Best Buy: Grasping at Straws

http://www.forbes.com/sites/larrydownes/2012/03/29/best-buy-grasping-at-straws/

by kapgoals • 14 years ago

45 31 14 years ago

tzs2• 14 years ago

Someone at Reddit pointed out something interesting, in response to a different article covering much of the same information.

Back when Circuit City was around, Best Buy was aggressively responding to Circuit City opening new stores by trying hard to put a Best Buy near that Circuit City. They would do this even if there was already a Best Buy within a few miles of that location.

Now that Circuit City is gone, Best Buy is left with quite a few stores that really have no reason to exist--they are too close to another Best Buy. These are a major contribution to the list of stores they are closing.

Closing these stores is not necessarily a sign of trouble.

mcphilip• 14 years ago

Maybe that's true in some sort of a common sense perspective, but the closing of those stores still translates to diminished growth from an investor's perspective which will tend to really punish the stock price and put more pressure on the leadership for cost cutting and/or restructuring.

ryanhuff• 14 years ago

I don't think I agree that slower growth due to closing stores necessarily leads investors to sell the stock. A typical metric in retail is same-store-sales. If you close a BB store that is in close proximity to another BB store, its possible (probable?) that the surviving store could see a jump in same-store-sales. Investors may see this as a good thing.

webwanderings• 14 years ago

Isn't hhgregg the old Circuit City come back? These retail stores don't really go anywhere.

tzs2• 14 years ago

I've never even heard of hhgregg. Checking their store locator, I see why: they don't appear to have any stores west of the Mississippi.

They have been taking over some old Circuit City stores, but only in their regions where hhgregg already was.

Circuit City was nationwide (and so presumably many of the redundant Best Buy stores are nowhere near an hhgregg).

rdl2• 14 years ago

Maybe they should charge a membership fee, like Costco, and sell their products close to cost. Especially once Amazon has to start paying sales tax, this might be enough to make it work.

Although, I had a gift card or something which required I make a $25 purchase (batteries) in person at a Best Buy, and the experience was horrible. I'd pay 1.2-1.5x as much to buy from Amazon and not have to deal with an icky store, obnoxious salespeople, and painfully slow checkout process.

jrockway2• 14 years ago

Amazon charges sales tax in NYC, and I still prefer them to Best Buy. The problem is that Best Buy never stocks high-end items, only overpriced low-end items. So there is just no point in visiting unless I want to pay $60 for a shitty USB cable, which I never do :)

DougN7• 14 years ago

You just explained it perfectly for me -- Best Buy is CompUSA, just on a curve 5-8 years behind it.

rdl2• 14 years ago

NYC has B&H, so I don't understand why the issue of where to buy AV equipment is even an open question :)

rodly• 14 years ago

This is an interesting example of how disruptive technology is. E-commerce is just too powerful a force and the low costs and ease of use will soon demolish our conceptions of what a retail store should be. With rising gas prices, no one wants to drive to a store, spend time searching for products, and be subject to annoying taxes and price hikes that B&M need to have to profit. It's an interesting but scary proposition because as more stores close down and jobs are displaced to programmers/web developers/etc, you get a pool of uneducated workers who saturate the employment pool with good work experience. This leads to lower and lower wages due to obvious excess supply and, well, you know how that goes. This is truly a scary transition that will become more commonplace in the coming years. There will be an uptick in jobs for people like us, but most people, even college students now, have no idea how to do much more than load memes in a "internet explorer thingy firefox". An even scarier question is when will E-commerce no longer need an abundance of highly paid programmers to build their infrastructure? I fear Amazon has nailed the proper way to shop online and their template is just that, a template. Wordpress killed the idea of a unique blog. Everyone can have a wonderful looking site and have no clue how anything works. When everyone can be extraordinary and stand out, no one stands out.

trafficlight• 14 years ago

This is a little too post-apocalyptic. I think the biggest thing you miss in your argument is that a lot of human beings don't really want to do the same thing as all the other humans. There will never be a point where Amazon is the only option for E-commerce. Wordpress will never be the only blog software option. There are millions of people who won't go to Walmart simply for the fact that it's Walmart.

Honestly, do you think there will be point when we say, "Welp, we've written all the software. Now what?".

apsurd• 14 years ago

downvoted for short-sidedness

s3graham• 14 years ago

Pretty soon, the only end-customer things in cities will be coffee, restaurants, bars, yoga, and gyms. And Apple stores, apparently.

It seems nostalgically sad, but there's also going to be lots of space for doing "something" locally. I don't know what though.

merraksh• 14 years ago

And Apple stores, apparently.

And maybe stores for other brands, provided they will come up with a way to offer a similar experience as that of an Apple store.

apinstein• 14 years ago

I remember thinking during class at business school (1992-1996) that the internet was going to cause a major shift in retail. To survive in the internet age, retail would need to morph into basically a manufacturer showroom, with very knowledgeable staff and where most goods were ordered in-store or online and just drop-shipped.

Why? Because the retail industry had devolved into essentially a real estate business; manufacturers bought shelf space from retailers. Manufacturers had essentially no control over the person-to-person sales/education experience for their own goods. Manufacturers hated it, especially new entrants, since it was so hard to introduce a new and actually better product.

It's taken about 20 years, but this is finally starting to happen at scale. Companies like Sony and Dell tried it, but they didn't really invest in the right floor salespeople or retail experience to make it anything other than a Sony store vs a Best Buy. Apple is really the first company to nail it, and it's paying off big time. It is really cool to see, as I think it's such a move in the right direction for both manufacturers and customers.

thedragon4453• 14 years ago

I think there are several problems with Best Buy.

* only seems to stock the cheap crap with high markup. You quickly learn to avoid this (looking at you, monster cable.) * Staff is not knowledgeable. There is not a lot of imperative to buy at Best Buy, since you get the same level of help as you do at an online retailer - at best, none. At worst, misinformation. You generally figure it out based on reviews and research either way. * The corporation aggressively pushes things that will cause ill will. Lying about HDMI cables, high warranty costs, upselling way beyond the customer's need, etc. * Its usually more expensive than an online competitor.

I still think that there is a place for a brick and mortar retailer of electronics. In fact, done well, I think it could thrive. I'd pay a couple of extra bucks to talk to someone who knows what they are talking about, and to be able to get something I want now. But Best Buy is predatory. Somehow treating your customer shitty while charging more isn't sought after. Odd.

thematt• 14 years ago

Frye's is a brick and mortar retailer of electronics and they seem to be doing pretty well. Granted, they're in the same boat in terms of customer service, but they've at least found a market for themselves.

shalmanese2• 14 years ago

I don't know if the economics of this make sense but it's always seemed to me that the logical end goal of this is that brick and mortar stores should refocus as marketing arms of manufacturers. That is, they should price goods basically at cost such that they're economically indifferent to whether a sale is made or not but charge manufacturers a significant sum for shelf space and promotion.

Lots of goods genuinely do require an in person experience to evaluate whether to buy but can be had cheaper online. What ends up happening is that people go to the stores to handle the goods & chat with the salespeople, then later buy online. In effect, B&M stores have been giving a huge, inadvertent subsidy to online stores the entire time and I can't help but imagine that's what's really crippled their businesses.

I think perfumes will be one of the early indicators of how these new business models will play out. The entirety of the experience of a perfume is how it smells and that's something impossible to convey online. At the same time, all perfumes of the same brand are guaranteed to be chemically identical and shipping costs are a minor part of total costs so it's perfect as an online good.

va_coder• 14 years ago

"In effect, B&M stores have been giving a huge, inadvertent subsidy to online stores the entire time and I can't help but imagine that's what's really crippled their businesses."

True, but on the other hand online stores subsidize B&M too. I've often looked at the ratings on Amazon and then bought something at a B&M because I wanted it right away or wanted an easy return, if needed.

shalmanese2• 14 years ago

I imagine the cost of developing and maintaining an online review system is relatively trivial in the overall scope of running an online business. Your example is just online vs B&M competing on their own merits. OTOH, it costs real money to hire knowledgable salespeople and real estate for attractive displays.

I don't know if this is a causal relationship but I noticed companies drastically cutting back on the quality of salespeople around the time online shopping became big. This would make sense economically as stores could no longer capture the full economic value of good service. OTOH, for vertically integrated stores like Apple, the incentives are aligned and the quality of staff is noticeably higher.

jballanc2• 14 years ago

When I, and Ron Johnson, still worked for Apple, he told a story that has stuck with me. As he told it, he was talking with the CEO of Williams Sonoma who was complaining about the difficulty of getting people to make return visits. "If you need a pot, you come in to the Williams Sonoma, buy a pot and leave. You don't come back unless you need another pot or something else for the kitchen...and how often is that?"

Johnson's replied that the key to return visits is to make each visit an experience. "Put on cooking demonstrations, teach classes, provide samples. Then people will go to the mall just to visit the Williams Sonoma."

Sure enough, every time I'm near a Williams Sonoma, I make sure to stop inside.

Of course, it's easy to follow the MBA handbook and talk to investors about "changing compensation schemes" and "reducing cost, improving product mix, blah, blah, blah". To get ahead, you have to be daring...a little crazy even.

For example, the "Apple Creative" program was one of Johnson's ideas: hire top-notch trainers, and charge people $99/yr for weekly lessons.

What?!? That's positively INSANE! Have you ever looked at what it costs to take lessons with a certified Final Cut Pro trainer? And yet every Apple Creative was certified in at least one of the pro products. How on earth could such a plan make any money?

How on earth could such a plan result in a $100 billion bank balance?

How indeed...

prodigal_erik• 14 years ago

It didn't, though. Apple was circling the drain for many years until the iPod and iPhone saved them. At this point they've even taken "computer" out of their name.

bradleyland• 14 years ago

You're making an argument that the parent isn't. No one in their right mind would claim that the iPod and iPhone aren't major contributors to Apple's current condition, but are the two mutually exclusive? Are you claiming that the Apple retail strategy hasn't contributed to Apple's success? That seems just as silly.

I don't believe that there are many of Apple's decisions you can cherry pick and still arrive at the same Apple you have today. The "experience" at the Apple store is definitely one of the decisions that are inextricable from Apple's overall success.

zred• 14 years ago

If you want to see how consumer electronics can still be sold in retail locations, just spend ten minutes in an Apple store. They are selling some of the same products as Best Buy, but the two experiences couldn’t be more different.

I think the comparison to the Apple Store is unfair. Apple doesn't have to compete on price. A MacBook Pro costs the same regardless of where one purchases it and so Apple can create a store that's a joy to be in and know that customers will purchase there. If you're going to be paying the same price, why not shop where the experience is the best.

On the other hand, most of what Best Buy sells can be bought in a competitive market. If I go to Best Buy to buy an Asus computer, I might find better prices elsewhere. I'm going to buy it at Best Buy if they have the lowest price. As such, if Best Buy spends money to make that experience of buying an Asus a joy and has to charge a bit more because of it, I might browse there and buy elsewhere.

It's Apple's tight control of the pricing of their products that allows the Apple Store to be a viable business model. Apple doesn't have to worry about MacMall or Target or Best Buy undercutting them.* They don't have to worry about a customer asking their trained staff all of the questions and then going to Best Buy to actually make the purchase. Best Buy does need to worry about that on the majority of their products. If Best Buy puts money into smart staff members to explain my different laptop options, I can easily go elsewhere to make the purchase cheaper should those staff costs appear in the price.

It's a lot easier to provide a great experience when you don't have to compete on price.

*Yes, Amazon and B&H do offer discounts on Apple computers, but those discounts are usually small compared to the overall price and small compared to the variation in PC pricing.

jballanc2• 14 years ago

Reading the article and the comments here... I have to say it's rather sad how many are completely ignoring the single biggest differentiator between brick and mortar retail and online shopping: human interaction.

learc83• 14 years ago

From working at Best Buy during college, a major part of their problem was the independence of the local management.

HQ would pass down all these lovely plans they spent millions to develop and test, then there was no real follow through. Store management just did whatever they wanted anyway.

We'd spend all this time at Saturday morning meetings learning about our new initiatives; how to relate to the customer and make recommendations instead of selling.

Then come monday it was back to the same thing we were doing before we wasted 300 hours of labor learning about some already forgotten scheme.

Another huge problem was they way they promote. Supervisors and managers were almost universally promoted completely based on sales ability.

For some reason they couldn't quite figure out that sales ability and management are two completely unrelated skills.

jasonkester• 14 years ago

My new philosophy: If Amazon doesn't sell it, it's not for sale.

Roughly 100% of the electronics, toys, and assorted crap that I purchase comes to my front door. Certainly everything that you could imagine a store like Best Buy selling, I just buy online these days. And I'm by no means ahead of the curve in this respect.

I'm sure there's still a store in my town that would sell me a television. But I have no idea where it is.

guynamedloren• 14 years ago

HDMI cable query, first search result:

$13 - Best Buy

$6 - Amazon

HDMI cable query, most expensive on first page:

$696 - Best Buy

$14 - Amazon

That's why Best Buy is dying. If the meaning is unclear here, my comparison represents how distorted and convoluted Best Buy is as a company.

fruchtose• 14 years ago

The bottom end is Best Buy's biggest problem--mainly that this is how Best Buy makes money. Much of what Best Buy sells requires no physical interaction with consumers. This is as much about experience goods as it is about Best Buy's market. There are a variety of experience goods sold online--headphones, iPods, laptops, TVs, musical equipment--and its probable that a large number of these sales are not decided because a consumer walked into a physical store and experienced the product beforehand.

For instance, the first headphones I spent more than $30 on where a pair of Audio-Technica M-30s. I could not find these headphones in a physical retailer. I found them online, and I bought them purely based on the recommendations of others. I now own a pair of Audio Technica M-50s, which I bought based on the experience of the first pair of Audio-Technicas and the recommendations of others.

The element not explored in the article is authority. Authority plays a big role in how we buy things. Best Buy is perceived to have little authority; they hold little regard for consumers and have questionable customer service. Newegg, on the other hand, treats consumers well, and consumers come back to the site. Apple stores have authority, because Apple has created the impression in people's minds that you can go to the store to get your electronics needs fulfilled.

The other variable is price. jrockway commented here that he wouldn't buy a $60 USB cable from Best Buy. Why? Because he knows USB cables are much cheaper online, new or used. The problem here is price and authority. Best Buy reduces their perceived authority when they sell generic goods obviously overpriced. Best Buy is selling cheap goods as expensive goods; their biggest obstacle to success is people's knowledge that Best Buy is overcharging you. That is the symptom (not the cause) of their issues; knowledge for most people is irreversible.

What does Best Buy actually need to do? Get their authority back. Give people a reason to come back to Best Buy. Actual customer service goes a long way.

JunkDNA• 14 years ago

I'm having trouble locating the source, but 5 - 10 years ago (when Best Buy was flying high) I read an article that talked about Best Buy's financials and it revealed that a massive portion of their profits came from (mostly impulse) buying of CD's and DVD's, not all the big ticket electronics and appliances. This was one of the reasons all that stuff was in the front of the store right by the registers. I remembered wondering at the time what their long-term plan was for extracting themselves from that dependency once it was commonplace for those goods to be entirely digital. Apparently they didn't have one.

Best Buy: Grasping at Straws

Related Stories