Why is Best Buy still in business? Most trends have suggested its downfall for years, from the dominance of Amazon to the loss of money-making markets for physical DVDs and CDs. Yet blue-shirted employees still course around busy stores, helping the customers who are flocking to popular technology items. The reasons for its success, while competitors have failed, span five key notions, as proposed by the company’s CEO Hubert Joly.
To start, it prices aggressively. When confronted with Amazon’s growing power, Best Buy realized that it needed to match the online giant’s prices, on every single purchase. If it could not, shoppers had no reason to buy in stores. Instead, Best Buy would be subjected to the threats of showrooming. Therefore, even though the practice is costly, Best Buy always matches the price for items sold on Amazon as well.
But Best Buy also recognized that it was not Amazon, so it could leverage an asset that that company lacked: customer service. The technology retailer already had established its popular Geek Squad, which for years had been helping consumers with pesky products and challenging in-home installations. It thus expanded the idea, offering extended training to salespeople so that they could help customers more readily in the stores. In addition, it initiated a new service, in which experts will visit consumers’ homes before they come to the store, to devise a home entertainment plan and develop product recommendations in advance.
Related to this focus on customer service, when Best Buy went to cut costs, it did so without ever imposing huge layoffs or widely publicized firings. Taking a more subtle approach, the company reassigned some redundant employees to other jobs, and it eliminated a middle management layer. Furthermore, the focus was less on staffing costs; for example, Best Buy consolidated international operations and allowed leases on some unprofitable stores to expire.
Strategic store closings have supported another element of Best Buy’s business plan, which reorients the function of brick-and-mortar stores, to make them showrooms that can ship. That is, Best Buy carefully reviewed its logistics and distribution plans, then revised them to ensure that when people place orders, the products get shipped from the nearest location. Some items will come from centrally located warehouses, just as they always have. But others, available in a local store, will get shipped from that store to customers’ homes, or else held for the customers to come pick up in store. This alternative supply option now supports approximately 40 percent of Best Buy’s online sales.
Finally, Best Buy got lucky. Competitors such as Circuit City exited the market more quickly, leaving it as nearly the only option for shoppers to visit if they want to check out a big screen television or home appliance in person. In this position, it also could enter into collaborations with popular brands such as Apple and Microsoft, which happily insert their latest products into the stores for people to try. This tactic involves a bit of luck too, because Best Buy has benefitted from the continued appeal and rapid innovations in its product markets.
Such luck cannot hold forever, so CEO Joly is quick to point out that the company has no arrogance about its future survival. Rather, he plans to continue implementing the factors that have made it successful so far, while also hoping that the lucky streak continues.
Discussion Question:
- Why is Best Buy successful in competing against Amazon?
- Choose another retailer and apply Best Buy’s success factors to it. Are its success factors transferable to other brick-and-mortar retailers?
Source: Kevin Roose, The New York Times, September 18, 2017