How Much In Online Revenue Can Best Buy Generate In The Next Three Years?

by Trefis Team
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E-commerce currently accounts for around 14% of Best Buy‘s (NYSE:BBY) total revenue, but the company has been emphasizing e-commerce growth going forward, in order to remain competitive in the Amazon (NASDAQ: AMZN) dominated retail market. The electronics retailer is executing on its strategy to cut costs, optimize square footage, grow online sales and stabilize its revenue stream.

Accordingly, we expect Best Buy’s revenue to grow slightly through 2020 and expect its e-commerce sales to contribute about 20% of the total sales. This figure should help the company offset secular pressure on brick-and-mortar retail locations. To arrive at our fiscal 2020 net revenue estimates for Best Buy, we have broken down the revenue streams and estimated separately. We have created an interactive dashboard for Best Buy, which provides a detailed analysis of how to arrive at this growth number. You can make changes to these variables to arrive at your own revenue estimates for the company. We have a $76 price estimate for Best Buy, which is slightly below the current market price.

Can Best Buy Maintain Its Strong Momentum?

Best Buy saw its stock rally by nearly 60% in 2017, and the company’s stock price has increased more than 10% over the course of 2018. The retailer returned to real growth in fiscal 2018 (which ended January 2018), with revenue growth of 7% y-o-y to around $42 billion, primarily driven by an enterprise comparable sales increase of nearly 6%. This growth followed largely flattish revenue growth in previous years. Consequently, we expect the company to benefit from its growth momentum in 2018 and beyond. Best Buy’s e-commerce sales have grown from 7.5% ($3 billion) of its total revenues in 2013 to 14.2% in 2017 ($6 billion). The company has been investing heavily in e-commerce and omnichannel retail strategies in order to keep up with the changing retail industry dynamics. The consumer electronics giant has made major investments in the online business that have paid off and shown considerable improvement in its comparable sales growth. Moreover, it plans to build out new digital capabilities for the customer shopping experience on mobile and tablet devices. However, we expect this aggressive push in online initiatives to put pressure on the company’s margins, due to increased fulfillment costs resulting from growth in digital sales. 

Estimating Best Buy’s E-Commerce Revenue

We expect Best Buy’s revenues to reach to $44 billion in 2020, driven by strong performance in the domestic segment. We have calculated Best Buy’s total revenue in 2020 by estimating the revenues from the company’s domestic sales, international sales, and other standalone store sales. Further, we have calculated the retailer’s divisional revenues by estimating the number of stores, square footage per store and revenue per square foot in 2020. We expect Best Buy’s 2020 store count in the U.S. to be just below 990, with an average square footage per store of 39k and revenue per square foot of $1037, translating into $40 billion in domestic revenues in 2020. In addition, we also expect close to 208 stores in international markets, with an average square footage per store of 21k and revenue per square foot of $812, translating into $3.6 billion in international revenues in the same period. We expect Best Buy’s e-commerce sales to grow at an 11% CAGR through 2020, based on the company’s reported e-commerce numbers in previous years.

Total U.S. e-commerce sales came in at $453 billion for 2017 (8.9% of total retail sales), and are expected to reach $526 billion (+16% y-o-y), representing 10% of total retail sales in 2018. Additionally, total e-commerce sales could grow to represent 12.4% of U.S. retail sales in 2020 and reach approximately $703 billion.

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