Best Buy Expands Private Label Electronics
By Tom Ryan
Hoping for a differentiator against its rivals such as Wal-Mart Stores and Amazon, Best Buy is rapidly expanding its private label assortments.
Best Buy now sells hundreds of electronic products under five house brands: Insignia and Dynex televisions, Rocketfish video cables, Geek Squad flash drives and Init electronics cases and accessories. Sales of Best Buy private-label electronics soared 40 percent in its year ended Feb. 28.
According to an article in The Wall Street Journal, Best Buy is choosing not to carry some low-priced electronics brands that would compete with its private-label offerings. Popular products included a global-positioning system with Google Inc. search capabilities, a high-definition radio receiver that displayed the names of songs, and stripped-down digital picture frames without pricey extras such as music-players.
On the upside, exclusive electronics lines can give Best Buy an edge over competitors if it’s able to develop the type of brand loyalty Sears Holdings Corp. enjoys with its Kenmore appliances and Craftsman tools. Private labels often carry higher margins.
The success of its Insignia and Dynex televisions helped the retailer lift its share in the flat-screen televisions to 4.9 percent last December from 2.3 percent a year ago, according to iSuppli Corp.
“I don’t see why they would want to have another value brand in the mix anymore,” said iSuppli television analyst Riddhi Patel. “They have hit on a good model.”
On the downside, promotion of its own brands may strain supplier relationships. If poorly received, private label brands can tarnish a retailer’s reputation.
But the Journal article notes that developing consumer electronics has been difficult since consumers see products such as mobile phones as brand-driven status symbols. Compared to other categories, technological advances also make it difficult for retailers to develop relevant products without investing significantly in research.
Success so far has been spotty. Wal-Mart experimented with an inexpensive electronics line called iLO before dropping it to refocus on name brands. Best Buy also had limited success in its 2004 introductiong of Best Buy Blu-ray players and digital converter boxes that identical to electronics sold at Wal-Mart and Radioshack Corp. stores. But now the company is moving away from buying “off the shelf,” and employs a team of engineers to innovate products using customer feedback, Best Buy Executive Vice President Mike Vitelli told the Journal.
Discussion Questions: What do you think of Best Buy’s push into private label consumer electronics? What do you think of the particular challenges developing private label electronics versus other categories? What will Best Buy have to do succeed in private label?