In an age when retailers seem to be dropping like flies and malls and shopping centers keep getting hit with vacancies, news of any company's success is a positive thing in the world of real estate investing. And in that regard, Best Buy (NYSE: BBY) has delivered. The company had a solid first quarter of 2021 with strong sales growth. But while Best Buy may appear to be in pretty good shape, it does face some potentially challenging times ahead.
First, the good news
Best Buy's operating income more than tripled in 2021's first quarter compared to the first quarter of 2020, coming in at $769 million. To be fair, a big reason for that jump had to do with the fact that Best Buy shuttered stores at the start of the pandemic and lost out on revenue as a result.
But even still, Best Buy enjoyed solid growth across multiple product categories this past quarter. Comparable sales were up 66.6% in appliances, 45.9% in consumer electronics, 33.2% in services, 32.1% in entertainment, and 27.3% in computing and mobile. Furthermore, the bulk of that growth occurred in stores, with digital sales rising only 7.6% domestically.
Meanwhile, Best Buy has learned a thing or two from the pandemic, like the importance of offering curbside pickup -- a model it shifted to early on, when consumers were nervous to enter stores. Now, Best Buy is trying out different store models that reduce sales floor space but offer more backroom storage for electronic order fulfillment. Best Buy is also testing out different store sizes, and it's exploring the idea of opening outlet locations.
The fact that Best Buy is doing well financially and making plans to adjust its store footprint means it's likely to remain a shopping center mainstay. And that's a revenue stream commercial landlords need. But will Best Buy manage to retain its momentum? That's more of a question.
Challenges lie ahead
While Best Buy enjoyed a lot of financial success in its most recent quarter, its sales growth could stagnate in the coming months.
A lot of people spent money on electronics during the pandemic because they were stuck at home and desperate for entertainment. Also, a lot of people had to invest in computer equipment due to either working remotely or having their children logging on to school from home in the absence of being allowed in a classroom.
But now that things are improving on the pandemic front and staying home is no longer a necessity, consumers may start diverting more money to travel and experiences, and less money to electronics. Clearly, that trend would benefit the hotel and restaurant industries, both of which took a beating over the past year, but for Best Buy, it could mean less impressive sales numbers going forward.
This isn't to say that Best Buy is in danger. But should investors expect the electronics giant to expand its store footprint tremendously? Maybe not.
That said, as of February 2021, Best Buy had nearly 1,000 U.S. stores in operation. And if those numbers hold steady, shopping center landlords should be in a pretty good spot.