Retail

Best Buy's Two-Pronged Reinvention Attack

Amazon has been hard on Best Buy's bottom line over the last several years, a situation that makes it almost entirely non-unique among the big-box retailers that exploded during the late '90s and early 2000s.

And in fact Best Buy just might be the archetypal model for the almost oxymoronic seeming big-box speciality store. When Best Buy first started appearing on the scene to a mass number of consumers in the mid and late 1990s, it was itself a disruptive force in electronics sale. Best Buy banished the commissioned employee from the sale floor and successfully branded itself as the one-stop shop for all things electronic where no one is upsold, fast talked or pushed into a package of expensive wires for their stereo system that they neither want, need or really understand.

The early 2000s were highlighted by growth and the opening of hundreds of stores nationwide, acquisitions (notably Magnolia home entertainment systems and Geek Squad) and even international expansion. And as the early 2000s were just getting over the halfway mark, the competition started to fall.

In 2007, unable to turn a profit in an increasingly crowded market, specialty electronics retailer Tweeter went bust. In 2008 it was followed out of the marketplace by Circuit City, which at the time of its bankruptcy was the second largest electronics retailer in the country.

Second, of course, to Best Buy.

And while seeing one's biggest competitor fall out of the marketplace is normally good news for any dominant firm, Best Buy in fact found itself getting something of a preview of the situation the team at Barnes & Noble faced in 2011 when Borders closed. Sure, their biggest competitor was gone, but only because it has been replaced by a new, bigger and eventually much scarier competitor: Amazon.

Or, more broadly, digital commerce — though Amazon has been the dominant player and the most persistent thorn in the sides of big-box retailers everywhere for the last decade or so. The era of "show-rooming" officially kicked off, and Best Buy became the poster business for the practice. Sure, customers would come to test the merchandise and get a feel for its use, but they weren't buying so much as they were snapping serial numbers with increasingly ubiquitous smartphones and comparison shopping right from the showroom floor. If Amazon had the better deal, Amazon was getting the sale. Or Walmart. Or eBay. Or any number of other digital commerce players that were suddenly able to sort of force Best Buy to put its money where its mouth was in regards to its name.

Best Buy's early 2010 revenue numbers — which show quarter after quarter of losses even as a variety of personal electronics were exploding — give line to the tale that very often they weren't the "best buy," and customers were going elsewhere.

Which has set the stage for Best Buy's reinvention, premised on two ideas. The first is that they can raise the level of their digital game. The second is that they can compete by offering up innovation in areas where their digital-only counterparts can't hope to race: in personalized and in-person service.

The Great Digital Upgrade

Despite slipping sales numbers, Best Buy has had some strong news to report over the last several quarters in digital sales. Online sales grew by 13.5 percent during Q1, and similar if slightly better growth is forecasted through the rest of the year.

The problem with that news, according to analysts, isn't that it isn't good — it is that it isn't good enough. Digital sales on the whole grew 14 percent on average in the U.S. last year, with power players like Amazon beating the average significantly at 17-18 percent. Best Buy's growth, many have noted, is basically in line with trends and doesn't point to any particularly inspiring innovation.

But Best Buy's efforts are expanding. Blue Assist launched to make it easier to get push button chat assistance or customer service support through Best Buy's app, and the incorporation of TouchID has made that app easier to access (for iOS users anyway). Best Buy has also worked to make their Geek Squad tech support programs more easily accessible with a dedicated app that will cut down on time in-store trying to get a hard drive restored.  The app allows consumers to schedule appointments, check repairs or figure out Geek Squad area coverage.

The most lauded improvement is Best Buy's expansion into same-day delivery in 13 cities with a pilot program, with a wider rollout planned for 2017.

The problem that most commentators are having is that this all sounds like too little, too late. Same-day delivery is a good idea, analysts almost universally agree, which is why Amazon has been doing it for several years. Late to the gate, Best Buy has to compete with a more established player and do it while charging a much higher delivery fee ($10-$20).

"My feeling on these mobile applications is that they serve current users and customers of Best Buy, rather than drive traffic to the online store or attract new customers. Functionality of the new features and app are designed to increase usability rather than to advertise to or attract shoppers. While getting return customers is important, Best Buy is potentially missing out on a huge opportunity here," noted Concinnity Financial's Nick Rossalillo.

And while that might be a fair assessment - or not - depending on what else Best Buy has up its digital sleeve, it seems worth noting it also misses the second prong of the Best Buy Attack.

Leveled Up Service To Expand The User Base

Widely reported lately has been the fact that Best Buy is something of an anomaly among large American firms, particularly those with a technology focus: its management team is headed up by mostly women.

Trish Walker was hired from Accenture to become its president of services, including the Geek Squad. With her hiring, six of the 10 executives who report to Chief Executive Hubert Joly are women, including the head of strategy, HR, overseas stores U.S. stores and eCommerce.

Best Buy, for its own part, gives itself almost no applause for its commitment to diversity, noting that each hire was made with an eye wholly toward advancing the firm's future position, but those hires have come part and parcel with an attempt to improve and expand Best Buy's customer base, which has until recent years been largely male-dominated.

That has included diversifying the product line, starting a wedding registry within the last year, and expanding Best Buy into the mini-store format embedded within Macy's locations as a more natural touch point of female shoppers.

It is unclear if any these or perhaps all of these moves at a broadened perspective will improve Best Buy's fortunes, but it is an interesting approach.

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