Best Buy announced on Thursday that it would be focusing on its membership program to boost customer loyalty and generate revenue amidst a decrease in demand for electronics due to consumers spending less on discretionary items. The program, now called My Best Buy memberships, will offer three tiers, including a more affordable option with benefits such as exclusive discounts and early access to popular products. During the pandemic, many consumers made big-ticket purchases such as home appliances and electronics but are now prioritizing spending on essentials and experiences such as travel and dining. Best Buy hopes its revamped membership program will entice customers to continue shopping with them.
Best Buy’s revenue is expected to decrease this fiscal year to between $43.8 billion and $45.2 billion, lower than the $46.3 billion earned the previous year and $51.8 billion from two years ago. Despite this decline, the revenue forecast is an increase from pre-pandemic levels.
Best Buy CEO, Corie Barry, predicted that tech demand would recover as U.S. households own a record number of devices and will want to upgrade or replace them with innovative products from vendors. To manage costs during this period of decreased demand, Best Buy has implemented layoffs in August and April, although they have not disclosed the number of employees affected.
Best Buy’s Membership Program and Its Three-Tier System
Best Buy’s membership program, TotalTech, was introduced nationwide two years ago and has since grown to 5.8 million paying members by late January. This adds up to nearly $1.2 billion in annual revenue, a significant increase from the previous year’s 4.6 million members. However, paying members makeup only a small fraction of the approximately 100 million members in Best Buy’s loyalty program, with 40 to 45 million active members.
As part of its relaunch, Best Buy’s top-tier membership program, previously known as TotalTech, will be renamed My Best Buy Total and available at a lower price of $179.99 per year, compared to the previous $199.99 per year. Members of this tier will receive 24/7 tech support, up to two years of product protection, and a 20% discount on repairs, among other benefits. The other two tiers include a free loyalty program with free shipping with no minimum purchase and a middle-tier option called My Best Buy Plus, which costs $49.99 per year and includes members-only prices, free two-day shipping with no minimum purchase, and an extended return policy.
According to Patrick McGinnis, the senior vice president of memberships at Best Buy, the company found that its diverse customer base has different needs and preferences when it comes to perks. Older customers prefer 24/7 tech support, while younger ones favor members-only discounts and extended product protection. With its three-tier system, the revamped My Best Buy membership program aims to cater to these different budgets and needs.
Challenges and Criticisms Faced by the My Best Buy Membership Program
Since the program’s relaunch, the company has not disclosed an updated membership total or renewal rate. However, CEO Corie Barry expressed her satisfaction with the program’s results during an earnings call in March. She stated that members shop more with the company, purchase across various categories, and rate their experience higher than non-members.
Despite this positive feedback, Best Buy has had to make some changes to reduce costs, such as adding restocking fees for some product returns and removing same-day delivery as a benefit. This is likely because the electronics market faces challenges, with fewer people purchasing electronics, especially big-ticket items. This trend has affected Best Buy and other retailers such as Walmart, Target, Costco, and Amazon.
Joe Feldman, a retail analyst for the Telsey Advisory Group, recently downgraded Best Buy’s stock from outperform to market perform and lowered the price target to $81. While he believes Best Buy is a well-run company with a good strategy, he recognizes that they are currently operating in a tough market. Feldman also suggests that the My Best Buy membership program has not been as successful as expected, given the size of Best Buy’s customer base. He notes that paying for a service that offers tech support and extended protection is a tough sell when people are not buying new devices.
Best Buy’s shares have fallen about 10% this year, closing at $72.22 on Wednesday, down approximately 23% from its 52-week high. The company will release its fiscal first-quarter earnings report later this month.
