Best Buy Expands Private Label Electronics

Discussion
May 01, 2009

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?

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18 Comments on "Best Buy Expands Private Label Electronics"


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Jeff Weitzman
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Jeff Weitzman
9 years 11 months ago

RadioShack introduced generations of Americans to consumer electronics with its Tandy brand. The Gap successfully transitioned from a Levis store to its own brand of jeans. House brands can succeed in the face of iconic brand names, to be sure. In Best Buy’s case I think they’ve got a good shot. Consumer electronics have clear tiers, and the “value” tiers are pretty well commoditized these days. They are spec/logo driven, not performance driven, and in that market an attractive, low-priced choice with all the right features and limited competition in its class should do quite well.

Dick Seesel
Guest
9 years 11 months ago
The success of Insignia and Dynex depends on a few key issues, but has a lot of opportunity for Best Buy given its overall credibility in the consumer electronics market: 1. Are the brands being used in categories where they make sense? In a price-competitive, “commodity” business like flat-screen TVs, there is nothing wrong with these brand names…any more than with names like Vizio or the countless “no-name” brands available at competitors like Walmart and Costco. (Many consumers understand that even the “name brands” are being cranked out in factories doing contract work anyway.) The brands also make sense in computer-peripheral categories like wireless routers, printers, etc…but probably not in desktops and laptops. 2. Do the brands as positioned and priced truly represent a value to the consumer? It’s one thing to develop exclusive brands as a “margin play,” it’s another thing entirely to make sure that the customer is getting national-brand quality at a competitive price. 3. Is Best Buy committed to marketing of these brands? I’m not talking about ad budgets for national… Read more »
Marc Gordon
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Marc Gordon
9 years 11 months ago

Electronics is a funny market. While some products are brand-driven and associated with status, other products are price-driven. As an electronics junkie myself, I look at the specs and the price. If I can get the most for the least, then who needs the name? After all, most of these products–brand name and private label–are probably rolling out of the same Chinese factory anyway.

Best Buy’s long-term success will lie in being able to understand what their clients look for and how best to deliver it either as a price driven item or name-brand status symbol.

Max Goldberg
Guest
9 years 11 months ago

Consumer electronics is a highly competitive, low margin industry. Best Buy’s success will hinge on quality, price and technological service. If they can meet consumer expectations on all three, their private label products might thrive. Should they stumble, it could be a significant black eye that could open the door for a competitor to emerge.

W. Frank Dell II
Guest
9 years 11 months ago

Private Label products for electronics are not easy, but doable. Products that don’t change for years are easier, but apparel retailers have been selling Private Label with annual product line changes (Macy’s).

Electronics will be similar in that the suppliers adjust their product line annually, although some items are only changed every few years. Best Buy will likely be a year behind as new features will take time to duplicate. They will need to operate a best-of-breed Private Label program (Trader Joe’s, Tesco) by searching out consumer wants, not by following the pack. Electronics products change rapidly, so Private Label must as well.

Carol Spieckerman
Guest
9 years 11 months ago

Consumer electronics has been overdue for a major private label move and, with Walmart intensifying its brand central approach to consumer electronics, Best Buy’s counter-intuitive strategy could be a real differentiator. Freshly minted CEO Brian Dunn has made no secret of his plans to evolve Best Buy stores into interactive and experiential playgrounds; boosting its private label offerings simultaneously will allow Best Buy to brand block and visually distort these higher margin brands at will. That said, we are noticing a palpable discontent among suppliers as Best Buy exerts more control over not only the in-store environment, but also how and where national brands are marketed. Walmart has benefited from this as suppliers get stuck in a “damned if you do, damned if you don’t” position with Best Buy. Expanding private label and competing with existing suppliers will only intensify this conflict. Hopefully, Mr. Dunn will realize that he can’t do all of this alone and will enlist the support of those who have helped build Best Buy’s dominant position.

Joan Treistman
Guest
9 years 11 months ago

Is this the time for Best Buy to channel its energy and budgets into the private label space? Consumers are looking for “good value for the money.” They need the assurance that their purchases are worthy. Kenmore and Craftsman (Sears’s brands) developed their reputations for value and quality over a long period of time when word of mouth traveled by telephone and face to face encounters.

Social media and reviews that appear on retailer and other websites have unharnessed a word of mouth influence on purchase that no one could have imagined. I’m not saying that Best Buy doesn’t have the products or innovative back room. They will have to if this challenge is successful.

And I am saying that the forecast for return on investment has to take into account the uncontrollable influences which will drive Best Buy private label sales. And then Best Buy has to recalculate and see how they will try to influence the influencers…in a deep recession.

Doron Levy
Guest
Doron Levy
9 years 11 months ago

Private label is the way to go but there may be a stigma in electronics that BB will have to overcome. Product knowledge would be key. I would want all my associates to know these items backwards and inside out (picture a blue polo’ed Best Buy associate dismantling an MP3 player and then reassembling it blindfolded). Will they offer some sort of extended return policy on their line? A juicier guarantee is one way to build up brand loyalty (and it’s usually the norm in PL).

Gene Hoffman
Guest
Gene Hoffman
9 years 11 months ago

Natural forces will eventually prevail. The trend toward quality private labels that perform equal to national brands will continue to perform well in a global marketplace that’s inching toward more sophistication in the product selection process.

Best Buy is a strong organization. They see the opportunity in PL electronics to increase their strength and gain market share. They plan well, have peripheral vision and they are astute. Bottom line: The market share battle is not always won by the strong or the swift, but that’s the way to bet.

Liz Crawford
Guest
9 years 11 months ago

Quality Private Label is one way to begin to own the space. Another route is the Sears/Kenmore-type house brand. Either way, retailers are encroaching on national brands across categories. Making these moves is becoming imperative for serious retailers.

Anne Bieler
Guest
Anne Bieler
9 years 11 months ago

This is the time to do it–consumers are shopping very carefully, and have the means to understand what they are purchasing. Value is the term that describes product + benefits in comparison with competitive products–shoppers are watching where they spend their limited resources.

Best Buy understands its loyal shoppers and their needs, so well executed private label can work for them. The packaging can be used to differentiate items, while communicating clearly the benefits and features of the PL product. Staff will be also questioned thoroughly to explain the differences between brand and PL items. Done well, it could keep shoppers coming back.

Mary Baum
Guest
Mary Baum
9 years 11 months ago

In my view, the model is Trader Joe’s: Best Buy will have a winner if they can offer higher-end feature sets at a value price point. Thanks to TJ, we know that’s a proven winner with consumers.

The trick is finding a margin in that model. Can they find off-the-shelf technology and pull it together with great styling, and still keep a significant price advantage over the brands who have their own great features and styling?

And–in this economy–how do they position gadget upgrades as wise purchases–that they aren’t just frivolous toys that can wait for a recovery?

(A hint: two summers ago, some friends of ours canceled one vacation and spent the money on a wide-screen television.) (And, of course, lots of electronics are in fact job-hunting or business-startup tools.)

X X
Guest
X X
9 years 11 months ago

IMO, I thought Best Buy was trying to be more upscale with their products and service. By going to cheaper private label products they are losing their differentiator and playing into Walmart’s and Amazon’s strengths. And, they are not endearing themselves to the name brands; this has got to be bad for vendor and manufacturer relations.

Best Buy is also creating a big opening for Target. The name brands are going to be wheeling and dealing now, and Target could move into consumer electronics in a big way.

Lesson to be learned: Don”t mess with the name brands, the biggest retailers, and the biggest internet retailers, all at the same time.

Don Delzell
Guest
Don Delzell
9 years 11 months ago
This is a window of opportunity to implement private label consumer electronics. The industry is a mature cycle segment, with new product innovation focused primarily on product line extension and feature enhancement. In that context, private label makes the most sense. Limiting the assortment to provide a focused choice within the opening price point is very good merchandise planning and strategy. Doing it with higher margin private labels makes incredible sense. The margins on these products through brands are unbelievably low. However, at some point– relatively soon–the industry will revolve and from somewhere will come game changing technology. It will inevitably be brought forward by either a mega-brand or a unique new player. Neither of whom are likely to be the BBY product engineering staff. When that game changing event occurs, brands will, during that portion of the PLC, become critical. Staying with the model, BBY should be careful to position private label in mature technologies, well understood by the consumer, where price and stable feature sets make value comparisons possible.
Kevin Sterneckert
Guest
9 years 11 months ago
I believe a retailer’s own brand is vital to successfully achieving true differentiation. Regardless of the sector of retail, if there are items that can only be purchased from a given retailer and these items represent quality and value that are also only available at a given retailer, you will achieve the intended result. Differentiated value that drives customer traffic. Case in point. Try finding an in-vehicle DVD player that can handle the vibrations of a typical car and offer some semblance of an installed look and feel. Portable DVD players are not the answer, they skip to much. Car dealerships offer a choice at a price from $1500 to ridiculous. And then there are some other options which will run into the hundreds and thousands. Best Buy offers an Insignia version with two monitors, remote control (with a very cool in dash storage slot), headphones, adapters, and picture frame stands if you didn’t want to use it in the car…with many other features (really the best of all of the brands built into one… Read more »
John Burris
Guest
John Burris
9 years 11 months ago

As long as the Best Buy label is “GOOD” product, solid in every manner including warranty they can and should excel in this arena. Is it likely that will be the case? I doubt it.

Higher margins will control the whole line.

Ken Yee
Guest
Ken Yee
9 years 11 months ago

As long as BB doesn’t go overboard in the coming years with PL over branded, they’ll be fine. Avoid splashing endless pages of store brand products in flyers or else you’ll look like a cheap grocery store peddling $0.99 products.

Electronics are an industry which is brand-heavy. I almost exclusively buy Panasonic electronics and appliances when they offer them. It’s not like buying a no-name bag of cookies for $1.50 vs. Oreos at $2.50.

That’s the problem RadioShack (now Source by CC) had here in Canada. Aside from aggressive sales reps, the stores were flooded with all kinds of weird sotre brands like Nexxtech and Genexxa and whatever. Nobody I knew cared for any of it. Now they carry mainstream brands. Problem they have now is the last time I checked, all their brand-named goods are $100+ more than BB’s or Future Shop’s prices.

Domenick Celentano
Guest
Domenick Celentano
9 years 11 months ago

Best Buy, as are many other retailers, is embracing the trend toward private label. Numerous research providers, such as IRI, have documented significant movement toward private label in Consumer Packaged Goods. This is a shift in consumer behavior in so far as consumers recognize private label can be equal to or exceed the quality of name brands.

Best Buy’s shift toward engineering innovative products through consumer research represents a shift toward what is termed Private Branding. Private branding is the next step for retailers, placing effort into items that they “own,” so to speak that are unique to the Store Brand and not just me-too knockoffs to major brands.

Consumer electronics manufacturers would be well served by walking down the aisles of any major supermarket to see what is in store for them in the near future.

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