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Best Buy Is Losing Its Edge

Posted by on February 24, 2011 at 10:11 pm

The electronics industry did a heckuva thing in the decade and change that I worked at Best Buy as a floor-level grunt. Music on compact discs peaked and vanished, a sea of other retailers bit the dust, but even the big blue box that survived it all became slightly more irrelevant in an era of internet commerce and discount outlets. Isn’t it then ironic that the world’s largest electronics retailer is looking more draconian in an era of Facebook and Foursquare?

The Stage

Montgomery Ward went first, CompUSA came next. Radio Shack and Blockbuster faltered, Circuit City and Musicland burned out, Sears and Kmart merged out of necessity, and Ultimate Electronics failed. Despite all of the madness surrounding the collapse of the specialty electronics/media retail business, Best Buy kept strong by adapting to its environment. In the mid-90s, long after it had developed the warehouse model of electronics retail (“stack ’em high and let ’em fly!”), the blue and gold retailer almost slid out of existence itself. Stiff competition from Circuit City and other regional retailers persisted, but the retailer quickly developed its own Standard Operation Procedure to stem its losses, one of the biggest additions was a standardized method for sales associates to interact with customers called CARE. When I started working for the big blue box in 2000, CDs and VHS still took up an incredible amount of the store’s real estate, cell phones were still primitive, and TVs were heavy, boxy monstrosities that had never known the 16:9 ratio.

As a $20 billion company, Best Buy took the pro-active step of changing its business model yet again in the early 00s by getting to know its customers through a concept called “Customer Centricity”. The company realized that its store count was reaching saturation and that growth needed to occur organically – by better selling to the customers they already had – in order to survive. As part of the Customer Centricity re-tool, consumers were grouped into archetypes and store experiences were built around them. This was a much bally-hooed move, but catering the entire store experience to a particular segment at the expense of the others wasn’t such a great move in the long run and the fixtures (including the portraits on scrims that obscured top stocked inventory) were dialed back a bit. During CEO Brad Anderson’s tenure, an emphasis was placed on international growth and an expansion of services with its acquisition of Geek Squad. The company moved into Canada at first, then more recently into China, Mexico, and Turkey. Best Buy declared in 2008 that it would double in revenue – as it had in the previous five years – to become an $80 billion entity by 2013.

Unfortunately, that dream seems to have stalled. The economy has had a hand in it, but as their competition remains more nimble, specialized, and more profitable, the 45-year-old retailer, powered by over 150,000 blue shirts, has to realize it’s harder to steer a $50 billion company to success than ever before.

The Problem

Best Buy has spent the past few years encountering a new wave of competition that is largely immune to the reasons that its primary competition failed over the past 10 years. On one end, discounters like Amazon and Wal-Mart are eating away by selling similar (or larger) inventories at cheaper prices. Long before the economy bailed, it was still commonplace to research best prices and while Best Buy does its best to compete, they simply can’t compete against a sea of flash sales easily accessible through one portal: the internet.

On the other end, platform holders like Apple and Microsoft are creating their own retail presences that have become far more profitable on a square-foot basis while Best Buy’s store sales comped down 4% in December – during the company’s most important season. Throughout store-level reorganizations in the late 00s, the company moved further toward a ubiquitious blue shirt that could assist with anything in the store (similar to how their smaller stores operate), but in their attempt to empower CEO Brian Dunn’s* vision of a ‘Connected World’ – their newest overarching strategy of connecting devices together with services – they’ve removed the specialty experience from their own specialty.

The past decade hasn’t been kind to the Minnesota-based retailer’s ability to produce unique retail concepts, with the failure of its Escape (gaming lounge) and Studio D (female lifestyle) pilots – their specialized Appliance training program was also rolled back. There is a shining hope in their Mobile/cell phone sales division, borrowed from their partnership with British retailer Carphone Warehouse, which the company admitted help save their bacon over the holiday. The irony here is that they’ll be producing more specialty Mobile stand-alone stores in the upcoming year while their big box operations become more¬†homogeneous.

The company also restructured its international expansions – once a major plank of the $80 billion plan – by nixing its two new test stores in Turkey and all of its branded operations in China. The lesson is that the retailer failed to do enough research in these foreign markets, hoping that these new audiences would adapt to their own American model instead. Best Buy also started new lines of private label items – from CD wallets to TVs – but while some have succeeded (Insignia) others have failed to catch on (their late-to-the-game Napster MP3 service purchase).

While Best Buy has embraced social media through Facebook and Twitter (I mean, it is the company selling many of the devices used to access them), they’ve been used primarily for marketing purposes – under the advice of their agency BBDO. While the Twitter-based “Twelp Force” is an army of blue shirts ready to assist consumers with their needs, its paltry 33,000 followers (for an initiative that featured TV spots) underlines their lack of commitment to social media as a means of communicating directly with the customers; the company can literally talk to consumers wherever they’re at and they are completely missing the opportunity. All of this is beside the mention of the publicity they received for nearly firing an employee out of Kansas City after he producing last year’s hit “iPhone 4 vs. EVO” video. All of us can understand the need to control the message their employees are giving, but shouldn’t they be focusing on store level disparagement instead? (That employee left the company on his own accord, by the way.)

The Solution

Somewhere deep within Best Buy’s corporate office – colloquially known as ‘the Crawlers’ for their similarity to the Jawa sandcrawlers from Star Wars – there are thousands of employees working urgently, in good times and bad, to ensure the success of the enterprise. The problem is that an enterprise-wide change on the scale of Best Buy’s doesn’t come easily or pain-free. This is how I see it:

Rather than trying to make the big box smaller, start with small boxes and grow them. Stop homogenizing your work force’s expertise (especially in larger, 45-60k stores) and split the divisions back into specialties. Shell out for specialty workers. Quit going half-way in your ventures: two rows of CDs in your stores are useless when you can’t find anything you want to listen to; not finding the video games I want on any visit I make to the store is a frustrating experience. Split off your car installation efforts in markets that appreciate the modifications. You’re already seeing the light with stand-alone Geek Squad and Mobile stores, keep going in that direction – if you have to shutter a few big boxes in the process, we’ll understand, as will your shareholders. These boxes don’t need to be Escape/Studio D different, but Best Buy needs to regain the trust of its tech-savvy customers, who will pay any amount for the latest and greatest, from Amazon, Newegg, and other flash sale sites.

Embrace Social Media as a relationship builder, rather than a venue for cheesy Justin Bieber commercials. Not that there’s anything wrong with Justin Bieber – sure, he’s en vogue and their ads have traditionally done well – but the employees best utilizing the social media are the tech-savvy, grunt-level employees far away from corporate influence. It’s hard enough to control your message when you’re a big company with 150,000 employees, but in the age of Twitter, it’s exponentially more difficult. Rather than penalize them when they screw up, why not trust them to build the relationships with the customers on their own one-on-one basis? It only takes a quick search to find that many Best Buy stores have their own Facebook accounts that they use to broadcast store specials and so forth, many are run as basement operations under corporate’s blind eye. Come up with a standard that doesn’t cripple mobility at the store-level and empower stores that are using social media to better serve their customers.

At the end of the day, what do I really know – I mean, aside from a lot about Best Buy? There are many people smarter than me that work for the big blue box that have this all figured out. I just figure a decade’s worth of experience with the retailer and some fine editorial space at the world’s greatest blog might be worth something.

Maybe, y’know, that $80 billion they’re still chasing.

*I’ve met Brian on several occasions during my tenure with Best Buy and he is an enthusiastic, sturdy guy.

Sources:

http://www.twincities.com/business/ci_17426367?nclick_check=1
http://www.bby.com/2011/01/07/best-buy-reports-december-revenue-of-8-4-billion-2/
http://www.bby.com/2011/02/21/best-buy-announces-actions-to-generate-improved-returns-for-shareholders/
http://www.chainstoreage.com/article/report-best-buy-plans-double-sales-5-years
http://techcrunch.com/2010/07/01/best-buy-iphone-4-evo-4g/

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