Best Buy launches third-party marketplace as it looks for sales drivers

CNBC

a day ago

Best Buy is launching a third-party marketplace, as it tries to bulk up the variety of merchandise it offers and reverse slower sales.
Starting on Tuesday, shoppers who go to Best Buy's website and app will see products and brands that weren't available there before, including more tech-related accessories like custom video game controllers and some non-tech items including seasonal decor and sports collectibles.
The company's online marketplace riffs off those of other retailers, such as Amazon and Walmart, by relying on third-party sellers to stock, sell and ship inventory and taking a cut of their sales in the form of a commission.
"Everything we do is really centered around the customer and their technology needs, and we do see customers actually doing a lot of consumer electronics transactions through marketplaces," Chief Customer, Product and Fulfillment Officer Jason Bonfig said. "And as a result of that, we need to make adjustments to be where the customer's at."
He said Best Buy noticed gaps in its assortment that the new platform will help it fill. For instance, he said the company didn't carry batteries for some older cameras or cases for older smartphones. And it didn't offer some items that complement Best Buy purchases, such as furniture that goes around a big-screen TV or cookware to use with a new kitchen appliance.
Along with adding those items, the marketplace makes it possible for smaller vendors with innovative products to sell on Best Buy's website when they're not yet big enough to make or distribute the volume needed for its stores, he added.
Best Buy's marketplace launches at a time when its business could use a boost. Its annual sales have declined over the past three years as the company contends with a sluggish housing market, selective consumer spending and a decline in device replacements after a spike in tech purchases during the Covid pandemic.
The company cut its sales outlook in May and said it expects full-year revenue to range from $41.1 billion to $41.9 billion. That would be similar to Best Buy's annual revenue of $41.5 billion in the most recent fiscal year, but below the numbers it posted in the years leading up to and during the pandemic.
Best Buy will share its most recent earnings results and sales forecast on Aug. 28.
Tariffs have complicated the backdrop for Best Buy, too, since the higher duties have added costs for consumer electronics vendors and distracted them from other priorities like research and development that leads to new and innovative products, said Jonathan Matuszewski, a retail analyst for Jefferies. He said Best Buy tends to win sales instead of big-box or online competitors when there's a leap forward in technology.
With the platform's launch, Best Buy joins other retailers that have jumped on the trend of launching or expanding third-party marketplaces. Lowe's and Nordstrom started marketplaces last year. Ulta Beauty plans to launch its own later this year. And Target said it will expand its existing marketplace, Target Plus.
On Best Buy's earnings call in May, CEO Corie Barry described the third-party marketplace as one of the company's strategic priorities for the year. She said that new profit stream "is even more important in this environment" and will provide greater flexibility with the range of items and price points.
Plus, she said the marketplace supports the company's growing advertising business. Sellers can buy ads for their products, including by paying for better placement in search results.
Marketplaces and the advertising opportunities that come with them tend drive higher profits for retailers, said Justin MacFarlane, a managing director for the global retail group of AlixPartners. Sellers buy, stock and ship products instead of the retailer, and take on both the expense of buying inventory and the risk that they may have to mark down unwanted items, he said.
Yet the business model comes with risks, too, he said. For instance, sellers may not have the same standards as a retailer and it could anger a retailer's customers if they send products in torn boxes, with missing pieces or days later than expected. And he said retailers can flood their websites with so many different categories, brands and products that they overwhelm customers with choices that seem irrelevant to their company's identity.
"You get addicted to the growth and more is more until it's not," he said.
At launch, Best Buy's marketplace will have about 500 sellers, Bonfig said. He said the company vetted applicants and whittled them down to the ones who can provide a high-quality customer experience. The sellers must match Best Buy's return policy, he added.
Customers can return purchases either directly to the seller or to Best Buy stores, he said.