities, and some are prioritizing spending on travel, dining and other services. Additionally, during the early years of the pandemic, many shoppers rushed for new laptops, home theater systems, and kitchen appliances — the kinds of purchases people don’t often repeat in the short term.
The company said in March that it expects revenue to be between $43.8 billion and $45.2 billion for this fiscal year. The total would represent a decline of $46.3 billion from the prior year period and $51.8 billion from the prior year – but an increase in revenue from before the pandemic.
CEO Corie Barry told investors on an earnings call in March that Best Buy expects this calendar year “to be the bottom of the decline in tech demand.” She said spending will rebound because American households have a record number of tech devices and will want to upgrade or replace them, especially as vendors launch innovative products.
Meanwhile, Best Buy has also taken steps to cut costs. He had at least two rounds of layoffs, one in August and one in April. The company confirmed the job cuts, but declined to share numbers.
Best Buy relies on loyalty
best buy launched its membership program, TotalTech, nationwide two years ago. The program grew to 5.8 million members at the end of January, representing nearly $1.2 billion in annual revenue. This is up from 4.6 million members the previous year.
Paying members represent just a fraction of the roughly 100 million people signed up to the retailer’s loyalty program, of which 40 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. This top tier includes 24-hour technical 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 $49.99 per year subscription includes members-only pricing, 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 24/7 tech support, while younger customers signed up for member-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 renewal rate for the program.
During an earnings call in March, Barry said Best Buy was pleased with the results of the program. She said members shop more with the company, buy more across all categories, and rate their experience higher than non-members.
But she added that the retailer is still tinkering to cut costs. For example, it added a restocking fee for certain 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 performer 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 see 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 last six months or so.”
So far, he said the membership program “hasn’t been a huge success” when considering the number of Best Buy customers.
Paying for a service that touts tech support and extended protection is a tougher sell if buyers aren’t buying new devices, he added.
The program “is often associated with a purchase, so part of it is chicken and eggs,” Feldman said. “That makes it a challenge.”
Best Buy shares have fallen about 10% so far this year. Shares closed Wednesday at $72.22, down about 23% from their 52-week high.
Best Buy will release its fiscal first quarter results later this month.