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Best Buy’s Road Ahead

In the past 24 hours or so since Best Buy’s financial was released, the current condition and eventual fate of the No. 1 retailer of consumer electronics has been sliced, diced and dissected in more ways than I care to imagine.

Maybe I’m a glutton for punishment, but I read many of them. And I vowed as of last night that I wouldn’t add to the Google list of bloggers about Best Buy. But I became so infuriated I had to break that vow.

Comments from bloggers, journalists and analysts went something like this: This is “the end” of: Best Buy, big-box retail stores, brick-and-mortar CE retailing – take your pick. “Everyone” will eventually shop only at Amazon … and maybe Apple. Today Best Buy is being compared to Circuit City, The Wiz and Crazy Eddie, among others.

As for readers who left comments on all the coverage, much of it concerned lousy in-store service; the price of HDMI cables vs. what Amazon charges (yes, really); and more than a few said, “I never shop at Best Buy. I always shop at Amazon,” with a condescending attitude no less.

I am neither a fan nor foe of Best Buy.  I own none of its stock. But I have covered the chain for much of my career, so I know enough about Best Buy – and about electronics/appliance retailing in general – so here are a few observations.

Best Buy, like much of the CE industry, except Apple or Amazon, is in a dark period not entirely of its own making. Let me state the obvious:

  • The economic recession/depression continues, with home values nationwide either still sinking or flat in many cases. The days of homes being ATMs are long gone.
  • Those consumers who have jobs either haven’t gotten raises, are getting small ones, or are looking over their collective shoulders about any blip in the economy translating into layoffs.
  • The digital TV transition of 2009 meant that anyone who didn’t buy a big flat-screen TV before the deadline, bought one that year. The TV business, the category that has driven the CE industry for decades, has become a replacement business for the foreseeable future.

Ironically, technology has overtaken Best Buy, with digital downloads taking away one of its strengths – sales of DVDs, CDs, video games and computer software.

The balance of power between retailers and consumers has tipped toward shoppers, as the Consumer Electronics Association and the Stevenson Company pointed out last year. Best Buy, along with much of the rest of the industry, is selling the actual tools of its undoing – smartphones – enabling consumers to use their stores as showrooms. (I can remember when, as a reporter, you had to get permission to take a picture for a story in a store. Can you imagine the outcry if Best Buy or any retailer, tried to stop the use of smartphones in their stores?)

Getting back to Apple and Amazon, the problem for Best Buy (times two) reminds me of the old quote from Bing Crosby about Frank Sinatra: “Frank is a singer who comes along once in a lifetime, but why did he have to come in mine?”

Apple did the unthinkable, at least for the CE industry of 20 years ago, and not only opened its own stores but developed innovative products that have many consumers as loyal to them as avid sports fans.

Amazon has is not only the world’s greatest Internet retailer, but it is also become a supplier. While some sort of national legislation on an Internet sales tax may slow down Amazon, it certainly won’t stop it.

And I didn’t even mention Walmart.

I’m not saying that Best Buy’s plight is due to being a victim of circumstance – far from it. There are fundamental problems with its operation over and above the challenging marketplace.

The strategies that it has put forward yesterday to cut costs and change its operation are all good ones – except it has to be more aggressive and do more. Time is not on its side.

Best Buy has to get smaller to grow.

More Best Buy Mobile stores are fine, but it still needs its large stores. It just needs a lot fewer.

It needs to take a page out of the Apple Stores playbook, like some have suggested, and have major brands run boutiques in Best Buy stores and make their locations fun places to shop again.

The chain has had double-digit sales gains online. I dare say it has to double that production and improve its online experience to such a point that Wall Street and the media begin to point to as a cutting-edge CE retailer.

Best Buy has to mean “best buy” again, matching prices against any competition – whether brick-and-mortar or online. If the universal pricing policies announced recently by several manufacturers stick, and more suppliers join the effort, it can only help Best Buy and the rest of the industry.

Any rebirth of Best Buy has to involve customer service. I always thought that national chains really can’t match the hands-on service of a good local merchant. Yet Costco and Starbucks are two that seem to pull it off, and there are other examples.

To get customer service, you have to pay for it. While the “enhanced compensation plan” based on Best Buy Mobile, which was announced yesterday, is a step in the right direction, there needs to be something more substantial. Dare I say commissions?  Efforts must be made to get and keep top quality full-time salespeople.

Best Buy is not mortally wounded, but the road ahead will be tough. Historically, Best Buy shows it can rebound. It did during the 1990s when it had serious problems.

If Best Buy can go back to its entrepreneurial roots and reinvent itself once again, it can get out of this slump and grow once more.

Apple was in trouble in 1997 and Microsoft invested $150 million in the company, and it never looked back. Stranger things have happened.