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Best Buy's strategy: 'Renew Blue, Ignite the Possible'

July 14, 2014

Through a special arrangement, presented here for discussion is an excerpt of a current article from Commerce Anywhere Blog.

Best Buy, which I wrote off a few years ago, has more than bounced back. It is aggressively combating "showrooming" and winning. With sales up and its stock rising, Best Buy is well on the road to recovery.

"The next chapter of our transformation is what we call Renew Blue, Ignite the Possible," CEO Hubert Joly recently said at Best Buy's annual meeting.

"Our aspiration is to create end-to-end customer experiences that allow our customers to smoothly and fully experience the possibilities of technology," Mr. Jolu said. "In retail we've evolved our store organization to better support the nature of retail, which is the execution of our category and functional strategies the development and implementation of effective market level strategies that take into account local specificities and lifting our performance in terms of employee engagement, sales, customer satisfaction and profitability."

Well said. I think there are three keys to Best Buy's turnaround. Other retailers should take notice. First, Best Buy is focusing on the customer experience, offering store-within-a-store concepts by partnering with suppliers like Sony and Samsung. This experience continues to extend into homes with Geek Squad, which I believe is a big differentiator in the complicated electronics market. Second, Best Buy offers a low price guarantee for both local stores and major online retailers. No longer are they routinely beat on price. Also, it doesn't hurt that Amazon now charges tax in many states, removing one of Amazon's advantages.

The third and most important key is using stores for fulfillment. Consumers don't like waiting. Best Buy allows order online, pickup from store and the ability to ship from a nearby store, thus shortening delivery time. As depicted in the graph below, in many cases Best Buy now beats Amazon in delivery time.

You can clearly see the ship-from-store change occurring around October 2013. As Sharon McCollam, Best Buy's CFO, put it on Best Buy's first-quarter conference call:

"The amount of inventory that has actually been unlocked represents about two-thirds of our inventory. We have already seen margin benefits and we expect that to continue to grow as we progress through the year and the merchants and the demand planners learn more about how to use ship-from-store as a pricing leverage tool. The big opportunity is from the merchant organization, whereas they are now pulling and pushing levers in order to move that inventory through the system faster. You should expect to be seeing more positives."

Turning stores into an offensive weapon against online retailers is clearly making a difference.

FINANCIALS:     [NYSE:BBY] [ NASDAQ:AMZN] [ ]

Discussion Questions:

What do you think is driving Best Buy's turnaround? What lessons does Best Buy offer for those looking to combat pure play e-tailers?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

Which of the following do you think is most responsible for driving Best Buy's turnaround?

Comments:

You know, I always thought the whole "showrooming" thing was a red herring.

Consumers have always, and will always comparison shop when they buy big-ticket merchandise, but it's far less an issue of a few bucks here and there if the retailer is offering premium services.

Of course it's good to be close on price, but it's all about the customer experience.

Using inventory as a shared asset across selling channels is the next wave of retailing. As long as inventory is close to accurate, and there are well-designed packing/shipping stations in back rooms, it's a great idea to reduce overall retailer investment while maintaining/improving high customer satisfaction. This type of model works really well for chains like Best Buy, because they've already made the investment in floor models, so it's not a pure "endless aisle" concept. The customer can look and feel, and then order when she wants. The retailer can pick from the best location. Win-win.

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Paula Rosenblum, Managing Partner, RSR Research

Price matching and Amazon charging tax. Best Buy generally has higher prices than online merchants, but their price match guarantee levels the playing field. Amazon adding sales tax to purchases created actual equality. If Best Buy has the item in stock and will match online prices, why wait? Buy it now.

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Max Goldberg, President, Max Goldberg & Associates

It was premature to declare Best Buy DOA a couple of years ago, but it's equally premature to declare the turnaround a success. Mr. Joly has done several smart things during his tenure that I have noted before on RetailWire (reallocating space away from CDs, DVDs and software, adding branded shops and putting more focus on service and omni-channel initiatives).

However, the holiday 2013 and first quarter 2014 results still reflect declines in the company's comp-store sales and gross margin. Good expense management seems to be driving earnings higher, which is a positive step toward sustainability. But Best Buy has a long way to go to recapture its consumer magic. Let's hold off on the "transformation" talk until this happens.

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Dick Seesel, Principal, Retailing In Focus LLC

Sorry, not buying it. Check out my Best Buy experience in buying a TV and washer recently. Customer service is not bragging that you "aren't on commission," and that it doesn't matter who gets credit for the sale, you "get paid the same."

Stores-within-a-store can help customers cut down on the overwhelming choices, but the huge opportunity is selling the customers, not waiting for them to say, "I'll take it."

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Bob Phibbs, President/CEO, The Retail Doctor

Best Buy's apparent turnaround is being driven by aggressive marketing. Its associated funding is coming from Samsung, and to a lesser extent Sony. I believe it is a far reach to place Best Buy's supposed recovery on "store organization to better support the nature of retail, which is the execution of our category and functional strategies the development and implementation of effective market level strategies that take into account local specificities and lifting our performance in terms of employee engagement, sales, customer satisfaction and profitability."

This is posturing verbiage that may placate Wall Street analysts, but doesn't provide much substance. It'll be interesting to read the comments when Samsung's funding, underwriting and sponsorship dollars aren't flowing as heavily. Then we'll get a real picture on how much value Best Buy customers place on their new found "aspirations to create end-to-end customer experiences that allow [them] to smoothly and fully experience the possibilities of technology." The next chapter of the Best Buy story is still being written.

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Adrian Weidmann, Principal, StoreStream Metrics, LLC

Turning their stores into offense weapons against online retailers has led to Best Buy's turnaround. Best Buy now interacts favorably with the customer, and their stores are more focused on customers' current wants and in satisfying customers' needs.

Mr. Schultz, the founder, was a great visionary for the past era at Best Buy, but he let things get out of control. Hubert Joly came from outside the Best Buy framework and is preparing Best Buy well for today's different world from the former demands of yesterday's beginnings. New ideas were needed to shape a successful course for Best Buy. Kudos—and good luck—to Hubert and his associates.

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Gene Hoffman, President/CEO, Corporate Strategies International

Anyone who understands the "physics of possibility"—as CEO Joly seems to—should be listened to. The Best Buy story is a excellent example of what I'm talking about.

Most will analyze Best Buy's progress as a series of mechanistic operations, and pretty soon many of those operations will, unfortunately, be declared "Best Practice." And that is often the death of innovation. Leaders in retail should be asking only one question: "What is possible?" Instead, most are focused on "What's the problem?" If you focus on problems, you focus on yesterday. If you focus on possibilities, you focus on tomorrow. So pick wisely which one has a future.

Once you begin to realize that "everything that will ever be possible is already possible" and you set your eyes on the highest possibilities you can grasp, the role of leadership is to align ALL the energies of the organization and laser focus them on those possibilities. Cudos to Mr. Joly for doing exactly that.

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Ian Percy, President, The Ian Percy Corporation

I spent a half hour in a Best Buy over the weekend and was very impressed by the number of times I was approached by sales associates with offers to help, despite the fact that I was there without an agenda. Hubert Joly is doing a terrific job.

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Cathy Hotka, Principal, Cathy Hotka & Associates

David Dorf accurately points out three key areas for Best Buy's steady turn. They executed on their plan, and came up a winner.

The losers over the past three years have been the shorts and the prognosticators of the demise of Best Buy. What those individuals chose to do is fail to listen to the customers of Best Buy, and what those customers were planning to do.

Each month, the Prosper Monthly Consumer Survey asks some 6,500-plus adults, 18-and-over, "Where do you shop MOST often for Consumer Electronics?" The trends on the responses have been consistent. It looks this way:

Best Buy: 32.9 percent (June 2014), 32.0 percent (June 2013), 32.9 percent (June 2012), 31.9 percent (June 2011)

Amazon: 11.0 percent (June 2014), 11.0 percent (June 2013), 8.3 percent (June 2012), 6.5 percent (June 2011)

Walmart: 18.0 percent (June 2014), 21.7 percent (June 2013), 22.4 percent (June 2012), 21.2 percent (June 2011)

Other: 8.0 percent (June 2014), 7.7 percent (June 2013), 6.7 percent (June 2012), 7.0 percent (June 2011)

Added digital devices will come to the market in the next 18 to 36 months as sure as the sun is going to shine. Shorts are going to go with their gut. The consumer doesn't live in that same neighborhood. The consumer is going to go to what they can understand.

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Roger Saunders, Managing Director, Prosper Business Development

Focus on the customer and delivering as promised. The combination of online and showrooms offering convenient and seamless solutions is a model that could work in most retail environments. The showroom provides the ambiance and multi-sensory product experiences. In addition, collection at the showroom addresses many of the final-mile issues, as well as the opportunity to purchase unplanned or impulse products.

The key for traditional bricks-and-mortar retailers is to learn from Amazon, but don't attempt to compete directly with the pure online model. Stores and showrooms are something Amazon does not offer, and it is something physical retailers can do well. Use this advantage to level the online playing field.

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Richard J. George, Ph.D., Professor of Food Marketing, Haub School of Business, Saint Joseph's University

Best Buy has done a good job training their employees to be customer-focused. Sure, not everyone got the message. But for the most part each visit to their stores shows an improvement in how we, the ultimate bottom line, are being treated. Once more retailers get the message, shopping will become more of a pleasure. If The Container Store ever had someone write a book on customer service it would be a big hit. They are still the best.

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Ed Rosenbaum, CEO, The Customer Service Rainmaker, Rainmaker Solutions

I think the key is that they finally have a leader who was willing to move past what Best Buy was, and embrace what Best Buy needed to be. The old price-matching policy was horrible. Trying to easily buy something was just as bad. Showrooming wasn't the problem. Best Buy's response was.

I have bought more at Best Buy in the last year than I did in the previous three. Not surprising, I am also in a state where Amazon now charges sales tax. With a level playing field I'm going to go where I can see, touch and buy it now.

The lesson is to keep evolving and changing as the consumer and market does as well.

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Doug Fleener, President and Managing Partner, Dynamic Experiences Group

Best Buy figured out there was a problem and looked it right in the eye. Showrooming and pricing were big issues and they overcame them. You can read many articles about this, so no need to rehash them here. The big lesson is responsiveness. Most companies think they are above their competitive problems, until one day they wake up and realize they were wrong, and it's too late. Sometimes they can play catch-up, but many times the lack of adapting to and adopting new ways of doing business ruins the business. Remember Blockbuster video?

How does a smaller retailer compete against the big box stores? They create an amazing customer experience that delivers value and earns trust, which leads to loyalty. Best Buy is a big box that competes against a "bigger box," which happens to be a computer with access to the Internet and online retailers. They decided to do two things really well. First, they created a customer experience that showcased their expertise, selection, service and more. Then they went head-to-head on pricing issues and proved to the public that they would be competitive.

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Shep Hyken, Chief Amazement Officer, Shepard Presentations, LLC

The low-price guarantee and being able to do online fulfillment from stores as well as distribution centers is important. So, too, is focusing on in-store experience. If consumers can reliably go to Best Buy to get questions answered, to evaluate alternatives, and get a good price, that goes a long way in attracting consumers. The difficulty for Best Buy is ensuring consistency of strategy throughout all the stores and with all the employees. Execution is the issue in continued success.

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Camille P. Schuster, Ph.D., President, Global Collaborations, Inc.

Certainly, attention to customer needs and focused assortment are leading the changes at Best Buy. Sales associates approached and recommended the products in my last month's visit to the stores. Price matching has definitely taken away the big obstacle in customers' paths to purchasing at Best Buy. While it has been a painful journey for the retailer, it is on the right track and there is a long way to go before it can claim that the transformation is a success.

Saravanan Logu, Digital Transformation Consulting Manager, Cognizant

Three words: Joly and McCollam. They are a dynamic duo.

Mr. Joly has set a terrific tone at Best Buy—setting aggressive goals without over-promising on timelines. Like Walmart and Macy's, Best Buy is making tremendous strides in turning its physical footprint into an asset rather than a liability. As part of that, thanks to Ms. McCollam, it is also ditching the myopic store-centricity that hobbled it in the past and instead, harnessing synergies between physical and digital. Best Buy's brand partnerships offer a unique perspective on this and it has done a terrific job of "marketing" physical assets to brand marketers. The success of Best Buy's branded shop-in-shops allows it to position as a flagship location for these brands and garner financial support from them. Go team!

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Carol Spieckerman, President, newmarketbuilders

Creating the customer experience was the focus—the rest flows from this. Best Buy struggled earlier with creating a transparency. Deals and specials were marketed aggressively, but often only online or in-store, while ship-to-store and return procedures were not well executed, aggravating shoppers further. Resolving the operating issues has given a fresh new face to Best Buy with a retailer focus on shopper wants and needs, staff to assist, helpful tech support and faster transaction times. Days ahead will tell how they continue to build in this most competitive space.

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Anne Bieler, Sr. Associate, Packaging and Technology Integrated Solutions

When omni-channel, buy anywhere, pick up and deliver from anywhere becomes the norm across retailers, (which it will) then the next challenge will remain the old one, how does a retailer selling an undifferentiated product compete on other than price. Like any retailer who has successfully moved past an obstacle, the next barrier is already in sight.

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Peter J. Charness, SVP America, Global CMO, TXT Group

Terrific discipline in handling inventory, consistent re-use of retail square footage, discipline in expense control, change in floor strategy with s-i-s all lead to cost reductions. Competitive improvement online by rapid expansion of offers has made the chain competitive and with store delivery they have some advantages. Price transparency is aiding consumer confidence in the chain. Share leverage has cooperation of many brand vendors.

Considering the tough refresh cycles, the maturity of several major categories and the still small emergence of new categories such as wearables the chain is doing an admirable job. There remains too much real estate which will take time to correct, but the obvious discipline and attention to detail and primary requirements is keeping them in the game. Well done and welcome.

Robert Heiblim, Principal, RH Associates

The price guarantee is the price of entry; if consumers do not believe that they are getting a fair price, there is no hope at all. But the critical link is customer experience—stories have abounded about the faults of the "blue shirts" over the years—pushing needless warranties, lack of product knowledge, etc. If Best Buy can address that issue, they will be able to take their business to the next level.

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Mark Price, Managing Partner, LiftPoint Consulting, Inc.

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