Best Buy: Can stores be asset vs. Amazon?

Best Buy is working hard to make sure price matching with Amazon and the competition is just table stakes to close a sale. And its master plan is to use its stores as a front-end and back-end weapon to grow revenue.

Following its better-than-expected second quarter earnings, Best Buy laid out its progress to thwart so-called showrooming. Showrooming refers to checking out products in a store and then buying online. "Price competitiveness is table stakes," said Best Buy CEO Hubert Joly. "We are continuing to invest in our price competitiveness for price matching and price reductions. Pricing is a capability that is underdeveloped at Best Buy and an area where we will be increasing our focus on over the next several quarters through improved analytics.

Earlier: Best Buy Q2: Profit rockets, revenue dips

Best Buy can take pricing off the table as an issue for customers, but it has to make them feel good about buying something. Enter the store, which will theoretically boost online and on-premise sales.

The first part of Best Buy's store plan revolves around what the customer sees. Best Buy has installed Samsung experience stores through most of its locations. It is now working on Microsoft experience stores too. In a few months, Best Buy will have Apple, Microsoft and Samsung duking it out in its stores. Best Buy will retool the rest of its floor plan to maximize sales of gaming, computers, tablets and high-margin goods.

Previously: Samsung, Apple set up for Best Buy showdown

Joly outlined the progress with the front-end of Best Buy's store overhaul.

• Best Buy is "largely done" rolling out the Samsung Experience shops.
• The company is dedicating more space "dedicated to growing and profitable categories like mobile, tablet and small appliances and the creation of new clearance areas.
• Best Buy has started rolling out Windows Stores in 500 of its large format outlets and has deployed them in 240 stores as of the end of the second quarter with the rest completed at the end of September.

The second part of Best Buy's stores-as-a-weapon plan revolves around fulfilling online orders. Best Buy has a 50 store pilot where online orders will be fulfilled from local stores. Joly said:

2% to 4% of our online traffic in any given week does not buy because we do not have the inventory in our online distribution centers and we're telling the customer that it is out of stock. And yet much of the time we actually have it in one or more of our retail stores.

The advantages to the store-as-fulfillment center plan are that Best Buy can deliver products faster and cheaply. The downside to that strategy is that Best Buy's in-store inventory visibility isn't good and the staff may not be as efficient as people in a distribution center.

This in-store fulfillment concept has been around for a while, but generally speaking store fulfillment is a secondary strategy. Using stores as fulfillment centers are harder to utilize efficiently---especially during peak times.

Sharon McCollam, CFO of Best Buy, was optimistic about the 50 store pilot and has plans to include 200 stores by the holidays. Why not move faster? Best Buy has some IT issues to correct. McCollam outlined the issues:

• Best Buy needs new processes for using stores as online fulfillment centers.
• Inventory visibility doesn't line up well for an online purchase vs. an in-store one.
• Systems need to be sped up to show inventory levels in minutes not hours.

She said:

Remember, we have never shipped out of the back room of the store. So this is a very different process... Our systems -- and this is very common in retailers -- takes up to four hours to be able to update the inventory. It is very possible if you only had two of an item left in the store, that you're going to go ahead and promise it to that customer and you may sell it in that four hour period. We had to get that timeframe down to 15 minutes before we were comfortable rolling it out. And that is what we will have achieved by the time we roll this with the 200 stores before holiday.

McCollam added that Best Buy is working on the back-end issues to make store-fulfillment scale.

Also see: Wal-Mart's Q2: 16 technology, operations and e-commerce takeaways