Wall Street Misses the Customer Centricity Point
By George Anderson
Wall Street’s reaction to Best Buy’s latest quarterly results (it missed analysts’ forecast for the chain) was predictable (the company’s stock price fell 11 percent).
What many on the street and elsewhere either missed or chose to discount in the consumer electronics chain’s numbers is the success it is having with the stores converted to its new customer-centric model.
The stores, which are developed to meet the needs of targeted shopper groups – moms, gamers, home theater enthusiasts and small business owners – began testing on the West Coast last year and are being rolled out nationally. Best Buy is looking to have 350 such stores operating by Feb. 2006. The customer-centric stores generated comp sales increases of 9.4 percent in the last quarter versus 3.5 percent for all other units operated by the chain.
“We believe that this new approach, which helps us engage with our customers differently, is essential to Best Buy’s success,” said Brad Anderson, the company’s chief executive and vice chairman in a released statement. “In the coming years, more products will become digital and more homes will become networked. The increased complexity in the business will require more complex labor in our stores and additional services capabilities, which we are now building.”
Mr. Anderson said Best Buy is succeeding because of fundamental changes it has made to the way it approaches its total business activities.
“We can satisfy customers only if we satisfy our employees as well, and I’m pleased with our progress with changing our store culture and management style. Every day more employees are empowered to find new ways to create a differentiated, end-to-end shopping experience for customers,” he said.
Moderator’s Comment: What is your analysis of the business changes taking place at Best Buy? –
George Anderson – ModeratorÂ
Best Buy has some execution related issues for its customer centricity program. First off, it ranks customers by a tweaked RFM model, builds only 10 customer segments and then does not have dynamic segment allocation to track customer movements between and amongst its customer segments.
You will see short term comp stores increases as with any change to a store format, but longer term, these will level off. Wall Street is looking for next years comp numbers to be in the high to low double digits for these stores and under a static segmentation scheme, this “ain’t gonna happen.”
Have you ever tried to do business with Best Buy as a vendor? This is where the culture is still tied up in knots as they tend to only take advice from a trusted source of a small circle of vendors and consultants. Until this mindset changes, I would not own the stock.
Long term, they are the 300 pound gorilla in the market and best of breed, but in-breeding also results in arrogance and closed mindedness (and, of course, screwed up execution). I needed to add some levity to this discussion. Best Buy needs to embrace additional changes that allow for the integration of its merchandise procurement as well as assortment planning to be directly tied to the sell thru in its stores, not just the profitability of each customer. RFM is a 30 year old marketing concept that needs to be leveraged by current technologies. I won’t go off on a diatribe but, as the economy goes, so goes Best Buy.
My recent shopping experience with Best Buy was shocking. Why shocking? Well, by comparison to previous experiences, it was not even the same company. In fact, the previous experiences had been so bad, I had sworn them off as a last resort only choice.
At the urging of a friend, I shopped there for some computer accessories over the past several weeks. Each trip was remarkably consistent and exceptional.
At entry, each time I was greeted – and I mean genuinely greeted. It wasn’t the obligatory greeting. Each time, I felt it was genuine and welcoming. I was offered help by no fewer than three very helpful and fairly knowledgeable associates each time. If they couldn’t answer, they quickly retrieved help from a roaming member of the ‘Geek Squad’. Each of the products I purchased were advertised items and were all in stock. That’s a feat in itself.
The checkout experience was terrific both times. And, as a bonus, I was thanked genuinely by the ‘door person’ instead of treated like a common criminal as they treated everyone in the past.
All in all, they have moved from a company that cancelled promotional plans due to their inability to execute, to a company that is executing in an exceptional manner. Now, judging by the comments, it’s not as widespread as the whole chain. If they are able to spread it throughout all stores, they are on to an experience worthy of ‘loyalty’.
While I can agree with many of the above comments that Best Buy might not be a best of the best in retail, in the world of consumer electronics, they are one of the best. Frankly, for a big box retailer, I think they’re pretty darn good. I find the in-store experience in Best Buy much superior to Circuit City, Comp USA, and others. I think as long as they continue to engage the employees and keep the focus on the customers, they will continue to get better and better. A retailer’s stock price is just like the old Blood Sweat and Tears song, “What Goes Up Must Come Down.”
Thank you Wall Street for being so predictable! This gives us a chance to buy more BBY shares at a decent price, or for those who don’t own Best Buy yet, get in on what will be a very profitable investment.
Best Buy should do a better job of making it known that sales associates can help customers to order items from their website that are not available in their stores. This opens up many customization and access possibilities without adding to their inventory stock-pile.
I’ve got to assume that none of the stores in the Scottsdale, AZ area have been “converted” to the “customer-centric” model. I’m in and out of several of them and I still see staffers standing around talking to each other while customers hunt to find what they’re looking for.
The word “convert” means to “turn around” and to “transform,” implying a dramatic difference on the level of, “I once was blind but now I see.” What I see over and over again are corporations (in retail and otherwise) in superficial attempts to be different. The problem in the Best Buy case MAY be that the actual mind-set of floor staff has not changed from ‘talk to a customer only if they corner you’ to one of ‘what can I do in this moment to serve a customer?’ Conversion and transformation need to happen first at a deep sub-conscious level, which in turn is manifested on a conscious visible level. Changing ‘how’ people think must come before changing ‘what’ they think.
The intention of Best Buy to create energizing flow in the customer experience is absolutely the right direction for them and everyone else for that matter. But flow has to happen at a deep visceral level. Does Wall Street even know what we’re talking about here? I doubt it.
I applaud Best Buy’s efforts but I am not ready to concede brilliance. It has long been known (in the Grocery Industry) that business in a store would increase if the store layout were dramatically changed (remodel)… much of the increased business being achieved by the customer base having to spend extra time in the store searching for products that were habitually purchased. When consumers have to “search” for a product, they also tend to “see” other products and some impulse purchases are made. This has contributed to an 8-10% increase in sales, in some instances. Is this what has happened with Best Buy? Do the guys on Wall Street actually know what they are doing? They might have picked up on the (remodel) phenomenon and guessed that the PR out of CA was a cover for a business that is competing with the ultra competitive internet and is suffering the cost of bricks and mortar. Time will tell! I would be interested in seeing where the sales increases were coming from. Were dollar sales being generated by give away CD/DVD pricing or were major appliances providing the lift? They guys on Wall Street have long followed the dictum, “Buy on rumor, sell on news”! They tend to get it right more than wrong.
Wow are they ever doing a great job of “Talking the Talk”!! Now they must “Walk the Walk” and, for all you gamblers out there (or stock market players), my money would not be on Best Buy. Why? Same company, same management, same culture. Hey Best Buy… if you’re out there listening or reading….try cleaning up and organizing your stores better, training your staffs better, editing your stock and learning the basics of real customer service and proving you can deliver (a la Container Store) before you start getting fancy on us.
Customer-centric in store merchandising and assortment execution represents an almost end-state in targeted retail. Best Buy, more so than any other retailer in the United States, is utilizing technology and information to guide, manage and adjust its business.
The future of retail is local marketing — from store planning, in-store merchandising and media choice all the way to pricing and assortment. Best Buy is on the forward edge.
Best Buy management, and its board, are fully aware of the patience required to implement change on the scale they have envisioned. Quarterly fluctuations in stock price have almost no impact on the management of the organization IF additional funding is not being sought from the equity market.
Is the Street giving credit to Best Buy? Of course not. That would require that they understand subtle nuances of retail execution. When was the last time an investment fund manager, or retail stock analyst, actually sought out the analysis needed from someone with access to the right data and the right experience base? That would involve cost, which in the end will reduce investment return margins (short term thinking).
Please…don’t get me started on the fiscal irresponsibility that investment fund analysts and retail stock analysts show. Of course, this will probably mean I don’t get any more consulting gigs providing insight to investment houses. Oh well.
I can only relate a quick contrast between Best Buy and its main competitor, Circuit City. I’ve always been a CC person, but recently my company was going to buy 6 GPS units for company vehicles, about $4,200 at retail. I go to CC and can’t get waited on, between one clerk arguing with his girlfriend, and another clerk answering some question about how to transfer songs to an iPod.
I went across the street, was greeted at the door and directed to the right department. There I found two highly knowledgeable and helpful clerks. Anyway, they got the sale.
I complained to the CC CEO in a letter and never got even a form letter. If the CEO doesn’t acknowledge a disgruntled customer, it pretty much sets the pace for the rest of the organization.
I think Best Buy has the “right stuff” and it will take a little time to perfect it. It appears their competitor hasn’t even identified the problem.
Inexplicable stock fluctuations notwithstanding – heck, stock prices sometimes fall when quarterly earning estimates are exceeded – Best Buy’s changes are grabbing consumer attention.
The best part of the changes at Best Buy is their increased attention to input from store employees. When a store employee co-authors a change or program, they have a vested interest in making it work. And as we all know, successful changes are always dependent on employee buy-in.
It’s also refreshing to see a company that has such a strong conviction in their business model that they are willing to endure some stock price anomalies for a period of time. Hopefully their board of directors has bought-in along with store employees.
As a long-time veteran in the consumer electronics business, I think Best Buy DOES have the culture in place to drive their customer-centric business to success.
As to the nay-sayers, I am reminded of a conversation I had with a Best Buy exec several years ago in which I complained of poor service, confusing store displays, lack of product knowledge, etc.
His response was that, although he appreciated my patronage, and loved my business, I wasn’t really his targeted customer. Although they had a few 50 something year old female shoppers, their target at that time was the 18 – 35 year old male buyer. For them, the stores were perfect.
I went back to BB that week to observe. Interestingly enough, those in the target demographic were happy as clams with their purchase experience.
Taking that same information, Best Buy is now expanding the types of demographics it serves.
Some day, they’ll even have a store just for 50+ year old women. Those stores will have bright lighting, large signs, jazz music, female associates, pink computer monitors…….
The jury is still out on this. It is so often a mistake to judge a company’s prospects strictly on short-term earnings information, as it is a mistake for leaders of a business to make decisions based solely on the short term impact on the stock value. Give Best Buy a chance to realize their potential with this initiative. So far, they seem to know this business better than most and have demonstrated a commitment to being out front on new concepts.
Short-term stock price fluctuations aren’t great indicators of long-term performance. Some shareholders make it a policy to sell any company’s shares whose earnings momentum doesn’t continually increase or beat estimates. BB real issues are similar to most retailers’ issues: (1) is the strategy a winner or are they just kidding themselves? And (2) will the implementation work appropriately? The California pilots might be working simply because the company is more carefully managing those stores than before. Almost no retailers ever implement scientific testing with true “controls.” And if the pilots work on a sustained, rollout basis, why can’t the competition just copy them? Great strategies are hard to copy. The jury’s still out, and investors have many other places to put their money.
Not only on Wall Street, but many private financial analyst have said, ” Brand management is too costly; supermarkets becoming more operationally efficient pays off!”
Thank you very much, but you are DEAD wrong. Shoppers are looking at and buying from other channels, because they aren’t finding the foods and receiving the polite service wanted. So shoppers seek and find alternatives. Oh, yes, some will say channel switching is due to gaining better pricing.
Just remember the Baby Boomers, being the wealthiest and 2nd largest generation spend to satisfy. And the X and Y generations, now the largest generation, spend over 60% of their disposable food dollars away from supermarkets. P> So the need for consumer centricity, with culture change and marketing/Brand Management all tie togehter. Can’t succeed without all 3 concurrently!
Marketing/Brand management assists, if not leads, the focusing on the consumer and, in turn, the culture of the corporation, or business unit personnel (from the top down) have a different attitude on servicing and giving the shopper what he/she wants. Hmmmmmmmmmmmmmmmm