Best Buy Faces Tough Going
It was accepted wisdom two-plus years ago when Circuit City
was closing its stores that Best Buy would be one of the biggest beneficiaries.
A RetailWire poll
in January 2009, for example, found that 48 percent thought Best Buy would "significantly" or "somewhat" better
benefit from the removal of a major rival compared to 21 percent who thought
Wal-Mart had the most to gain. The reality for Best Buy, according to a Wall
Street Journal report, has been quite different.
The consumer electronics
chain has lost share over the past couple of years and has been especially
vulnerable in the television and computer categories. While some may assume
that a rebound is just a matter of time for Best Buy, the Journal article
suggests that the growth of retailers including Amazon.com, Costco, etc. poses
a direct threat to the chain’s share of market.
Best Buy is hindered by two
basic facts: 1) The products it sells are available in many other places
and; 2) Prices on those items are easily compared online and through mobile
apps. Best Buy itself offers one of those price comparison apps.
Greg Melich
of ISI Group told the Journal that Best Buy has become
Amazon’s "showroom."
Last month, the company revealed it was looking
at going to some form of every day low pricing to try and attract shoppers
without the need for a sale. Other recent changes have included dropping
fees on returns and launching a new product buyback program to encourage
consumers to trade up to new technologies.
Discussion Questions
Discussion Questions: Why does Best Buy continue to lose share? What must it do to reverse the trend?
Best Buy is in a tough category. The prices are easily compared and they are often beaten on price. BB has tried to counter this by training its sales people, offering Geek Squad set up and service and a buy-back program. When you in a commodity business with easily accessed competitors, and don’t offer the lowest prices, it’s hard to gain market share.
Best Buy will need to evolve. The industry is changing, pricing is changing and they haven’t kept up with a differentiator. Most consumers would rather buy a computer/television/electronics locally if the price is comparative so they can get local service. But when the Geek Squad’s solution is Reboot, no matter the problem, Best Buy loses credibility.
Circuit City lost ground because they didn’t value the domain knowledge of their associates. Best Buy has also gone the way of cheap young associates with no customer service discipline and product knowledge. Consumers don’t mind paying a little more (not substantial) for knowledgeable, helpful associates.
Focus on your core beginnings instead of trying to diversify and fail at all! In today’s world you can’t continue to do business the way you have always done it and succeed. Social networking, WOM marketing and the constant, ever-changing demands of technology are changing the game and BB needs to stay ahead of the trends. Their Christmas promotions were lackluster and devoid of any creativity. Thus the lines that were traditionally out the door and around the building were small and uneventful.
You know, it really is NOT all about price transparency. It’s about a broken brand promise.
Best Buy has rested on its laurels for at least 5 years now. The in-store personnel are TERRIBLE, its cross-channel pricing and product strategies are confusing at best and deceptive at worst, and it’s a service nightmare.
This started the holiday season Circuit City was in Chapter 11, and has continued unabated. In fact, I might say that the company is following in Circuit City’s footsteps. Best Buy was never going to win a pure pricing game, just like Circuit City wasn’t. Why not? Its costs are higher.
I know these comments sound harsh, but I could cite multiple personal experiences of that promise not being kept. Unless the company can redefine a service value proposition, things are going way downhill from here.
The problem, at least in Canada, is that Best Buy is hardly ever the “Best Buy.” Best Buy is consistently higher than the mainstream competition and often much higher than Costco and Tiger Direct. When you sell commodities in large-format stores, you pretty much need to be price-competitive. I don’t go to Best Buy for the service so if they are not competitive what reasons again do I have to go there? Most people will put up with a more warehouse-like shopping experience if they can save a few hundred dollars on a TV set.
There seemed to be a mass exodus of help from Best Buy who then went on as consultants. Did they see the writing on the wall? And, as I said in my special report: Bricks and Mortar Retailing At Risk in the Digital Age if we don’t solve the humanity problem, technology will render many bricks and mortar stores a showroom for others offerings. It won’t be easy but I agree with Susan it is a broken brand promise at the core.
While Best Buy was a major competitor, much of Circuit City’s focus was on Walmart for stores and Amazon for Web in the first half of the decade. I think that was because CC really felt they were better than BB. Recall at one point BB was on its deathbed, but CC could never quite finish them off. This led to complacency and denial.
I believe CC and BB could have co-existed quite nicely if it weren’t for the other competitors. I guess what happened to CC is slowly happening to BB. The difference now is that BB is more innovative, agile, and customer-centric than CC was, so they stand a fighting chance. But I wouldn’t expect any growth from North America.
The big benefactor of CC’s demise is probably HHGreg. Those guys seem to be buying up the vacant stores and using CC’s high-touch model, which is differentiated from the rest of the pack. While I don’t think they will get huge, they should do fine.
I disagree that Best Buy didn’t get a bump from Circuit City’s closure. I am sure they did. That is, it would be even worse for them right now if not for CC. It’s just that the failure of a competitor due to major problems in the basic business doesn’t bode well for the survivor’s future in that same business.
Still, I think there must be a role for physical locations where consumers can touch, feel, and understand personal technology solutions. Other than Apple stores, for that limited range of products, Best Buy has as good a positioning as any to be that place. But they do need to be one step more aggressive about testing new concepts, new categories, store-in-store plays, multi-channel plays, etc., and rolling the successes quickly and to only the right stores.
Paula’s right. As long as BBY offers mediocre service, they’ll continue to have to compete on price, a losing proposition.
Best Buy should decide to compete on service. Expand the Geek Squad offering so that customers can drop off their PC for an hour-long tuneup, and retrieve it on the same trip. That would also keep customers in the store for an hour (this isn’t lost on drug store chains.) Offer classes. Show customers why they want to upgrade. Until engagement with customers is Job One, they’ll continue to lose business to Amazon and PC Warehouse and Tiger Direct.
I stand with Paula on this one. Best Buy is sagging because it doesn’t present a compelling, relevant total experience (at least not to me). In fact, I believe some of its practices serve to further erode consumer trust.
Assortment keeps getting narrower–fewer brands and a tightening selection of items needed in a hurry like computer peripherals. Help from associates is pleasant but not highly informed. Store brand items are pretty cheap, but who really prefers to buy the Insignia laptop or TV? The frequent shopper program offers points that many people can never get to use. Getting in and of the parking lot can be an ordeal in itself.
And have you seen the latest commercial? Something about how many products are obsolete before you open the box. Best Buy claims it will buy them back when the next new thing arrives, but all it makes me think about is the fine print involved.
Many key Best Buy items are what I’d call high-consideration. That means shoppers are pre-researching features, brands, models, prices and reviews on the Web before they order. Who needs a showroom for that?
So when Circuit City bit the silicon dust, Best Buy wasn’t as well positioned as some of us assumed. Walmart, Costco, Sam’s and Target picked up a fair amount of the brick & mortar slack, and shoppers continued to gain relative comfort with online purchases.
Bottom line is, I can’t think of a very good reason to buy anything from any consumer electronics superstore.
My opinion is Best Buy believed the press clippings and sat back waiting for all the Circuit City customers to break down their doors. They expected this with no thought to what had to be done to make it happen. So they did exactly nothing and that is what they got…nothing.
Paula made some excellent points that made me think of my recent experiences in Best Buy. They were not memorable nor positive. This is a major change from prior to Circuit City’s demise.
The article said Best Buy is hindered because products they sell are available in many other places and prices of the products are easily comparable. Duh…so is everything else we buy from soup to nuts. Everything can be bought elsewhere and all prices can be shopped. So why is this a Best Buy problem? Others have it and are doing something positive to draw customers. Best Buy needs to take a quick course in customer service, marketing and effective employee training. They need to be competitive with Costco and Amazon. Right now they are probably not even a distant third in the race.
My sense of things is that the customer has to be reasonably expert at what they want or need to even engage in a discussion with the clerks (who as often as not, are LESS expert than the customer…but every now and again they are SO expert that it is intimidating).
I would like to see less product focus and more solution orientation. I want to see a section that combines all the products needed to resolve a customer desire or problem (podcasting, video-casting, home theater, or other issues).
One personal example…I was looking for a way to download Netflix movies to an HD TV through the use of a Wii receiver. While entirely possible to do so…I visited 3 BB stores and could not get a straight answer…other than to look at the various cables displayed and see if any could provide insights on how to do it. One asked me if I needed a co-axial cable (I admit…I did not understand what relevance that had, what that would offer me over a non-co-axial cable, and how I would know the answer to the question…what do I look for, what does one look like, does it have a different connection, etc.?).
It finally took doing internet research on my own to identify what I needed and then just buying what I needed online. How much simpler it COULD have been if there had been a display addressing the Netflix download options with instructions and products.
They sell commodities that are easily shopped to find the best price so it’s essential to their success to change the playing field. Not so easily done. I’m not sure that service is the answer either. Electronics have such short cycles that I don’t believe that many of the store personnel are any better schooled on the products (beyond the marketing-speak provided on a 1-page brochure) than I am. I’m not willing to pay a lot extra for that type of service. They could try to introduce a private label line of some select products. Displays, TVs? Make it a value line and build the brand. Yes, lots of challenges but at least they have some margin control and it would provide a lever against commoditization.
Somehow, the sound of Dire Straits’ “Money for Nothing” is pounding in my head as I write this. Exchange the skinny ties and silk shirts from the 80s to today’s polo shirts and khaki’s and you just about have Best Buy. It’s an experience shopping there that I would just as soon never have.
I recently purchased a new laptop there; I had dozens of other sources I could’ve gone to and wish I would have. I kick myself for not just walking out. But you can’t just walk out…you must be searched and interrogated worse than the TSA might to just get out their doors.
I’m quite sure that even at an extra expense to support my laptop, I won’t go back. No, I’m not just quite sure–I AM sure.
Best Buy’s problem isn’t that there are a few other choices. Their problem is that there are infinite other choices. I’m surprised that I even walked through their doors. I can’t think of a single reason to do so again. Consumers want a ‘reason’ to shop with you. Best Buy has consistently given me reasons not to shop there. The final one occurred in January.
I look for their difficulties to simply accelerate to the extent that they will likely find themselves in the position of Borders and B&N by this time next year. Irrelevant. Money for nothing? Nope.
Newsflash–the reason why Best Buy is doing so poorly is that the tech savvy stay away from the store. The stores here in NYC are always packed. You can barely move around in the stores on any given day and forget about a lunch time run if your boss is a clock/you watcher. Best Buy is actually opening more locations in NYC.
Honestly, the stupid people that can’t be bothered to learn how to read specs and do research online annoy the hell out of us. When I actually walk into an electronics store, I know exactly what I want. Therefore, I want to walk in and out within two minutes with my purchase in hand. Those of us who are spec and research driven don’t have to and usually don’t bother with the touch and feel and all of that other crap. I expect what I buy to operate as built–period! That’s exactly how I bought my HDTV last year. Went online, researched within my target price range, walked in the retailer, picked it up off of the shelf, paid and went about my business. Television works exactly as I expected to and I’m happy. Purchased my cellphones online after my research. I felt them when they arrived.
Best Buy’s target audience doesn’t actually use the store. We can’t stand to be in there! Thus, Best Buy wastes time and money trying to train and keep people up to date on what they are offering when that aspect of the business has and is continuing to shift to the consumer. If you can’t be bothered to, at the very least, try to keep up and evolve, get out of the way! It’s those of you that need your hands held and your egos stroked that can’t be bothered to read and actually take the time to learn and figure it out for yourselves, that will ultimately be responsible for the demise of Best Buy.
Reading all of the wonderful comments, I conclude that ten years from now (or maybe sooner) we’ll talk about Best Buy in the same breath with Circuit City, Ultimate Electronics (currently in liquidation), Linens ‘N Things, and Borders.
Unfortunately, with a name like Best Buy, you’re expected to be the price leader. And as we all know, the price position is a tough one to dominate it. In the crazy days before the crash, this didn’t matter so much because there were enough dollars to go around. No so anymore. Couple this with the escalation in the use of mobile price comparison and it makes it tough for a large operation like Best Buy.
If Best Buy can’t be the price leader every day they’re going to have to find some other positioning. However, it’s really tough to offer the best service at the lowest price in a brick and mortar operation. It just doesn’t compute.
Unfortunately the Journal article was lacking hard numbers, so we are left to speculate what they are: it may be true that it has lost market share from ’09 to ’10, but I doubt it has lost share from 15, 10 or even 5 years ago (of course with few players left, SOMEONE would inevitably lose share once CC was out of the picture, unless the markets remain completely static). But beyond this juggling act, I think that yes, there is a problem…and it’s called “free ridership”: the remark that BB, Borders, et al have become “Amazon’s showroom” sums this up perfectly. But what to do about this I don’t know; it’s easy to criticize consumer’s behavior as short sighted, but it’s hard to blame them…and of course it does even less to stop them.
Best Buy has no customer service. You can compare them to Border’s. Amazon.com and other online retailers are taking these stores’ market share and the box retailers are just sitting back and letting it happen. If they had a point of differentiation (such as great customer service), consumers may be more inclined to actually shop those stores.
There are a number of factors that have hurt Best Buy as discussed by panelists, particularly pricing, transparency and service. It has always been a surprise to find the Canadian stores are not aligned with online offerings, the assortment needs refinement–in accessories, they have many things aimed at gamers, but not nearly as much for families/boomers looking for options that are easier to manage/operate.
There are usually a lot of floor employees, but knowledge seems to be product specific, so time is spent trying to find the right someone who might answer questions. The checkout desk can be frustrating with long lines.
It seems if they are after the younger shoppers, a long way to go on hitting the right approach for pricing and transparency, other competitors who have more to offer these tech savvy shoppers. If trying to reach the broader demographic who need assistance in purchase decisions, service levels need to be reconsidered.
Sigh…we consultants love to speak about “total shopping experience,” “differentiators,” “total experience shopping” and so on.
At times I wonder if we’ve forgotten what it is to be a consumer, a real live store shopping consumer.
There are two common denominators in Best Buys declining market share loss to Clubs, Amazon and other formats. They are price and assortment.
Walmart just posted it’s 7th quarterly decline in comp store sales in their US stores. What was the reason? Price and assortment; and what is Walmart’s focus as revealed in their recent sales and earnings release? Price and assortment are two of the four strategic focus points mentioned by Mike Duke.
Best Buy must move to an EDLP approach, ensure that its assortment’s broad and deep enough to grow its relevance to American consumers and stay ahead of the change curve.
Best Buy is a dinosaur whose days are numbered. Their prices are high, inventory limited and they have ceased to offer specialization. Instead, they sell everything from appliances to electronics and games and phones. This means they compete with other brick and mortar retailers like Walmart and Costco, who do this better and sell it for less. Add to this the entire Internet threat that all brick and mortar retailers face and we have a classic case of a company that must either adapt or perish, and right now BB is not adapting….
More of a question since I no longer live in the US. Has the Best Buy use of QR codes made any difference to the shopping experience?
As Thomas Paine so aptly wrote, “Lead, Follow, or Get Out of the Way.” BBY better decide in a hurry what it hopes to deliver to the shopper…others are looking to lead and following is likely not a sustainable option for this retailer.