Has Best Buy solved the Amazon riddle?

Discussion
Photo: Getty Images
Nov 23, 2016
George Anderson

Do you remember showrooming? Just a few short years ago, there was widespread discussion within retail circles about stores being in peril as consumers shopped in physical locations to gain information while ultimately going online to purchase. Best Buy was among those retailers most often cited as being at risk, but something(s) changed along the way as evidenced by the company’s rebound and articles about how it has solved the challenge of competing with Amazon head-on.

The change began with Best Buy’s hiring of Hubert Joly as CEO in 2012. Mr. Joly started off by getting the company’s finances in order through a series of cost-cutting measures. This set the stage for a turnaround under the company’s “Renew Blue” strategy. The initiative included an increased emphasis on service in stores and with its Geek Squad technical services unit; a push of store-within-a-store concepts featuring Samsung, Sony and other major consumer electronics brands; price matching; and a commitment to building its digital business.

As a Wall Street Journal article points out, Best Buy has come a long way. Its share price has rebounded from January 2013 when it was at about 25 percent the current value. In the company’s most recent quarter, same-store sales in the U.S. were up 1.8 percent on top of a 0.8 percent increase for the same period in 2015.

“From an overall merchandising perspective, we saw year-over-year sales growth in home theatre, mobile, and emerging categories like wearables and connected home,” Mr. Joly told analysts on Best Buy’s third quarter earnings call (via Seeking Alpha). “This was offset by continued softness in gaming. We also continued to drive considerable year-over-year improvement in our net promoter score, which increased approximately 400 basis points over Q3 last year.”

Best Buy’s online sales increased 24 percent for the third straight quarter. “This growth was driven by increased traffic and the cumulative benefit of our investments over the past few years in the digital customer experience and enhanced dot-com capabilities,” he said. “We continue to refine our search, research, and checkout capabilities with a focus on streamlining the customer experience across all channels.”

DISCUSSION QUESTIONS: What do you think Best Buy is doing right and what does it still need to work on? Does the chain serve as an example for other retailers dealing with competition from Amazon.com?

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Braintrust
"Omnichannel is the new normal. Best Buy has accomplished a lot in serving customers when, where and how they want to engage."

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23 Comments on "Has Best Buy solved the Amazon riddle?"


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Paula Rosenblum
BrainTrust
I want to raise the yellow caution flag around leading with “cost-cutting.” I seem to remember that one of Joly’s first acts was to take the security guys standing at the front of the store checking receipts and turn them into sales people on the selling floor. And that is the key to the kingdom — helpful sales associates. Of course price-matching matters. But customer service, intelligent employees and the Geek Squad are key differentiators. I think I’ve said this in these pages before: I bought a 4K TV from Amazon last year. They gleefully informed me I was entitled to “free enhanced delivery.” I was glad because I have a pretty complicated setup. What I got was two high school students who I had to lend a screwdriver and box cutter to, who then assembled the base (I could’ve done that!), plugged in the TV (yup, could have done that too) and then tried to convince me to keep the packaging (hell no). In the end I had to figure out how to solve… Read more »
Sterling Hawkins
BrainTrust

I’m with Paula that service has been the key here. Especially since Best Buy is in a retail business that often requires handholding. Joly recognized early on that customers are willing to pay a slight premium for service and support — that combined with strong domain expertise has been a winning formula. That formula could be even further extended (online and off) by giving associates more customer data re: past purchases so they can give better recommendations around compatibility and what to buy next.

Ori Marom
Guest

Best Buy is a monopoly. The last man standing. No retailer can choose to be a monopoly. It earns this status by operating in an incredibly harsh business environment. Best Buy is reasonably well-run although its profits are very low. Overall, I think its management has done nothing remarkable.

Cathy Hotka
BrainTrust

I can only speak from experience, but Best Buy seems to have amped up its customer service. After killing a new microwave with Windex I visited my local store to purchase a replacement. I came home with an identical machine with a scratch and a price tag of only $96, thanks to the sleuthing skills of my store associate.

Several years ago everyone assumed that Best Buy would be dead soon. Kudos to Mr. Joly.

Kim Garretson
Guest
3 years 6 months ago

One great shopping innovation coming is a response to what Best Buy has observed in-aisle. Yes there is a lot of showrooming there, but the company also noticed that many shoppers were there at a point in their research to actually just see a model they were thinking of buying. Most often they snap a picture of the item and price tag to email to themselves.

Best Buy realized that they are capturing none of this interest and so now they are working on a “Remind Me” option in their app and mobile website. This way they can offer the shopper the convenience of alerts on the viewed product and price tag and offer to alert on price drops, newer model launches, open box offerings and more. This makes sense because Synchrony Financial found that consumers take an average of 68 days to make a final decision on a product of $500 or more.

Adrian Weidmann
BrainTrust

The Best Buy “rebound” is based upon the very thing that everyone feared — showrooming. Brick-and-mortar retail IS showrooming. This reality coupled with the financial propping from Samsung, Microsoft, Sony, Nintendo and Apple through their store-within-a-store concepts has led to the “rebound.” Whether this arrangement is sustainable or an answer to compete with Amazon is questionable. Best Buy’s “rebound” is directly proportional to the willingness of the vendor brands to continually pay the marketing and merchandising funds to buy real estate inside of Best Buy stores.

Chris Petersen, PhD.
Guest

Omnichannel is the new normal. Best Buy has accomplished a lot in serving customers when, where and how they want to engage. To be successful with stores requires getting the experience online right as well as creating superior seamless services like click-and-collect.

The challenge for tech-based brick-and-mortar retailers is that the downward spiral in prices from online competitors erodes product margins. Best Buy has been successful in creating high-value digital and support services with high margins. At the same time services provide a key differentiator over online prices. Just as importantly, services don’t require product inventory that rapidly erodes in price.

Omnichannel is a journey, not a destination. And the customers keep moving the goal posts, especially in terms of personalized service. Customer service support in-store and through the Geek Squad are all about quality staffing and training. In any future cost cutting, Best Buy can ill afford to jeopardize the core differentiators — the staff dressed in the blue and black polo shirts.

Lyle Bunn (Ph.D. Hon)
Guest

Service matters, and Best Buy has rightly placed its confidence in the fact that despite lots of information gathering and fact checking, consumers want the benefit of store staff assistance when it comes to final product selection and getting the most benefit from it. The same applies for mobile phones, sporting goods, outdoor gear, safety equipment, computers, etc. The list grows as product materials and functions become more complex and consumers consider points of origin and product lifespan.

Bob Phibbs
BrainTrust

Mr. Joly dumped nearly half of his company stock over the summer, and Sharon McCollam stepped down as chief financial officer after three years on the job. I think it’s a bit early to say they’ve solved the Amazon riddle.

People are out shopping again and that’s good. I just wonder after a sub-par buying experience there if they aren’t settling for crumbs when they should be having a feast.

Ori Marom
Guest

Exactly!

Kai Clarke
BrainTrust
Best Buy was performing so poorly, from an online perspective, that it could only go up. Its old website, poor pricing model, lack of customer satisfaction and ignorance of the basics of e-tailing were all contributors. Yes, it has dramatically changed and corrected this, but it is still years away from truly competing with Amazon. Order something from Best Buy and then simply return it. That is the proof that any consumer who shops at Amazon needs. The Amazon experience is easy, painless and transparent. It is customer focused and fast. The Best Buy experience is still arduous, painful by comparison and still puts the customer at odds with the retailer. Best Buy is not competing with Amazon, and doesn’t have the online presence, organization or understanding to even do this. Searching for an item reveals top results from Amazon, not Best Buy. Shopping for something is as simple as one click with Amazon. With Best Buy the first screen is overlaid with a “feedback” screen demanding your attention before you can even see the… Read more »
Herb Sorensen
BrainTrust

Hear, here!!! 😉

Brian Numainville
BrainTrust

Totally agree. While Best Buy will (without arguing) match Amazon pricing now and the selection is better as is the service, I wouldn’t say that service is always better at Best Buy. Many times when I have asked for help, the salesperson doesn’t know the answer. On the other hand, had an issue with Amazon and jumped into a chat and it was solved in minutes.

Richard J. George, Ph.D.
BrainTrust

Best Buy appears to embrace omnichannel, which is about customers, not channels. It has combined the benefits of online (convenience, price transparency, etc.) with aspects of retailing that online merchants cannot match. The need to physically see, touch, use and understand technology-based products is a prime generator of store traffic and related purchases.

The message for other retailers: find those aspects of your operations that can provide a differential advantage vis-à-vis online and other brick-and-mortar retailers and resource them to your advantage. For example, physical retailers should be in a better position than online retailers to promote your offerings and to provide service during and after the sale.

There is life after Amazon if you focus on the unmet needs of your customers and not simply responding to the actions of your competitors.

Bob Amster
BrainTrust

A short answer is that one effective way to combat showrooming is by not letting the potential customer walk out of the store without buying “it” then and there. How does a retailer accomplish that? By adequately staffing the selling floor, but with well-trained, knowledgeable, willing-to-help associates who are passionate about what they are selling. If Best Buy is doing that (I don’t know because I shop mostly at an independent merchant in town), then they can combat the Amazon effect.

Roger Saunders
Guest
While Joly and Best Buy had to initially put financial operations in order early on, he has lead the way in making the stores and online experience more consumer and user-friendly. Over the past year I have purchase two computers, a printer and a replacement water filter at Best Buy. My expenditures were over four times the average annual expenditures that consumers make on big ticket electronics annually — $565 based on the Prosper Insights & Analytics Monthly Consumer Survey. Service, professionalism of the store staff and online contact and overall cleanliness and organization of the stores have been the biggest factor. Best Buy was missing these “soft skills” four or five years ago. You enter a Best Buy store and you sense that associates want to help you. Same with online contact. The reasons consumers choose Best Buy over all other Electronics Retailers are revealing. The October Prosper survey points out that 73.2 percent of Best Buy shoppers see selection as a strength which is more than 34 percent better than competitors. Location earns… Read more »
Lee Peterson
BrainTrust

We believe stores need to become two things in the future: part fulfillment center and part playground. Best Buy has done both better than most, hence the most recent success. It doesn’t mean they’re out of the woods though as Amazon is relentless about innovation (witness Echo on my kitchen counter) and Best Buy is not. Best Buy is good at reacting fast AND they had the associate training part already in hand with their Blueshirt Army. But it doesn’t mean they’re ahead of the game.

Kudos to management for reacting as fast as they did at their size. But the need to get better and innovate will not end and hopefully they’re not resting on their laurels. Amazon sure as hell isn’t.

Mohamed Amer
BrainTrust
Mohamed Amer
Independent Board Member, Investor and Startup Advisor
3 years 6 months ago

Products alone are not how you differentiate in this retail segment. It’s more about well-informed and trained sales associates combined with an array of value-adding services that help consumers make sense, and use, of the innovative devices out there.

It’s about setting up a pleasant experience before, during and long after the sale. With the advent of connected homes and cars and the rise of mobile devices as windows to much of our world, retail’s classic winning formula pivots from product to experience (inclusive of those products).

Best Buy’s success is likely to continue as long as the company focuses on the needs of their customers as they continue to desire simplicity and convenience while dealing with a more complex and incredibly connected world.

Jeff Hall
BrainTrust

It’s always a bit of a risk to say that anyone has solved the Amazon riddle, as it is such a moving target. I will say that Best Buy is one of a handful of retailers, including Target, that have noticeably improved their game in going head-to-head with Amazon.

I recently purchased a 60″ flat screen TV from Best Buy, first researching, selecting and purchasing through their website, then picking up in-store two hours later. The entire process was straightforward and incredibly convenient. The associates at the pickup counter were friendly, engaging and even loaded the box into my car. This, along with a couple of other in-store sales associate experiences over the past two months, gives a sense that the brand is much more focused on executing well across every customer touchpoint.

Vahe Katros
Guest
Vahe Katros
3 years 6 months ago

The economic tailwinds (already in place) and new and positive consumer sentiment over increases in disposable income and the increased wealth factor due to increased home values will trump sales gains due to omnichannel proficiency. But those who have their act together will look like retail geniuses in the coming quarters. Hallelujah!

Adrien Nussenbaum
Guest

I do not think that Best Buy has cracked the Amazon riddle. What Best Buy has done is improved some short-term results. But these results are a small window in time, and it is about a marathon versus a sprint. Congrats Best Buy for being able to survive. But survival gets you as far as nowhere … if you don’t have plan for expansion.

Amazon has been able to sustain profitability in large part due to its marketplace model. Best Buy tried a marketplace, but did not follow best practices and had to shut it down. Specifically, Best Buy:

  • Lacked a vendor hiring and on-boarding strategy;
  • Suffered from miscommunication between internal stakeholders;
  • Failed to prioritize the Marketplace project and truly commit to it;
  • Siloed the project in a way that was not truly omni-channel;
  • Did not want direct competition with its own product, which leads to lack of price competition.

Cost cutting can only go so far. What Best Buy really needs is a high-margin revenue stream — where is that going to come from?

Ryan Mathews
BrainTrust

I’m with Paula Rosenbaum — it’s the salespeople that make the difference. You never feel, or at least I never feel, like I’m getting hurried, hassled or upsold at Best Buy. The sales staff are knowledgable and, better still, when they don’t know an answer they actually go find someone who does. As technology grows more complex, it’s nice to interact with a human who can lead you through the maze.

Craig Sundstrom
Guest

Best Buy strikes me as looking like what JCP would have been if the latter didn’t go off the deep end for a couple years. It’s “doing a little better” than some (rather arbitrarily selected) period in the recent past, but it doesn’t seem to be going anywhere … revenue of $39.5B in ’16 vs. $43.4B in ’12 (on a similarly trimmed amount of selling space). Sure it’s better than going backward, but now what?

As for having “solved” Amazon … huh? Maybe the answer to that riddle is printed upside down somewhere on the page and I missed it, but I’m guessing the “showrooming” problem — far from being solved — is probably worse than ever. Amazon’s sales are up a whole lot more than 2%.

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"Omnichannel is the new normal. Best Buy has accomplished a lot in serving customers when, where and how they want to engage."

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