Can Best Buy build momentum with new services and IoT?

Discussion
Photo: Best Buy
Aug 25, 2016
Matthew Stern

A positive earnings call that beat expectations has analysts wondering what Best Buy is doing right and if it can keep it up.

In its Q2 earnings report, Best Buy reported a 0.8 percent comp sales increase on top of sales growth of 3.8 percent for the same metric last year. It also announced online sales growth of nearly 24 percent for the second straight quarter. Sales in health and wearables as well as other areas increased, offsetting declines in mobile phone and gaming sales.

Best Buy has been putting an effort into changing both what it sells and how it sells. On the Q2 earnings call, CEO Hubert Joly noted the company’s fiscal year 2017 as a year of “exploration and experimentation” which involves leveraging the Geek Squad for same-day, on-demand services, in-home consultations by technology experts and teaching in-store classes on topics including home automation.

Last year, Mr. Joly stated that the connected home was “making Best Buy’s operating model increasingly relevant as customers want and need more help selecting, installing, connecting, integrating, using, maintaining and taking full advantage of their products,” Diginomica reported. This week, as a part of the retailer’s 50th anniversary celebration, Best Buy put together an IoT showroom in the Mall of America highlighting their connected home offerings, according to the Star Tribune.

Other retailers, such as Target and Sears, have also been putting significant efforts into promoting IoT products and both companies have opened showroom concepts to give customers a full picture of connected living.

But while Target and Sears both pursue multi-category appeal, Best Buy maintains a long-time reputation as an electronics retailer. So the other two retailers may have serious competition on their hands if Best Buy continues to push its focus towards connected home devices and related home services.

DISCUSSION QUESTIONS: Should Best Buy continue to push IoT and related home services to separate itself from the competition? How do you expect rivals to position offerings in the IoT space to compete with Best Buy?

Braintrust
"I think IoT gives Best Buy a great opportunity to shine."
"While I’m skeptical ... Best Buy is making smart moves early in the IoT category life cycle."
"IoT is the most important new trend sweeping the consumer electronics space..."

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18 Comments on "Can Best Buy build momentum with new services and IoT?"

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Chris Petersen, PhD.
BrainTrust

The money in IoT is in the services, not the products. Best Buy has something that Target, Sears and Walmart don’t have … the Geek Squad!

A quick scan of YouTube will reveal all of the frustrated consumers trying to make IoT work in their homes. At this point in time, it is NOT easy! Set up a single device? Maybe. Connected home? NO! So who you gonna call?

As Amazon has clearly demonstrated, it’s about the “ecosystem.” Best Buy should definitely pursue IoT as both a differentiator, and core category where they can leverage their service ecosystem for the home.

Kim Garretson
BrainTrust
8 months 29 days ago

As one of Best Buy’s former Strategy & Innovation liaisons to the venture capital industry, I think it’s important to note that these moves around IoT, connected home, etc., are not recent developments. And to me this puts Best Buy ahead of the competitors mentioned. As early as 2002, we began meeting with connected home manufacturers and the VCs backing these early players. And the Best Buy Lab has been testing almost every innovation in these spaces for at least this long. So, again, Best Buy will continue this leadership because it’s been there longest.

Paula Rosenblum
BrainTrust

I think IoT gives Best Buy a great opportunity to shine. The company has set the table with amped-up customer service in stores and sharp prices online. In-home services will be a great differentiator.

I think it’s a win.

Max Goldberg
BrainTrust

IoT should become a major focus of Best Buy, as this area is growing rapidly and should continue to do so for years to come. To make room for a flood of IoT products, Best Buy is going to need space. Some areas of the store with lower turnover or lesser margins will be converted. IoT should also bring more work for the Geek Squad.

Peter Charness
BrainTrust

I suspect IoT offers more cachet than a broad revenue opportunity at this time. But cachet is brand and this is something that Amazon can’t do so it’s differentiating. I think it will build revenue across traditional lines as well.

Ori Marom
Guest

Hubert Joly has done a reasonable job in stabilizing Best Buy. While the company is no longer losing sales or making losses, its financial performance is disappointing. Although a monopoly (“last man standing”) Best Buy’s net profit margin remains under 3 percent. And why?!

Best Buy’s focus on price is a huge handicap when it tries to enter novel product segments. Its low-cost model just doesn’t fit there. Rivals in the nascent IoT sector should focus on service and customer education in order to easily beat them. Best Buy, on the other hand, will predictably continue to focus on price and cost savings. Too bad for their shareholders. Too bad for their suppliers.

Dan Frechtling
BrainTrust

While I’m skeptical the connected home will reach the size of categories like music/movies that helped electronics retailers in the past, Best Buy is making smart moves early in the IoT category life cycle.

In particular, price, service and omnichannel offers stand out.

Its price-match guarantee applies. As long as the price is from a local retailer (including CostCo) or one of seven online retailers (including Amazon.com, though not third party sellers), Best Buy will match IoT prices.

Its service is personal and accessible. Best Buy touts stores within 15 minutes for 70 percent of U.S. shoppers. Geek Squad offers in-store and in-home consultation.

Its online value proposition stands out. Online sales grew 24 percent for the second quarter in a row. Best Buy offers free two-day shipping for single-channel shoppers and full service for shoppers who start online and buy in-store.

If only Insignia offered a private-label Echo that steered sales toward Best Buy and its partners.

Mohamed Amer
BrainTrust

As Samuel Clemens (Mark Twain) once quipped, “the reports of my death are greatly exaggerated,” so have been the repeated rumors of Best Buy’s impending demise.

Best Buy has been able to reinvent itself over the years while continuing to provide a common theme of being an electronics retailer. As technology and lifestyles change, so has the company’s assortments, layout, products, services and experience (in-store, online, in-home). Attempts to compete on price with the lowest cost structure is not a feasible strategy, so Best Buy continues to reinvent the store and customer experience to set it apart.

The current move to IoT and the connected home will provide not only a growth platform for years to come, but also a defensible differentiation executed at scale. Two thumbs up, way up!

Ben Ball
BrainTrust

Wow! Are we all really going to agree on something? Well — hate to disappoint, but — I agree. Best Buy lived in this space for consumers in the ’80s, ’90s and into the current century. Online retailing of electronics put a big dent in the “just go pick up a TV” business and hurt Best Buy for a while. But this is where they should shine again — in the “how the heck do I make this work?” space for Boomers on down. The bloom will stay on that rose until the IoT programmers develop the Bluetooth equivalent of the universal phone charger port. When everything talks to everything else without us having to do anything. I give it 10 years.

Lee Kent
BrainTrust

Yes! This is a great path for Best Buy. The only thing I would like to remind Mr Joly is that IoT is not just about home services. Get ready to open up the flood gates once the model is in place.

For my 2 cents.

Larry Negrich
BrainTrust

IoT is complicated, will require multiple systems and apps to work together, and can be a bit daunting and frightening to the consumer: all good things for Best Buy that play into their ability to provide guidance and service. This is a win for them. And given that Millennials will be driving IoT adoption, this may give Best Buy a way to grab hold of Millennials for the future.

Ed Rosenbaum
BrainTrust

Best Buy has made significant improvements in the in-store experience over the past few years. The sales staff can actually help you make the right choice. This relates to better hiring and training protocol. Having the Geek Squad available to help is a big plus for them. The others have nothing even close to match this service.

Phil Rubin
BrainTrust
8 months 29 days ago

Best Buy, as everyone is agreeing, is on the right path with IoT and should easily outpace brick-and-mortar legacy rivals like J.C. Penney and Sears. Amazon, not so much. But Best Buy, more than other brick-and-mortar merchants, knows how to leverage its capabilities around customer data via CRM activities (e.g., Reward Zone, digital communications) that will amplify its physical advantages, including Geek Squad. Having nicely integrated payment and credit features helps as well and it’s great to see Best Buy continuing on the right path.

Shawn Harris
Guest
Shawn Harris
8 months 29 days ago

Selling IoT devices and providing related installation/educational services will provide a near-term bump for Best Buy. However, as walled gardens fall and setup is as easy as turning on devices, the value will be in device orchestration. Best Buy should be focusing on a platform play to be the brains of an in-home IoT system, including some smart uses of blockchain for device-to-device, point-to-point interactions. We should not even mention Amazon in the same breath on a lot of these issues, they are focusing on being the plumbing for such offerings, I mean everything …

Ken Cassar
BrainTrust

IoT is the most important new trend sweeping the consumer electronics space and Best Buy, with its Geek Squad, is uniquely positioned to help consumers manage the complexity that it brings. However, Best Buy has got to back that up and invest ahead of the opportunity. Silicon Valley upstarts are already eyeing that space, notably Ron Johnson’s Enjoy, which has bundled complex products with setup services. And Amazon undoubtedly understands that this is a vulnerability. History has shown us that brick-and-mortar retailers’ natural advantages do not entitle them to win.

James Tenser
BrainTrust

Connected home devices represent a massive emerging market, and Best Buy is better positioned than any other brick and mortar retailer to take a leadership role. But becoming an IoT leader means venturing out from its comfort zone in appliances, networking, computer and video gear to encompass home security, lighting, irrigation systems, HVAC — maybe even power window treatments.

Without question there will be billions of IoT devices sold over the next decade in the U.S. market alone. Best Buy recognizes this, but so do many others. I’d anticipate tremendous price competition for the devices themselves, and rising need for expert services for installation, monitoring and maintenance.

The Geek Squad could be Best Buy’s ace in the hole, but as Ken Cassar smartly points out, there are alternative service providers like Enjoy, who have their eyes on this profit center without the burden of inventory carrying costs.

Shep Hyken
BrainTrust

IoT products are a perfect extension of the Best Buy product lines. They are known for electronics and have great merchandising and displays. Rivals such as Target and others mentioned in the article are general merchandisers, while Best Buy plays big in the electronics and technology areas. They will also have opportunity similar to the Geek Squad where they will help customers set up their home and offices to take advantage of IoT products.

Hitha Herzog
Guest

As an analyst, I’ve been covering Best Buy since 2007 and have seen the major misses (sinking same store sales, low traffic in stores, fear of show rooming) and the the gains (Hubert Joly as CEO + massive turnaround). Focusing on the IoT is a solid strategy specifically if the company wants to capture Millennial dollars. If you walk into a home of anyone who is under the age of 32, you will know what I am talking about. Staying on this path will prove profitable long term for the company.

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Braintrust
"I think IoT gives Best Buy a great opportunity to shine."
"While I’m skeptical ... Best Buy is making smart moves early in the IoT category life cycle."
"IoT is the most important new trend sweeping the consumer electronics space..."

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