Best Buy: Can stores be asset vs. Amazon?

Best Buy: Can stores be asset vs. Amazon?

Summary: The first part of Best Buy's store plan revolves around improving the customer experience and price analytics. The second part uses stores as an online fulfillment center.

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TOPICS: CXO, Amazon, E-Commerce
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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.

bestbuystore

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.

PreviouslySamsung, 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

Topics: CXO, Amazon, E-Commerce

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25 comments
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  • Makes sense to me

    Using the stores as local distribution centers makes a lot of sense to me. It also changes the inventory model at the stores, meaning that they can move inventory out of regional centers and into stores. That means that stores will more likely have things in stock for walk-in customers too. For the customer those shipping charges add up, especially on small items. There is also the "I want it now" factor.
    spambox@...
    • It seems like BestBuy hired former "Mall Management"

      I don't know.

      It seems, with the "Samsung Experience" store, the "Magnolia" Store, and the "Microsoft Store", it seems that BestBuy is using a Mall Management Approach to stores it owns.

      It's almost as if BestBuy would be better off if it changed the company around, called them "The BestBuy Mall" and just sold every extra square foot it could to outside vendors.

      Maybe put a Sabarro or a McDonalds in the store. Sell Cotton Candy, maybe peanuts and popcorn for the kids, and let the actual retailers RUN THE STORES LOCATED INSIDE THE STORE BESTBUY ABANDONED.

      This way, BestBuy can focus on hiring carnival barkers, jugglers, and security camera operators.

      If BestBuy gets into managing inventory, EVERYTHING ADVERTISED WILL BE OUT OF STOCK, and the ads will continue to be printed with errors, omissions, and incorrect prices.
      donald duck 313
  • I don't do "showrooming."

    I do all of my product research online and then I sometimes pick it up in the store. Once I've made a decision, I like to start using the item immediately whenever possible. Buying in the store also allows me to keep researching right up until the time I actually need the item. It's worth a little extra money to me to get the right thing exactly when I need it.

    That said, I also do research online and then order online. There are some things which just aren't critical to have immediately. I tend to use my Amazon Prime account for that, since I get free 2 day shipping. Two days is quick enough for most things.

    In fact, the only thing I don't ever do is "showrooming." It's too time consuming to visit stores just to figure out what I want. Unlike money, time is a finite resource. You can't make more time.
    BillDem
    • Best Buy has been fooling itself for years with the "showrooming" theory

      They basically imply with that theory that the customer is cheating them by using their stores to physically shop, but then going online to buy it cheaper once they choose the item. But, more-if-not-most people these days are more like you (including myself): Who wants to waste time running around from store to store when you can quickly do some searches online and research what you are after. Frankly, I think Best Buy has benefitted more from Amazon than Amazon has from Best Buy, as people often use Amazon's feedback to get a feel for the quality and usability of a product (nobody wants to buy a lemon) and then for whatever reason decide they'll run down to Best Buy and grab one.

      No, Best Buy has had other problems for years (and treating the customer with subtle disrespect is one of them that has been ingrained in their culture for quite some time, I think). Perhaps they're finally starting to address these problems, but if they keep trying to combat "showrooming" they're after the wrong foe (and seeing the customer as an enemy to be deceived and/or tricked, so if they are finally trying to embrace the customer and their habits, that is at least a step in the right direction, I guess).
      tr7oy
      • I agree with the article in that I have used Best

        Buy for showroom purposes. I looked online and was down to a couple of modle and I went to Best Buy for a hands on. That sold me and i ordered the laptop from Newegg. The laptop I bought before that I bought at Comp USA and I bought it because I was able to see the thing (Best Buy didn't carry the model I bought). I recently bought a Samsung Galaxy Note tablet and I walked over to the section in the old Best Buy laptop/Tablet area to look at.Then to make the purchase i walked over to the Samsung store and told them this is what I want. For some reason it just looked more professional at the store.

        The comparison of Best Buy being mall like if off. The stores are not selling their own inventory. They are selling Best Buys inventory. I'm sure you won't see laptops with missing keys in the Windows store like you used to in the laptop section of Best buy.
        I think it's a great idea to get a more professional sales staff that the store adds to Best Buy.

        I like to go window shopping at Office Depot, Staples, Best Buy and Comp USA (now Tiger Direct) and physically seeing the laptop is what usually gets me interested in the laptop I purchase.
        Orlbuckeye76
  • Good reply

    I like this especially:
    "Unlike money, time is a finite resource. You can't make more time."
    +1
    Ram U
    • The above reply is for @BillDem

      n/t
      Ram U
  • I never go into Best Buy

    There is a Best Buy less than a mile from my house, yet I never go into it. I forget its there. I've traveled 12 miles or more to get to an Apple or Microsoft Store. I just remember walking into a Best Buy store about a year ago and thinking how old and tired the place looked, like walking into 1994 but with fewer CD and DVD racks.

    They need to competely over-haul their marketing strategy (look, name, message) to get noticed again.
    A Gray
    • Best Buy has changed recently

      In fact Best Buy has a very different look and feel. I also found what I wanted in the store and the price was right. That was a big surprise to me, a person who has called them "worst' Buy for years.
      kdjkdj@...
      • Yes, they changed, but not for the better...

        Yeah, BestBuy is investing in flashier displays, to pump up it's revenue-per-square foot initiative.

        In areas where the company can't properly train staff, it outsources and sells the square-footage to outside companies, like Samsung, Magnolia, and Microsoft.

        This guarantees revenue metrics (per-square foot) can be met, via contractual obligation.

        Overall, it's good for BestBuy shareholders, but the prices are still inflated since BestBuy started experimenting with "CowBoom" and the "BestBuy Outlet Store", both on eBay. Basically, instead of selling discounted returns in the store, BestBuy sells the items on eBay instead of in the store. The additional cost in shipping, a customer would have to pay to return the item, almost guarantees the product isn't returned again.
        donald duck 313
      • They still have some of the

        old tendencies. I went to Best Buy the weekend of the no sales tax back to school and I couldn't walk 2 fee without someone asking if i needed help. Them I went back on Monday to buy some accessories and I had to ask for help after i finally found someone.
        Orlbuckeye76
  • Stores are the Key!

    Been saying this for a while - ship from your stores. You could even do local delivery and put the screws to Amazon. Brick and Mortar has a huge asset in its inventory at the stores. Let them ship from that during the day. Have the Looser Squad make deliveries, etc.

    The Finish Line does it with sneakers (order online and they will ship from a local store 1st) so there is no reason Best Buy can't do it.

    And they could finally put the nail in Amazon's coffin.
    itguy10
    • words and other

      Do you mean loser? Looser just means not as tight.

      WalMart has a feature you can check for an Item on line and find out which stores in an area has the item. I know they are bigger than Best Buy, but it is all computer anyway. Do the RFID tag to update the inventory. There was a story out a year or so ago about how WM was to use the RFID tag to change the online inventory once an itme was placed in the shopping cart. I think it was to be setup to charge your CC at the time also, and you could just walk out, having paid for everything. That kind of setup could stop you from deciding not to buy something and dropping it off somewhere else in the store, too! Just think, if someone picked up a movie in electronics and then said, nah, I'll buy that someother day and you lay it down in groceries, yet you go home and find out you have paid for it but don't have it!
      dhays
    • Best Buy has been doing that

      You can pick up at a store or have it shipped to your house. The problem is to better Amazon the inventory must be closer to the customer. So if it takes 3 days from both amazon and Best Buy to get to the customer then there is no advantage to select Best Buy. If your service is the same as the competitor then you have a 50% of them selecting your product. But if you provide a better service those odds increase heavily.
      Orlbuckeye76
  • Giving customers

    what they want must be more than just saying so. Last week, I went into Best Buy to buy a laptop; I ended up buying one from Amazon. Why? I wanted a Windows 7 laptop, and they had none. Fry's had a couple of Windows 7 machines, but I felt they were overpriced. I would just have soon given BB a chance, if they had the product I wanted.
    roteague
  • Experienced it!

    I was on Best Buy online, and noticed the possibility of purchasing, then picking up in my local store. I did not do it because I have experienced the inventory difficulties before and did not want to deal with it. Went to the store, found the item and bought it, so it would have worked, that day.

    My biggest issue: the guys in the store could not answer my questions about PC-to-video cabling. I guess Best Buy no longer works to build product knowledge, of at least the current 'stuff', which is right where my interest was!
    sng - TX
    • cabling

      I'm not sure what your question was, but our W7 laptop has an HDMI output we just plug into a spare HDMI port on the TV and stream sports or whatever that way, works to watch a movie/TV show from disk while the DVD recorder is recording something else.
      dhays
  • Possiblities

    I think it is defiantly something they could use to their advantage, with the right customer service and the right convenience options, but as of right now they aren't doing it right at all and infact it is probably a hindrance to them
    TechIan16
  • I have actually been doing the opposite of showrooming lately

    With Best Buy's price match policy, I will research an item online, maybe see what the reviews look like on Amazon, then go to Best Buy to buy it if they have it in stock, and make sure their price is equal or better to Amazon's. I just did that with a Blu-Ray movie last week. If Best Buy has it in stock, it much more convenient than ordering it online, sight unseen, and then waiting for it to arrive and hope there isn't a mix up on delivery or something.
    brble
  • Another player

    Best Buy AND Amazon have more to worry about from WalMart than any other entity.
    louishelps