Consumer Electronics

As a child, I didn’t own any sort of electronic game device. I had games on the computer before and I played those a lot, but instead of Mario or Sonic, I had Commander Keen. But what I longed for was a Super Nintendo. Everything about it was cool, playing on a controller instead of a keyboard (which I would find out later is not always ideal), the cartridges with misleading art you could pull in and out at any given notice, and dominating the TV instead of letting your family watch Wheel of Fortune or Joan of Arcadia. In any case, I bring this up because of a slew of recent articles on Forbes (which I have linked to below) which focuses on Best Buy and how they are losing the war on Consumer Electronics.

I am a big fan of Best Buy, I used to love going there with my dad and playing video games on the displays for an hour or so while he was in some other part of the store. (Let’s face it though, while I was that young, an hour was like an eternity and there still was a chance that my parents would just ditch me there and go to the mall or something for awhile, I really would not have been able to tell the difference.) But they seemed like they had endless aisles of computers and TVs and movies, everything you could ever want. Does anyone remember Circuit City? There was another place called Ultimate Electronics that had a location near my house that has sat vacant for years. Similar ideas except that Circuit City, if I remember correctly, put its registers in the middle of the store, which was difficult to determine who was in line and who was browsing at any given time. Also they had an active sales team (commission based) while Best Buy does not. I was not really worked up about Circuit City closing, but it was kind of sad. Walking around an electronics retailer for most people is what I would imagine shopping for clothes is like for women; there are your staples but now with some new accessories, brand new niche items, things that were cool but now on the clearance rack, and as you wander through the store, you imagine what every different piece would look like with you. That may be crude, but it paints a picture of consumerism that has been steadily pumped into our collective societal consciousness.

Why Best Buy is Going Out of Business Gradually

Response by Best Buy CEO Brain Dunn

How Best Buy Can Wake Up and Whip Amazon

Okay, if you’re a little short on time, here is a synopsis. (Editor’s note: I originally wrote “quick” before synopsis and then I started typing. About half an hour later, “quick” does not necessarily describe the synopsis that follows.) Forbes contributor, Larry Downes sees Best Buy as the giant brick and mortar store* that will fall to consumers’ movement to online shopping. He notes (correctly) that since Best Buy does not have commission for most of its sales team, they are less likely to go out of their way to help a customer and in general are not very knowledgeable about the products in the store. In this regard, Amazon has an advantage given the thousands of reviews by other customers and in-depth descriptions of products online. The commissioned sales team at Best Buy (those in charge of selling packages or services) are extremely rude and have very little sales training besides the desire to measure and push for metrics. Furthermore, Best Buy understands a major issue of buying consumer electronics which is that consumers want to be able to see and touch an item before buying it, again much like clothes. So it is not surprising when, in Mr. Downes’ story, a sales associate would be unwilling to help a customer because they figure that the consumer will look at the product, test it, and then buy it online where it is cheaper. I find this position deplorable and truly indicative of a company that has failed to inspire its employees to help the customer and is looking to make a gradual exit from the marketplace. (If you want to know more about my thoughts on failing customer service, check out my previous blog on waiting tables here.) Mr. Downes goes on further to say that unless Best Buy makes drastic changes in management and customer service relations, they will fail and the purported expansion into foreign markets is kind of a “Hail Mary” movie.

*Obviously the store is made from a variety of traditional construction materials, but for those not in the know, this means having a physical location in which to sell goods and services. The opposite of a brick and mortar store is the virtual store, which there is no physical building for the business in which to sell goods and services. There has been a shift to smaller locations carrying less inventory due to the prohibitive cost of space to hold large amounts of inventory which does not support small businesses or types of businesses that need to be mobile or flexible.

CEO Brian Dunn’s response says that Best Buy is doing fine, that they are trying to address the issues with general customer service in their sales staff, and that the company has made several large steps in making the company fit for business in today’s marketplace which include an online store (which inexplicably failed hundreds of customers this holiday season), acquiring in-house services (such as Geek Squad) to better give a 360 degree shopping experience for consumers. Furthermore, in efforts to increase the ROI (return on investment) and profitability of the company, Best Buy is attempting to aggressively expand into foreign markets, namely, China where they claim they have made some headway.

The final article by Mr. Nigram Arora, discusses his ideas for making Best Buy not only a contender, but a champion again in the industry. First, he defines a term “inductivity” defined as the level in which management and employees make changes relative to the current situation of the business. He wants Best Buy to just start blowing stuff up, making bold changes to the business structure, something I’m inclined to agree with. In today’s business environment, you have to analyze quickly and act even faster. “Fortune favors the bold” as they say. The second point that Mr. Arora covers is buying the Nook and turning it into a major Point of Sale. Barnes and Nobles apparently will listen to offers for their flagship combination e-reader especially with how the Kindle Fire took off. (To be in full disclosure, Mr. Arora says Nook has the potential to be a huge Point of Sale (POS). Amazon’s Kindle is quickly becoming a major POS. I just giggled because I’m apparently still 12). And then the general product/price/customer service differentiation.

In summary, Best Buy faces a lot of challenges in the coming years and it appears that the decades that they have had at the top are over. With such large competitors looming, not only Amazon and other online retailers, but also traditional outlets like Target and Wal-Mart, Best Buy needs to make some bold moves in order to stay competitive. The first thing is to energize the sales staff to provide better service, education of the customer and making shopping Best Buy a more pleasurable experience. Next, I really like the idea of buying the Nook and incorporating it into the store as a point of sale. Mr. Arora correctly states that Best Buy selling Kindle is a strange suicidal business move. Not only are they selling Amazon’s product, but it is a product that is tailored to help people shop easier at Amazon. Cannibalization of business is when part of your business is eating into the sales of another part of your business**. But in Best Buy’s case, this is indeed more suicidal that anything else.

**Say an ice cream company decides to start selling cheesecake. Not only are they spending money on the development, marketing, and distribution of cheesecake but people who go to the shop who would normally buy ice cream, will now buy cheesecake. While this may attract new customers, current sales of ice cream will suffer due to the introduction of cheesecake, making ice cream less profitable and changing the focus of the business. That is the idea of cannibalization.

I would hate to see Best Buy fold up in several years, but corporations have had a hard time making quick decisive moves in recent years which has seen once powerful Sears, Kodak, and Blockbuster fall hard. It is up to Best Buy whether they will survive and compete or just be another Case Study in an undergraduate management class.

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