Photo: Best Buy
Has Best Buy found an outlet for future growth?
Best Buy is moving forward with its plan to double the number of outlet stores it operates over the next year.
The consumer electronics retailer said it is opening four new outlets this summer and fall in Chicago, Houston, Manassas, VA, and Phoenix. The stores, which feature clearance and open-box items at discounted prices, will be added to 16 existing outlets that the chain operates.
The stores in Chicago, Manassas and Phoenix are remodels of existing Best Buy locations. The Houston outlet store is being relocated to a new space that is three times bigger than its current home.
Best Buy is expanding the product selection at its outlets, adding gaming products, laptops, mobile phones and tablets to the mix. The retailer is not skimping on service even though it is selling marked down products. Every new outlet will have a Geek Squad area where customers can get technical support.
The chain is integrating outlets into its digital operations, as well. Shoppers can go to bestbuy.com/outlet to check out what’s available at their local store. They can also place an order for any product and choose to pick it up at a nearby outlet.
Best Buy’s outlets also offer same-day delivery of online orders. The retailer uses third-party service providers including Bungii and Dolly to make deliveries.
The outlet stores serve a number of functions for Best Buy.
Damien Harmon, executive vice president, omnichannel at Best Buy, in March on the retailer’s fourth quarter earnings call said, “These outlets unlock value by alleviating space and capacity from our core stores, and they are an important element of our circular economy strategy by providing a second opportunity for products to be resold instead of ending up in the landfill. In FY ’22, gross liquidation recovery rate is almost two times higher than alternative channels.”
The outlets also help Best Buy attract new customers and engage with others who have not recently shopped from the chain. Mr. Harmon said that 16 percent of customers shopping at Best Buy’s outlets are new to the chain and 37 percent are “re-engaged.”
Discussion Questions
DISCUSSION QUESTIONS: Where do you think Best Buy will see the biggest benefit from its new outlet store strategy? Is the chain doing enough to differentiate its outlet experience from other options in the marketplace?
Poll
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Many consumers are looking for a bargain — especially now — so Best Buy outlets are a good fit for the times. Beyond the price advantage of pre-opened product, the ability to re-sell products that would have otherwise ended up in a landfill is also an important benefit. Outlet store concepts aren’t new and neither is this one from Best Buy, but just because an idea is not new doesn’t mean it’s not a good one. The outlet move by Best Buy is a good one.
The Best Buy outlet model is a clever way to transform underperforming stores and utilize the space for discontinued, discounted and opened box items. The challenge will be merchandising products that have a quantity of one and keeping the shelves full and tidy. It will be interesting to see how these stores perform.
With more sales coming from online, returns have exploded – in electronics as elsewhere. The number of open box products Best Buy has to sell has risen and outlets provide a clear strategy and channel to sell these, and other, items. An additional benefit is being able to draw in bargain seeking consumers – a segment that is likely to grow as inflation hits and household budgets get squeezed. It is good to see that Best Buy is still emphasizing customer service at outlets as this will help it differentiate from other resale channels where electronics are offered.
There may be something here. The consumer electronics retailer is often plagued by “renters” who return the big-screen TV on the Monday after the big sports event, open-box items that cannot sell at full price though in perfect working order, and prior-year models that have to be cleared. Because of the nature of the category, these are all very salable items and creating an opportunity for the consuming public to take this load off Best Buy’s hands is a win/win. It is hard to tell if a separate outlet store is the answer or if an “outlet” section within a full-line store would keep customers looking at new, full-price, higher-margin items.
Outlet stores in consumer electronics make nothing but sense. Best Buy outlets will allow the retailer to offload last-generation gadgets that would otherwise languish in its mainline stores (or landfills). Best Buy’s promises to offer high levels of service and same-day delivery for its outlet stores will keep the overall brand strong.
I appreciate how Best Buy is always innovating and investing in meeting ever-changing consumer needs. In an economy facing inflationary headwinds, expansion of the outlet channel should be a winning strategy – and in offering same-day delivery, BOPIS, a convenient way to check inventory online and an in-store Geek Squad, Best Buy isn’t cutting corners, which will easily differentiate it from other outlets. The biggest benefit may come from the potential of converting the impressive 16 percent of customers new to Best Buy into traditional Best Buy store customers.
Maybe even having an outlet store for a brand that positions itself as lowest price AKA best value is a questionable move. As long as they stick to mostly clearance and open-box items, though, that should work. But the addition of new items from other categories could be a slippery slope. At what point do those new and “re-engaged” customers decide to abandon Best Buy’s regular stores?
And what about the logistics? They will need to reinvent their processes to move returns around, and that’s never an easy task. The current economic situation favors off-price options and this idea will certainly resonate with existing and new customers as well as increase revenue for Best Buy.
Current Best Buy stores have little open box inventory in their stores. I have purchased open box product in their stores and have never had issues with any of that type of product. The outlet store is a great addition to the store mix but there does need to be more differentiation – I see very little advertising for these stores.
The outlet model has worked for many retailers. For Best Buy, this is a good way to move merchandise that didn’t sell in their main stores. Computers and other electronics can’t sit on a shelf for two years. They go out of date as updates improve the technology. (By they way, it’s the same for fashion.) Same for “open box” items. The stores don’t want a reputation for selling outdated merchandise, so the outlet store, where Best Buy can promote “last year’s model”, makes good sense.
Outlet stores will help Best Buy deal with excess, open box or returned goods while keeping that revenue in house, promoting the sale of services like installation, and controlling the brand messaging end to end. Outlet stores are a strong strategy for minimizing risk during economic uncertainty when consumer spending is more focused on value spending.
This sounds like an authentic outlet featuring refurbished, clearance, and open-box items at discounted prices, rather than lesser merchandise bought specifically and uniquely for the brand’s outlet.
My only disappointment is that the prices are not reduced as much as I would expect. It appears that most run 15 percent less. I would expect at least a 33 percent or more discount.
That being said, it will expand the Best Buy brand name and, most importantly, Best Buy is communicating even to off-price shoppers that they get the same service and tech support as full price buyers. That in particular builds loyalty from those that have never experienced Best Buy.
Best Buy is doing everything right, and outlets are an appealing concept during a time of inflation. Customers are sure to respond positively.
A reasonable next strategic step for Best Buy. It takes advantage of its clearance and open box products which are difficult to sell online or merchandise in its traditional stores. In addition, the current run up of inflation (now Americans’ number one concern) makes bargain shopping the new reality.
Store returns of high priced, bulky products has been a pain point for Best Buy and these new outlets will certainly alleviate some of this burden and allow the chain to claw back some revenue on opened items. If there were a perfect time to open these outlets it’s now, given the inflationary effects consumers are dealing with.
Outlets expand Best Buy’s reach and attractiveness among value shoppers as inflation rises. Outlets also free up space in core stores for higher margin additions to Best Buy’s assortment like beauty devices, grills and home gym equipment. Fast omnichannel options and Geek Squad service differentiate Best Buy outlets from rivals.
Best Buy has always sold open box or returned items at its stores. The catch is at their regular stores these items were seen in a different light that they will be in the new outlet locations. Rather than being see as of a “lesser” quality than a new in-the-box, items will be seen as part of the regular product mix. It’s definitely a good move for Best Buy.
This is a proven retail strategy and given the growing number of open box/returned items, driven in part by digital commerce growth, consolidating those items in the right outlet locations should pay off. The key is not to dilute core store performance or lose pricing discipline in what is not a high margin business to start with.
This sounds like a “best use of space” strategy as much as, if not more than, an “outlet store” strategy. If Best Buy needs more space in existing prime stores to sell full margin product and maximize gross margin dollars then this sounds great. But outlet stores can also put a brand on a slippery slope. Of course customers love outlet stores. That’s a well learned lesson. The problem is when they start visiting outlets instead of regular price stores. Which means this is also a geographic strategy as well.
Nordstrom Rack is a prime example of how well an outlet concept can work. One of the keys is a merchandising strategy to not let it just become a drop for what doesn’t sell at the main store. Rather, add products, brands and discoveries not available elsewhere to pull customers in, create a following.
Best Buy should be able to follow a similar path for customers not needing the very latest technology, but also to shop products from the electronic eco-system they wouldn’t see at the original store.
On the surface this sounds great, but what really differentiates an outlet? What are the average cost savings? Are shoppers expected to shop regular stores and outlet stores as if this was a fashion retailer? If the answer to the last question is yes, markdowns have to be substantial and real as opposed to fashion where the markdowns are often substantially lower than list price but not so much real prices. Tech is a completely different model, so I’m skeptical that this has a big growth trajectory.
I tend to agree it sounds like a good idea, but outlets can be tricky businesses for retailers. Coach, for example, saw its outlets undermine its full-price stores because consumers were able to attain something of the same cachet at a discount. It had to dramatically scale back their usage. The same thing happened with Michael Kors and arguably even with Nordstrom Rack, particularly as Rack stores now outnumber full-price stores by more than 2.5 to 1. Whole Foods also abandoned its lower cost 365 by Whole Foods stores. In general, discount sales end up cannibalizing full-price sales and profits.
Yet there are plenty of instances where it works, too. Macy’s Backstage has arguably given the retailer a new lease on life. It will be interesting to see if it can make them work, or will it be more like Kohl’s opening its Off/Aisle concept, stores that were exclusively dedicated to returned merchandise, which it eventually shut down.
Best Buy has a strong brand and continues to be innovative in how it serves its customers and attracts new ones. They’ve been successful at this by proving themselves to be very focused on the customer experience and recognizing what is most important to satisfying their customer base. Staying true to a customer-focused strategy will always present opportunities for growth.
Being a clearance and open box items store, the new outlet stores strategy could help Best Buy streamline returns processes and acquire new customers who are price-sensitive and tech-savvy. With all the tech and omnichannel upgrades retailer has reinvented its stores which shows that they will be able to create a differentiated position in the industry.