Best Buy has a plan to fight back against Amazon - and it's working

AP/Sue Ogrocki

Best Buy is the place to buy your consumer electronics, or at least it used to be.

The company has been hit hard by the ongoing retail apocalypse and is under pressure from the likes of Amazon to either change the way it does business or face forever-declining sales. So Best Buy is hoping to change.

"Demand for consumer electronics seems solid and Best Buy's service-oriented initiatives could unlock latent demand," Simeon Gutman, an analyst at Morgan Stanley wrote in a recent note to clients.

Gutman says that "each initiative... represents an opportunity to increase customer retention and loyalty as well as market share."

The most promising of these initiatives, according to Gutman, is the company's In-Home Advisor service. The service, which sends an employee to a customer's home to suggest products and services that could be of use, is free of charge. Gutman says test areas for the service have shown a 30% higher than average order value compared to a comparable store visit. There has been an overall increase in comparable sales in markets where Best Buy is testing the service, according to Gutman.

Best Buy has rolled out 300 full-time In-Home Advisors due to its success, Gutman wrote.

The company also has started other services like Assured Living, which advises customers on smart home equipment that could help monitor elderly or other family members that need assistance.

Gutman isn't giving the company's plan his signature of approval just yet though.

"The company does not yet have a clear sense of the economics of this transition," Gutman said. Best Buy will have to spend a lot to bring all these services to scale, and it's yet to be seen exactly how much it will cost the company to move more heavily into the services business.

Ultimately, Best Buy's move deeper into services is still about selling and supporting products. Big players in the ecommerce space are dominating retail, and no amount of pivoting will save Best Buy if everyone begins to buy their products from Amazon.

Gutman rates Best Buy a neutral and has a price target of $58. Shares are up 22.24% this year.

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