Dive Brief:

• Best Buy’s suppliers have been financing more product price discounts themselves, a trend that has benefited the electronics retailer’s product margins year over year, executives said Tuesday on the company’s Q2 call.
• Vendors want “to engage in promotional activity to drive and stimulate demand,” CFO Matt Bilunas told analysts. He noted that the increase in vendor-funded promotions spanned all categories.
• As the electronics industry grapples with sluggish demand, suppliers are also “lean[ing] highly into innovation and trying to drive replacement cycles,” Best Buy CEO Corie Barry said.

Dive Insight:

Discounting and promotions have weighed heavily on retail profits for more than a year now. Faced with a sudden downturn in demand, the industry had to work through stacks of inventory to normalize levels, discounting prices as they go — a process that is finally over or in its final stages for most in the industry.

At Best Buy, merchandise inventories were down 6.5% in Q2, according to its earnings report. That figure was “in line with our sales decline as the team continues to manage inventory strategically targeting approximately 60 days of forward supply,” Barry said on the earnings call.

The retailer’s sector has been hit especially hard by the sluggish demand, making the planning process potentially even more difficult than in other areas of retail. Best Buy executives noted that promotion levels in the market are higher in years past.

That’s where Best Buy’s suppliers have come in. Where most retailers have been funding price promotions out of their margins, Best Buy’s vendors have been funding more of them on their own to stimulate demand.

“We're not going to say total amounts of vendor funding, but you can imagine, at any given point in time our vendors, like us, are trying to think in a very omnichannel way how best can we both stimulate demand and complete excellent customer experiences,” Barry said.

She added that, compared to 2019, “we feel confident that we have at least as much if not more like total funding in partnership with our vendors, but of course they're going to use different pockets depending on the environment that we fit in.”

Along with promotions, suppliers are also turning to product innovation to proactively elevate demand through the supply-retail ecosystem. Barry pointed to areas like cloud computing, augmented reality, expanding broadband access and generative AI.

“We know our vendor partners are working behind the scenes to create consumer products that optimize this material technology advancement,” she said.