What may help Best Buy beat its sales slump? Artificial intelligence

For more than two years, Best Buy sales have been on a freefall as executives have exasperatedly waited for the next big thing in technology.

This spring, the Richfield-based electronics chain may have finally gotten one solution. Officials believe shoppers will open their pocketbooks for artificial intelligence — more specifically AI-enhanced cellphones and laptops such as Microsoft’s Copilot+ PCs.

On Thursday, Best Buy reported its same-store sales in February, March and April dropped 6.1%, its 10th consecutive quarter of sales declines. Its total revenue of $8.85 billion was a little lower than Wall Street anticipated. Share were up 3% in pre-market trading.

Even with the persistent sales declines, Best Buy leaders say they are optimistic about the future and are on track to meet sales projections of a slight decline to flat growth for the year.

“There is exciting new innovation ahead and we intend to strengthen our position in key categories like computing, home theater and major appliances through our differentiated experiences, pointed marketing spend and competitive pricing,” said Best Buy CEO Corie Barry, in a statement.

Best Buy saw large jumps in sales during the pandemic as people had the disposable income and the desire to upgrade their electronics with new laptops and better televisions while they were stuck at home. But like other retailers, since the end of 2021, the retailer has struggled how to keep boosting sales in the midst of sticky inflation.

“[The consumer electronics industry] was a significant recipient of a pull forward of demand during the first two years of the pandemic,” Barry said, in a call with analysts in February. “When consumers need to prioritize the basics that usually does not include the product purchases they recently pulled forward. And lastly, the level of [consumer electronics] product innovation has been lowered during the pandemic and supply chain challenged years.”

It’s a narrative Barry has repeated for months as she has had to continually explain Best Buy’s sluggish sales and the hope on the horizon for the company once the electronics industry stabilized. The demand for electronics like many other consumer goods is cyclical, she has said. The industry will recover, but it has just been a question of when.

AI could be the answer for some of the tech companies and Best Buy, which will have the largest assortment and is the exclusive retailer for some models of Microsoft’s Copilot+ laptops.

Last week during a widely broadcast event, Microsoft unveiled the Copilot lineup of laptops with “recall” ability to easily find documents or a web page, advanced AI image generation capability, augmented video call effects and all-day battery life. Pre-orders have already begun with members of Best Buy’s paid loyalty program offered a free 50-inch television with purchases.

The computers will be available in stores in mid June.

“AI continues to be a major driver in tech innovation, and this new category of powerful devices will change how our customers think about and use their computers,” said Jason Bonfig, senior executive vice president of customer offerings and fulfillment at Best Buy, in a statement.

Best Buy worked with Microsoft, sharing insights on what its customers want in devices, he said.

Best Buy saw a bump already in comparable sales of laptops in the winter months, a trend that continued this spring.

Earlier in the year, Barry also said Best Buy also saw “materially more demand than we expected” for Samsung’s AI-enabled phone.

In a preview of Thursday’s earnings outlook, Telsey Advisory Group analyst Joe Feldman said Best Buy has shown signs of stabilization as consumers have begun to replace electronics they bought during the pandemic.

“In select categories, such as laptops, Best Buy has already seen a positive comp due to the replacement cycle and the trend is expected to strengthen as new technology hits the market around the back-to-school timeframe,” Feldman wrote in his note to investors. “Furthermore, product innovation is on the rise, such as Samsung’s AI-enabled phone, Microsoft Copilot laptops, and 98-inch screen televisions, which should help to drive growth.”

Best Buy’s use of AI hasn’t been limited to products. Late this summer, U.S. customers will be able to get help from a generative AI assistant online, through the mobile app or over the phone. The assistant will be able to help customers with product issues, order delivery and more. Best Buy employees will also be able to use AI-enabled tools to help customers over the phone by doing things like summarizing conversations and detecting sentiment. Store employees with AI-powered assistants can get easier access to company resources and product guides.

While Best Buy has invested in AI, it has continued to become a leaner company with the retailer announcing it incurred $15 million of restructuring charges related to employee termination benefits compared to $169 million of restructuring charges last quarter. Best Buy has said employee layoffs have been to align resources with where customers want to shop and to right-size resources.

Best Buy has also shrunk its footprint. It closed 24 stores last fiscal year and it plans to close 10 to 15 stores this year. Its U.S. store count has gone from almost 1,500 in fiscal year 2014 to less than 960 as of this past quarter. The company said earlier this year that it would test opening small format locations.