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January 9, 2025
Will Best Buy’s New Third-Party Marketplace Counterbalance Its Softening Core Business?
Best Buy is set to take another stab at broadening its sales base and product lineup via the deployment of an online marketplace, as Modern Retail reported.
After having shuttered its marketplace after a five-year stint — it ran from 2011 to 2016 — it seems that Best Buy has a renewed faith in the potential for third-party sellers to avail of its new platform, which is set to open this summer. CEO Corie Barry discussed the expansion of the marketplace into the American market during a November earnings call.
“We have an established, growing third-party online marketplace in Canada, and we are planning to launch one in the U.S. targeting mid next year,” Barry said on the call.
“We believe that as the trusted leader in [consumer electronics] we have an opportunity to leverage our positioning and assets to build a differentiated digital marketplace platform, thereby bringing our customers access to a much more expansive assortment and new categories. In addition, sellers and advertisers will have an additional avenue to increase their reach and build their brands leveraging our qualified traffic,” Barry added.
Best Buy Sees Sales Slump After Pandemic High
According to Modern Retail, during its most recent earnings call in November 2024, Best Buy reported a 3% dip in sales figures — and sales have been falling for a few years now. Shouldering the blame is a persistent softness in the brand’s core business, particularly surrounding appliances, home theater, and gaming categories.
Best Buy’s previous marketplace gambit was a bit of a mess as well. The effort accounted for just 1% of the company’s total revenue, and customers were confused over the distinction between purchases made through Best Buy itself versus those made on its marketplace, fulfilled by third-party vendors.
Whether or not Best Buy’s gamble will pay off this time remains to be seen, but analysts appear to be bullish on the prospects.
“The traffic is very high, and the consumer base is very loyal — it has a lot to do with that brand that Best Buy has built,” said Megan Potts, founder of Triforce Digital Partners.
“I think that Best Buy is going to add a lot of unique millennial eyeballs that are already shopping there; these are really affluent customers, much more affluent than Target and Walmart, even Amazon,” she added.
Best Buy’s marketplace will be powered by Mirakl, a software company that already provides a similar service for other notable retailers such as Macy’s and Nordstrom.
“A new marketplace is coming to town — Best Buy,” Adrien Nussenbaum, Mirakl founder and co-CEO, wrote on LinkedIn. “This is a game changer for U.S. online commerce. Excited to see the future launch and support Frank Bedo and his team with the full Mirakl force.”
Best Buy CEO Promises a ‘Curated, Tailored Marketplace’
Barry elaborated on the company’s plan regarding its upcoming marketplace, stating that drawing from Best Buy’s Canadian marketplace experience would be vital for the American version’s success.
Indicating that it was nigh-impossible to provide every accessory — using the example of smartphone cases — to every potential customer in a brick-and-mortar operation, Barry pivoted to the online marketplace as a timely and convenient customer solution in this regard.
“I wouldn’t think about this as all of a sudden you’re going to come to Best Buy, and there’s this magical huge marketplace that has everything,” Barry said. “This will be a curated, tailored marketplace to the customer that is coming to shop with us and those deeper assortments that you would hope you could provide.”
Potts is optimistic about Best Buy’s chances as it enters an already crowded space, one where Amazon, Target, and others have already carved out territory for themselves. Where Best Buy’s marketplace is smaller and a new entrant to the space, third-party vendors could score some excellent opportunities regarding placement.
“Best Buy is going to be another one now where they can get these really high real estate placements — where you can’t talk to anybody at Amazon unless you are a top-five seller,” Potts said. “A homepage placement on Target [over Thanksgiving week, Black Friday and Cyber Monday] could give you $300,000 to $500,000 a day, which is very, very valuable to those brands.”
Discussion Questions
Will Best Buy’s new marketplace make a significant splash, or is it more likely to suffer a similar fate to its previous effort?
Should Best Buy focus on electronics and electronics-adjacent products on its upcoming U.S. online marketplace, or expand categories and vendors significantly?
What headwinds and tailwinds can be identified pertaining to the Best Buy brand as 2025 begins in earnest, and how might its planned online sales platform affect these concerns?
Poll
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Melissa Minkow
Director, Retail Strategy, CI&T
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Can consumers return third-party merchandise to Best Buy stores? Will consumers have a hard time returning items? It seems that every retailer that does business online through third parties overlooks that part of the customer experience. When Walmart and others cannot match the ease of Amazon’s returns, they will have a hard time competing.
Regardless, I’m happy investors are bullish about the endeavor, but I wouldn’t join them. It is likely that Best Buy will confuse consumers about its own brand. In contrast to Amazon, Best Buy is considered to be a traditional retail store that where it wouldn’t make sense to carry third party merchandise.
I also find it hard to believe that third parties would be able to offer many electronic consumer goods that Best Buy does not carry under its own brand name. Consumer electronics are a fairly closed-in category.
I’d rather that Best Buy improve their traditional web site with first rate marketing to accomplish greater sales and profits. Best Buy carries a wide range of products and brands and doesn’t need to compete with third parties on their own site. Third parties create price issues, lower standards, and unreliable data and information.
I wrote my comment before I saw yours. 100% agree, David.
Okay, so here’s what I think. I’ve made two large purchases from Best Buy over the past month or so. A refrigerator and a very large TV. I had initially bought the TV from what I thought was Walmart, but it was actually a marketplace seller. I tried to cancel the Walmart order for days, because it was so late, and there was no set-up included. Whoever I talked to at Walmart said “well, it was a marketplace seller, so we really can’t help.” So I disputed the charge, finally got a return sticker for the TV from the marketplace seller and it literally sat on my porch for 2 days until FedEx got around to picking it up. They were lucky.
Long story short, I have had EXCELLENT experiences with Best Buy….the buying experience was easy (the refrigerator was a complicated size), and both delivery and set-up experiences were quite literally superb. If you’ve ever tried to buy something in Miami, you know that’s a BIG statement.
And so, what I wish is that the company would stick to its knitting and wait for sales cycles to spin up again. We are getting close to the life expectancy of some big ticket items that might have been bought FIVE years ago.
I had a client who wanted to build marketplace software, and I said “The world really doesn’t need another marketplace.” It really, really doesn’t. Walmart undid a lot of good will with theirs. In the end, I was happy to spend the extra $200 on delivery, set-up and takeaway of the old TV from BestBuy. And they totally won my loyalty with their help with the refrigerator.
If I wasn’t clear, the answer is “No. No good can come from having a marketplace. The free money isn’t free.”
While the marketplace will not solve all of Best Buy’s problems or cover declining volume, I think this new iteration will be able to leverage the learning from the Canadian operations as well as the general learnings given that marketplaces are more mature and likely best practices have emerged (or are emerging). Important as noted in the other comments, is protecting the full end to end customer experience as the halo or shadow will cover Best Buy.
This seems like a natural, smart next step to me. Specialty retailers have all been moving this way, and for most it’s been successful.
I’ll say it again, category killing was a great business until it wasn’t. Marketplaces seem like a logical way to goose profits and a necessary evil for category killers in desperate need of diversification, but there are perils. The banner under which a marketplace falls is assumed by most consumers to be the operator. Therefore, Best Buy will get dinged on returns and customer service problems both online and in stores. If the marketplace categories go too far afield, the problem worsens (“Why can’t I return these shoes to a Best Buy store?”). The overarching problem for retail as a whole is if everyone sells everything, no one stands for anything. Best Buy’s return to the marketplace mayhem is late and likely an uphill battle at this point.
What looks like an easy way to monetize Best Buy traffic could be a shortcut to damaging the Best Buy brand.
I have not been a fan of marketplaces. Marketplaces reward small companies with the brand equity a retailer built over years. Poor customer experiences from a few sketchy marketplace vendors can undo decades of brand trust.
Marketplaces are a viable way for Best Buy to expand its virtual inventory to be more of a one stop shop for customers. To succeed, Best Buy has to do a better job than their prior marketplace offering to screen marketplace players and ensure a high-quality customer experience to protect shoppers and the Best Buy brand.
Marketplace vendors can’t qualify solely on who can afford to pay to access to the Best Buy audience. Customer satisfaction metrics need to be established for marketplace vendors and enforced by Best Buy to protect the Best Buy brand. Best Buy needs to be disciplined to break off relationships based on poor customer satisfaction scores despite the vendor checkbook being open.
This is a very typical scenario. When you don’t have a strategy for your core business, find a silver bullet that will solve the problem, but it won’t.
I predict profit erosion, consumer confusion and a weakening of the BB Brand as a result of this move. I would type “don’t do it!” but we are already there. The company and the investors are making a move here that is detrimental to the core busness.
Every retailer suffering from soft sales seems to jump on the marketplace bandwagon. And in some ways, it’s obvious why they do: it’s a relatively simple, low-capital way of expanding choice and attempting to boost revenue. The view is that it’s worked for Amazon, so why not give it a whirl? However, marketplaces do not solve the core problems of the business. And this especially applies to Best Buy, whose stores and proposition have become less relevant. The other point is that there are now so many marketplaces that the strategy is not a big differentiator, and it’s extremely hard to compete with the giants like Amazon and Walmart.