The first half of this blog post title is: "3 Essential Ways Best Buy & Other Retailers Can Regain Lost Business." The second half is: (Best Buy & Other Retailers Can Regain Their Lost Business by): 1. Monitoring Competitors' Prices; 2. Adjusting Product Assortment; and 3. Synergizing Store & Website." In late October, Best Buy acknowledged that its third quarter 2012 earnings would be "significantly below" those of the corresponding period of 2011. It also announced that results for this third quarter would be as poor as those for the previous three month period that ended August 4th. This second quarter period was characterized by profit dropping 91 percent, some store sales declining by over 3 percent, and profit margins cut by 1 percent. Best Buy will report third-quarter earnings on November 20th.
Best Buy's problems are not new. In the 2006 to 2012 period, Best Buy lost over 55 percent of its market capitalization due to its poor sales and profit performance. While Best Buy began to lose market share to retailers like Amazon.com and Walmart during this period, this competition (including Apple's stores) has intensified. Other issues that have affected its competitive strength have been the use of smart phones by customers (making Best Buy a showroom for Internet retailers), the maturity of the HDTV business (with lower sales, lower prices and lower margins), and increased competition for mobile phones and tablets from providers of telecommunications services.
What Can Best Buy Do To Regain Its Lost Business???
1. Monitor Competitors' Prices. While Best Buy refuses to match prices at Internet-based retailers, it needs to monitor competitors' price levels and determine what the appropriate price premium should be for each product. As an example, being able to compare several models in a store environment, immediacy, i.e. taking the product home (as opposed to waiting for delivery and paying for shipping), and the ease of returning a defective product may be worth a 10 percent premium on a 50 inch LCD television set. A consumer could also justify a 20 percent premium on a computer cable due to its low cost or its importance in installing a $700 television.
2. Adjust Product Assortment. Best Buy has two private labels: Insignia and Dynex, a fighting brand, which provides it with store loyalty, and exclusive merchandise unavailable elsewhere. Unfortunately, Best Buy needs to better manage each brand. Models of these brands should only be available when they offer exceptional value when compared with national brands. To communicate and reinforce their quality, these brands should have double the warranty of national brands. The differences between Insignia and Dynex brands also need to be better explained on a product-by-product basis.
3. Synergize Store & Website. Best Buy needs to rethink the synergies between its Internet site and retail store locations. For example, Web orders can be picked up at a local store as late as 9 P.M.; local stores are often open 7 days a week (for customers who work late hours), and customers ordering merchandise for store pick-up do not have to worry about packages left in front of their home, etc. If the Website indicates that an item is out-of-stock at a local store, the Web site should recommend a substitute item that is in-stock at the local store (perhaps at a reduced price). What do you think???
Editor's Note: Be sure to take a look at Barry R. Berman and Joel R. Evans' latest book, Retail Management: A Strategic Approach, Published by Prentice Hall.