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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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  • Stravonski

    I live in the Phoenix area and yesterday when my younger son was looking to buy a new computer, we checked BestBuy.com to see what was there. I was quite annoyed that Best Buy doesn’t provide real specs for computer. I want to know what processor is in the computer without having to go to another site to look up the model because Best Buy is too lazy to properly post the specs on the item page (http://www.bestbuy.com/site/Dell+-+Inspiron+Desktop+/+Intel%26%23174%3B+Core%26%23153%3B+i3+Processor+/+4GB+Memory+/+1TB+Hard+Drive/1677209.p?id=1218278292663&skuId=1677209). Also, when we found one that was suitable, it wasn’t available in any of the Best Buy stores in Phoenix, we would have to order it online.

    In the end, we built our own on New Egg, got a better system for less money, and will get it faster than had we ordered from Best Buy and then have to drive to the store to pick it up. I was a regular Best Buy customer in Colorado, but with Fry’s Electronics and NewEgg.com, the big blue box has become superfluous.

  • N: Your criticisms seem well founded: indeed Best Buy has faltered in its attempts to organically grow a new brand. As you point out, their partnership with Carphone Warehouse in the UK and purchase of Geek Squad and FIve Star in China are the only successful new business endeavors they have had. They were flying high when their customers were largely uneducated about technology and competitors (like WalMart, Target, Costco and Amazon) were afraid to enter the technology market. In today’s “Connected World” Best Buy looks to have a largely undifferentiated assortment, so-so pricing and has developed a reputation for overselling its service plans. More customers check into their favorite social media sites to research purchases and tech-savvy opinion leaders too often point customers away from Best Buy.

    A $50B retailer is nothing to sneeze at. It is possible for them to adapt and succeed, but change will be painful – in the stores and the bloated corporate office. Your suggestions for utilizing social media in a more authentic way, trust relationship management to happen closer to customers and changing store formats and labor models are a start. Unfortunately, I see no reason to believe that Best Buy will hear your suggestions in the short term. Unless Wall Street and other significant investors (are you listening, Dick?) step in, BBY will continue to flounder in the seasons ahead.
    Flora Delaney
    http://www.floradelaney.com

    • Ande3916

      We at Best Buy look forward to proving you wrong Miss Flora.

  • Ed Schurr

    As a former 12 year employee of Best Buy, I found this article extremely interesting. I had been in tough times before with BBY; in fact, during one period, not even knowing if the company could meet its payroll. One thing is certain, however. Since leaving the company seven years ago, I have not worked for or with a more superb group of employees, both in line level and senior management positions, who are more than capable of doing whatever it takes to get the company per plan. Yes, all retailers have taken it on the chin during our “recession.” Best Buy has weathered it better than most. Assuredly, all companies make mistakes, be it expansion, product line, etc. One thing I always admired about BBY, however, is that they are not afraid to try…..to try new markets….new concepts. I can remember one time when I was a district service manager and Brad Anderson and Dick Schulze visited one of our meetings. He asked the group if we had any feedback for him. I asked him that I felt our company was great at innovating, but not sustaining. In part, he agreed. Innovation is the key to success. I don’t think you could ever fault BBY for not being innovative. They will succeed. Why? Because of the dedicated, professional, and hard working employees they have around the world. Because, of all the jobs I have had since, I have never worked for a company that had more heart than BBY. Management is one thing…..leadership is another and there are a ton of leaders are Best Buy.

    • Anonymous

      I’ve worked for some great people during my time at Best Buy, but as a floor-level associate, the only thing I saw consistently was cut corners. Less managers, less supervision, less overhead: the store became an exercise in min-maxing expenditures and cutting labor. Boosting money for labor brought about huge increases in revenue, but a depreciated margin. Which side did we go with? Keep labor budgets tight at the sacrifice of loyalty. Best Buy is a company of innovation, but getting the right ideas in place seems to be a challenge. The Customer Associate program, introduced a few years ago, was a disaster. The CA program robbed labor dollars from specialty departments, meaning what was meant to be an increase in customer engagement ended up creating a team of associates that were little more than ‘warm bodies’ that were sent to whatever department needed assistance. I had an opportunity to visit the store next to HQ and sample the abandoned Super Gerbil projects that they not only failed to iterate on, but also failed to mop up. It’s those ‘innovative’ ideas that are pushed forward, rather than ones that could embolden Best Buy in an era where generalization at retail isn’t an option – unless you’re Walmart or Target. In an era where retail space is precious, why waste your efforts going in a million different directions? Get a good grip on something and run with it.

      There are some great people working at the Corporate office, but when your interaction with customers is inserting raw data into a PowerPoint slide, you know something’s wrong. Some of the best and brightest minds are recruited by the mothership, but how many worked in a store? Shockingly few. Of those, how many recently? Again, shockingly low. As the company gets bigger and bigger, this will prove to be a greater liability.

      The company’s far from doomed, but there are plenty of red flags to warrant an investigation. Best Buy has prided itself on being pro-active in its innovation, but their built-in bureaucracies are slowly choking it out.

      • Anonymous

        Best Buy is an amaing company with amazing employee’s. Every BBY I shop at I get personalized service. I go to Wal-Mart and Target and get nothing. I don’t even get a how are you?

      • Anonymous

        Best Buy is an amaing company with amazing employee’s. Every BBY I shop at I get personalized service. I go to Wal-Mart and Target and get nothing. I don’t even get a how are you?

  • Jim Chalil

    wow, so accurate and right on!