Best Buy Battles Back Online
The world’s largest electronics retailer thinks stores are an asset in the fight with online retailers.
The world’s largest retailers could be driven to bankruptcy by online commerce.
After Best Buy lost $1.2 billion during 2012, the world’s largest consumer electronics retailer looked like it was headed toward the same discontinued item bin as onetime rival Circuit City, which went bankrupt four years earlier.
The problem was the Internet. Customers were comparison shopping and finding lower prices online. Sometimes they checked from a smartphone right in the aisles of a Best Buy store after sizing up the real merchandise. Analysts predicted that the phenomenon, dubbed “showrooming,” could destroy Best Buy.
That’s not what happened—not yet anyway. Instead, Best Buy is making money again and its stock has tripled in value. It has managed to repair its online stores and to tie its online presence more tightly to its network of more than 1,400 locations, in ways that it thinks may have neutralized the showrooming threat. Its president of e-commerce, Scott Durchslag, even taunts Amazon by saying “stores are the greatest showroom on Earth.”
Best Buy’s turnaround effort started after a boardroom drama that saw its former CEO and chairman resign. Its new CEO, Hubert Joly, arrived in late 2012 and quickly issued a five-point manifesto to revamp the brand, known as “Renew Blue.” Best Buy sold off its European stores, trimmed its staff, and promised to revive its sales using a strategy called “omnichannel” retailing.
The idea in omnichannel is to reach customers wherever they are—in a store, online or via their phones—and use technology to turn costly physical stores into an advantage. One deceptively simple step Best Buy took was to add a “Store Pickup” button to its online shop. It turns out many shoppers like to browse and pay online but prefer to actually pick up that TV themselves—they just had no way of doing that before.
As Durchslag later told investors, when he came to Best Buy in October 2012 (he’d previously worked at Expedia, the travel-booking site) the chain’s website was in “a 10-year time warp.” It didn’t have on-site recommendations, prices didn’t match those in its store, and it took eight clicks to buy anything. Its loyalty program and well-known support desk team, the Geek Squad, had their own databases that didn’t talk to one another.
That was a problem. About 25 percent of all consumer electronics sales take place online. But Best Buy hadn’t kept up. Online sales are still only about 6 percent of its revenues.
Best Buy has since made more than 200 changes to its online store, says Durchslag. The number of clicks to make a purchase has been cut to three, and now Best Buy takes into account where people live, feeding up, say, air-conditioner specials to New Yorkers who log on during a heat wave.
Another problem to fix was that Best Buy was operating its online division and stores separately. Durchslag says that previously, if Best Buy’s online distribution center was out of an item, the customer would simply get an out-of-stock notice. They were losing those customers even though Best Buy stocked similar inventory at 1,400 stores, one of which is no more than a 15-minute drive from 70 percent of the U.S. population.
Best Buy has since begun testing whether it can increase its inventory by turning stores into distribution centers. After starting with 50 stores, it is adding inventories from 150 more stores to its website for the 2013 holidays.
Durchslag says retailers are still trying to understand consumers’ new behaviors, on mobile phones and online. He says 40 percent of shoppers on Bestbuy.com have chosen the the option to pick up their purchases in stores. No one could have predicted that because no one had tried it before. “When it comes to omnichannel innovation,” says Durchslag, “I don’t think anybody’s doing it really, really well, especially for consumer electronics.”