Best Buy Bounces Back
While still facing a competitive future, Best Buy shocked many a retail observer merely by stabilizing its business over the last year.
The second quarter marked the electronic chain’s first quarterly profit in a year. Comparable-store sales increased for the first time in two-and-a-half years during the third quarter. Its stock more than tripled in 2013.
Under the direction of Hubert Joly, who took over as CEO in September 2012, Best Buy gets most credit for its move earlier this year to match rivals’ online prices, eliminating much of the threat of showrooming in one swoop. Best Buy also promoted heavily this holiday season at the expense of fourth-quarter margins, but the move has been praised as necessary to overcome the perception that Best Buy’s prices are higher than Amazon.com and Walmart.
"Our goal is not to be lower than the competition," Mr. Joly told The New York Times in December. "It’s to offer a very compelling set of customer promises with the assortment, the advice, the convenience, the service. So our goal is simply to eliminate price as an obstacle to buying."
To offset those margins pressures, Best Buy has cut expenses by more than $500 million by removing layers of management, cutting jobs and closing some stores. Removing several managerial layers is also said to have improved the ability to rapidly adjust promotions.
Other moves Best Buy has earned kudos for:
- Dedicating more space to faster-growing products such as smartphones and tablets;
- Letting vendors such as Samsung Electronics and Microsoft run their own boutiques inside Best Buy to ease issues related to excess square footage, customer service and pricing pressures;
- Increasing the number of Black Friday door buster deals, hosting exclusive events for "My Best Buy" members and opening its stores at 6 p.m. on Thanksgiving.
Mr. Joly told the Minneapolis Star Tribune in late November that Best Buy is only "about a quarter or a third" through what the company calls its "Renew Blue Transformation." The initiative includes investing in employee training, store revamps, and its website, including adding online ship-from-store and buy-online, in-store pickup.
Mr. Joly pointed to the launch of online buying guides for the holiday season as "a beginning" of what he said is an overall mission to reestablish Best Buy as retail’s authority on electronics and appliances.
"In the past when we have been criticized at Best Buy, it’s not that these promises were not the right ones," Mr. Joly told the Trib. "It is because we did not execute well enough."
- Renew Blue Transformation October Investor Meeting – Best Buy
- Underdog Against Amazon, Best Buy Charges Ahead – The New York Times (tiered sub.)
- Analysis: Best Buy could climb higher if CEO Joly lives up to hype – Reuters
- Best Buy ‘Won’ Holiday: Analyst – TWICE (tiered sub.)
- Schafer: Joly says overhaul at Best Buy is just starting – Minneapolis Star Tribune (tiered sub.)
Discussion Questions
What has impressed you so far in Mr. Joly’s turnaround approach at Best Buy? What challenges does Best Buy still face?
Just a few year’s ago, flat screen TVs and DVDs were driving much of Best Buy’s growth. Today, one category is gone the way of online downloads and the other is over saturated and has tight margins. In the face of these two calamities, Best Buy has been able to re-focus on new growth categories and simultaneously streamline the operation, which is very difficult to do.
However, I am most impressed with Mr. Joly’s commitment to training and retaining good associates in the store, which often is discounted when cost cutting is in play. In my mind this is the best competitive weapon against online alternatives. But given the rapidly changing dynamics of selling technology, Best Buy will need to remain on guard and flexible to change going forward. Today’s winning categories are likely tomorrow’s losers.
Best Buy was declared dead far too early, considering its size and its niche. And Hubert Joly’s hiring – at first met with skepticism – turned out to be a smart way to refocus the business on customer satisfaction.
I give credit to Mr. Joly and team for focusing on the fundamentals at Best Buy: First, embrace the challenge of “showrooming” by converting store traffic into transactions. Second, recapture at least some of Best Buy’s reputation for customer service, which slipped after the demise of Circuit City. Finally, find some new merchandising strategies (Samsung and Microsoft “shops,” for example) to use the center of the store more productively.
Best Buy still faces plenty of challenges, including robust competition from Walmart and Amazon among others, some unproductive sites and the cyclical nature of consumer electronics demand. But there is no doubt that the company has taken some important steps forward.
Well, I never really bought into the notion that showrooming was Best Buy’s biggest problem – it was an utter lack of customer service and really poor consistency across channels. However, once they put it out there, they had to change customer expectations.
So Mr. Joly has impressively made the price match issue go away, while he has systematically started adding labor back into stores, improving the web site and reinvigorating the Geek Squad (I have no personal experience on this last…but I know it’s on the docket).
I think the challenge will remain profitability, not just top-line sales. I will say, thus far I have been very impressed with the steps Mr. Joly has taken.
What Best Buy has done is to sharpen their focus on delivering value in the store through solid execution of a 21st Century ‘back-to-basics’ strategy.
So far the company has made the right moves with their store associates and innovative partnership with their vendors. Consumers want the latest technology but need someone to simplify not only the buying decision but also making it easy to enjoy and integrate that technology into their life. It’s about anticipating consumer needs through a product’s lifecycle by focusing on how consumers engage with and derive value from bundles of technology, devices, and services.
Mr. Joly’s efforts have paid off well for the brand and their customers. The trick is to maintain that momentum as they continue to differentiate from their primary competition.
I am impressed with what I have seen in their brick & mortar locations. Over the past few weeks I have been in several Best Buy locations for various buying needs. I was pleased with the service and knowledge of the sales reps we dealt with. This is far different from previous times under former leadership. I believe Mr. Joly has up righted the ship and is headed back on the right course.
Ahhh … proof that a focus on service, staff training, and the shopping experience DOES work to combat showrooming and online shopping!
For brick and mortar retailers everywhere, they should pay close attention to what Best Buy has done. Staff have become much more important than ever before, and it’s the wise retailer that invests more in them.
I think that Best Buy’s approach to embracing showrooming has been exceptional. They were able to take one of the biggest threats that concerned big box retailers and turned it into a differentiator for the company.
This is a wonderful example of an “archaic” retailer quickly taking action and using marketing prowess to compete against giants such as Amazon and other online retailers.
Impressive.
“In the land of the blind, the one eyed man is king.”
One only needed to go shopping for electronics this holiday season to see the appalling lack of knowledgeable people on the retail floor.
Electronics is a category where people are looking for a personal experience and support. To Best Buy’s credit, they have invested in training and processes that differentiated their stores again.
While Amazon will be a competitor for everyone on price, Best Buy will see the rise of other retailers who also realize the value of service in stores. One key retailer to watch in 2014 will be Staples. Staples has made significant gains by aggressively investing in stores and Omni-channel execution.
Check out the other RetailWire discussion on Staples “making things happen.”
Best Buy’s turnaround is being well executed because it’s balanced, strategic and it comes on top of a foundation that was strong to begin with. The right balance for any retailer starts with focusing on the customers and the internal team, including suppliers. Mr. Joly is clearly following this strategy and when you have the physical presence and buying power that Best Buy enjoys, in a category that is still driven by key items rather than commodities, you have all the right ingredients for success.
What impresses me most is Mr. Joly’s clear statements of purpose. If everyone knows the direction of the organization, the organization is more likely to get there, no matter where “there” is. I wish him and the organization the best of success in a tough, tough business.
My 2 cents? Taking out some middle management layers that clog business agility and enforcing in-store levels of advice and service is where I think many retailers need to go.
Adding the store-within-store concept also beefs up their reputation of better serving the customer along the path to purchase. Mr Joly rocks!
Research and practical experience (ever try to get a parking space at the mall?) suggests that people like to go shopping. For Gen “Y” this statement would be “prefer” to go shopping at a physical location. Going to the mall or a store is a real social experience.
However, if you want to convert these shoppers to customers, the experience needs to be a great one. This includes helpful people, not a lot of concern that I’m getting ripped off (can buy for less elsewhere), as well as the ability to shop online and pick up at the store, when I’m headed in that direction (BOPIS). Kudos to Mr. Joly for for enhancing the experience of going into a Best Buy store both in person, or when one chooses to, virtually. Keep it up… the world of retail isn’t standing still.
The ground work for this “turnaround’ had been set long before Mr. Joly took over, but the energy and precision he implemented is what stopped the slippery slide to nowhere. Think of it; he already had an army of ‘Blue Shirts” in place, they were already a ‘house of brands’ (good ones), they already knew service was THE key differentiator for them, they’ve been great at BOPIS (buy online, pickup in store) for some time, they “get” price matching, etc., etc.
He deserves credit for making it happen, but the ship was already built…he’s just a good sailor.
There is much to be impressed by in Mr. Joly’s turnaround thus far at Best Buy. Of note, I particularly admire how Best Buy has accepted the reality of showrooming and turned the situation around to their advantage by converting those showroomers into buyers with techniques such as their price match policy, their in-store price checking mobile app, and better competitive price intelligence for their store employees. Overall, they have reinforced customer trust in their brand by making the overall value proposition of purchasing from Best Buy on par or better than that of other retailers (e.g. Amazon), when all factors are considered.
Best Buy still has multiple advantages, such as the ability to walk into one of their stores to see products, to pick up products in-store or with prior online ordering, or to speak directly with one of their representatives when necessary. The retail market is continually evolving, and the upcoming challenges will be the extent to which e-commerce retailers can address their shortcomings in these areas such as by providing same-day delivery (e.g. drones), or enhancing their customer service.
I am most impressed by the discipline and focus that Joly has brought to the organization. Traditionally, BBY had dozens of priorities, some of which conflicted and all of which served to distract from the priority of customer experience. The focus and hard choices the company has made are to be commended.