Best Buy: This Ain’t Your Grandpa’s Sears Roebuck

I’ve been a Best Buy fan for years, and not just for midnight game console lines or a series of Reward Zone shopping events where I’ve cranked some sweet deals. The epic example was my Samsung 50” plasma HDTV I bought two years ago for $699 one Sunday night. That was a hot price already but they actually sent me a $100 price adjustment check two weeks later (auto price matching FTW!). So yeah, I love me some Best Buy but they deserve some cred on a bigger level too.

From a market perspective, it’s hard to argue they weren’t the biggest winner in the demise of Circuit City’s retail business in early 2009 – even if many analysts believe Circuit City was effectively killed by a timely combination of Wal-Mart selling cheap Vizio flat-screen TVs, and a horrendous management team. So how – during miserable economic conditions – did they become an 800-pound gorilla?

Three years ago, they were just another electronics retailer trying to build as many stores as possible while the credit markets were free flowing. But when the economy tightened, they seemed to get even smarter – and really begin to understand market trends as manifested by their sales data. For example, remember last September when the Best Buy CEO Brian Dunn said the iPad was cannibalizing laptop sales by up to 50% in store? He quickly backtracked, but let’s be clear: he knew what the sales numbers have now proven. An iPad can handle email and web surfing pretty well, and that’s what most people use laptops for. There are now dedicated Apple sections in most larger Best Buy stores.

And just a week before, Dunn shared another distribution-related nugget that apparently impressed no one but me: 40% of the products they sell online are picked-up in store. That’s huge, and points to channel advantage the likes of which few companies could replicate. Don’t get me wrong, a pure ecommerce play like Amazon will always have a huge SKU (and probably price) advantage over a traditional brick-and-mortar retailer, but Best Buy has clearly defined themselves as the market leader and is selling things how people want to buy them.

The story isn’t all roses though – especially if you’re an investor. After a blistering second quarter of 2010 (ending Sept15, and showing a 62% growth over the same period in 2009 led mostly by new store sales), December’s Q3 announcement was a reality check. Key metrics like same-store sales, earnings and revenue were all off by 5%, 4% and 1% respectively. The markets punished Best Buy with a 15% haircut on their share price that still shows in early January. But they seem to be soldiering on in the innovation department…

The latest example is word from CES this week that Best Buy has created their own publishing network called Best Buy On – complete with original content and of course, tons of advertising opportunities. Early reports show access to almost 150,000 in-store screens (the looped content shown on every TV in their ~1,100 stores) plus specialized department-level screens, plus, plus, plus… Advertising Age is reporting ad buys from the likes of Proctor & Gamble, Duracell, Braun and Sony. The usual suspects lined up first, but I’m willing to bet this ends up as a nice kicker to traditional MDF strategies common in retailing.

It’s pretty damn smart any way you slice it: Best Buy adds a completely new revenue stream on top of SKUs and provides more buying context for its customers (who by the way, are influenced by to the tune of 60% for in store purchases). Certainly they face some interesting conflict-of-interest issues – and will likely never get into product reviews – but they’re not trying to be Edward R. Murrow here. They’re doing what any publisher on the planet does – creating content to sell ads around. And yep, they already have all the audience needed. And speaking of leveraging an audience, I’m not even giving them complete cred for the BBYOPEN.

They’ll be fun to watch over the next 6-12 months, and yeah I’ll continue to do my part to keep their revenue up!


0 # Mike Schinkel 2011-01-04 10:16
I think Apple could learn a thing or two about allowing you to order online and pick up at their store. As far as Apple is concerned the two are competing channel and no accommodation of customers who buy online should ever occur in their stores. Or at least that's the impression I get from their stores. Phhfft.
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0 # GFRRTDEFF 2011-01-05 22:16
Mike: I might argue that Genius Bar is an example of brick-and-mortar support like the world has never seen before – and is a huge competitive advantage for Apple. I've taken AT&T-bought iPhones and refurb computers into retail for all kinds of issues. In fact, I only buy accessories in-store typically. I'm not sure I'd vote for another kind of line at the Apple store called in-store pickup :-)
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0 # Bill Goodhew 2011-01-04 17:59
My only beef w Best Buy is their sloppy stores. Most of their laptops, for example are either not working, have no price/specs label or the labels are wrong. It's much easier to buy from MicroCenter or Fry's, esp Apple stuff, altho there's no substitute for the Apple store. That said, if you're willing to wait, buy online & pick up at the BB store, as Dave points out.
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0 # GFRRTDEFF 2011-01-05 22:21
Bill: Great to see your name pop-up here. Hope your 2011 is off to a great start! Agreed Best Buy's retail operation can get pretty sloppy, which I think is still a factor of a $12/hr workforce. I do more shopping at Fry's and MC as well, but more for SKU variation (Best Buy is mainstream, other two are geek-driven). Just last week, I price-shopped Best Buy for netbook RAM, and they carried on the $80/stick version at retail – the $35/stick variety was web only. It's the same reason I split my purchases between Home Depot and Lowe's... And yeah, Apple retail just kinda reset the bar – all the way to building their own POS...
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