What is happening with Best Buy?
We see a combination of internal and external influences in the recent unsatisfactory performance of the company. On the internal side, according to the newly appointed CEO, Mr. Joly, Best Buy "had continued to open new stores well into the recession and made some acquisitions that yielded low returns". The company went through a scandal involving the former CEO. This incident combined with the effort of the founder of the company to buy out Best Buy, might have driven the attention of the company management away from building a competitive on-line platform to address the increase in online shopping for electronics. A big external influence is Amazon with its lower prices on the same products. Many shoppers go to the Best Buy stores to physically examine the merchandise and then go to Amazon to buy this item at a substantially lower price (Jones, 2012).
Many retail publications suggest that the age of retail stores as we know it is nearing its dawn. Online becomes an increasingly more appealing option for shopping. When shopping online one can easily compare prices across competing brands, find the best deal available, place a purchase and have it delivered to his/her door within one day or even, remarkably, on the same day of the purchase. In other words, many retail analysts say, brick and mortar stores now become akin to showrooms where a customer can touch and feel the product, examine its quality from up-close and test its functionality. Unlike the traditional retail store, the showroom concept lacks the main element of commerce - a transaction.
In a few years the new and old retailers may not need to roll out dozens or hundreds of stores to capture or maintain the market share. I suspect that in the near future a new entrant in the market with ambitious plans to become a major play will only need a few key urban locations, most likely located in downtown with great visibility and high traffic, to ensure the realization of its plans. These scarce but really extraordinary retail locations or showrooms will be replete with the latest technological and design innovations as well as the trully professional staff and of course, beautiful product. Spaciousness of the store can be attributed to the absence of the backroom: there is no need to have inventory. Each product will be displayed in a much better way allowing the customers appreciate the finer elements of its design and examine the product for possible flaws. Manufacturers will have to make things better so that they will pass the test of our heightened attention and end up in our homes.
In other words, the physical stores could steer away form being a place for making a business transaction to a place that will facilitate the occurrence of the transaction online. Lets face it, in the last couple of years, we have learned to combat the desire for instant gratifications. Value has take the center stage in our lives. We do not want to spend more than we absolutely have to and we will go out of our way to find the best deal. I can say that we are conditioned to look for a better deal.Back to Best Buy. Amazon has started to erode the ground beneath its nemesis' feet back in the early 2000s. Presently, e-commerce accounts for 20% of US consumer-electronics sales. Surprisingly, Best Buy did not do much to address the online threat. It did, however, set up the website in 2000 but did not emprove its functionality and so it was not popular among online shoppers. Online sales account for only 6% of Best Buy revenue.
To address these challenges, the company plans to transform the design of its online platform and physical stores in an effort to improve customer experience; it intends to offer benefits and membership programs to its customers in order to drive loyalty; it hopes to encourage its vendors to use Best Buy as a preferred distributor; It also plans to whittle expenses by re-allocating store space and cutting input costs (Jones, 2012).
Relevant facts:
25% of online consumer electronics shoppers visit bestbuy.com and 31% actually buy something
41% visit amazon.com and 81% end up buying
3% shop at apple.com and 76% buy
Best Buy holds the 11th spot on the list of top 11 E-commerce sites with $3 billions in sales in 2011. (I was surprised to learn that the second spot belongs to Staples.com)
Sources consulted:
Jones, K. (2012). Best Buy CEO Eyes Cost Cuts, Online Sales. Wall Street Journal. Retrieved from
http://online.wsj.com/article/SB10001424127887324556304578117110821129272.html?mod=dist_smartbrief
