Best Buy, or BBY to the Wall Street-minded, is bleeding. There is heightening competition for consumer's shrinking dollars, not just with other "consumer electronic" stores (brick-and-mortar or online), but discount stores (Target and Wal-Mart spring to mind), grocery stores, gas stations, cable companies, mobile phone service providers, Starbucks, and even 401(k)s. While this list of competitors is brief and not exhaustive, what it points to is that Best Buy is fighting for consumer dollars, not just consumer's dollars that have otherwise been earmarked for consumer electronics.
Take Frank Embry, a consumer that makes $X,XXX a week, for example. A portion of his money after taxes goes to housing, food, clothing, and other "necessities". What's leftover is the consumer's discretionary income that encompasses decisions such as cable internet or antenna, a new microwave or try to find a way to clean the old one, the latest gadget or an anniversary present for a significant other. These discretionary dollars are the single most powerful engine for growth in any economy. Companies fight between each other in their own industries, as well as every other industry in existence for the largest portion of these dollars.
The fact of the matter is, companies can change the mindset of the consumer in terms of what a consumer's allocation amount provided to the company's products "deserves". Groundbreaking? Not really. But the key to achieving such a change is proving to the customer that the company is thinking about them and listening to and reacting to the needs of the customer, rather than pushing things down the customer's throats and expecting them to just be happy about their newfound inability to breathe in such a fast, digital, information-driven world. Word of mouth is far more prevalent and speedy today than in years past, and it isn't going to slow down. Think about how often does a Twitter feed backlash require damage control by a company's Public Relations department.
Leadership sitting in companies need to understand these very basic concepts that marry old school marketing and economics with new school understanding of the marketplace and power of the consumer. Unfortunately for Best Buy, on top of all these pressures, it just lost its CEO.
So what does Best Buy do to react? In throwing my name in the hat, here is what I would do during the first three months of being Best Buy's CEO.
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Recognize the stores are merely showrooms - It isn't a secret that consumers walk into stores, see a product they like and are considering purchasing, scan the barcode with their smart phone, only to find a lower price available via a different vendor, usually with free shipping. The consumer mindset of being comfortable with having to wait a few days to receive a shipment of goods is strengthening, especially if it works out to large savings, which in turns increases the amount of discretionary income they get to play with.
Change the concept of the "showrooms" - In accepting that Best Buy is operating showrooms, why not embrace that? IKEA has a great model of experiential living with set-up kitchens, family rooms, bedrooms, and so on. I think Best Buy should change their store to such a fashion, without the consumer being allowed to walkthrough the large warehouse in the back of the showroom. Stock personnel should be allowed to fetch anything the consumer needs, to show a mentality that Best Buy wants the consumer to come in, sit on a couch and feel like they are in their own family room, enjoying a brand new flat screen TV. From their, they say they want one, and it just shows up from the back room. Best Buy locations already have enough space to fit at least three or fours house-like floor plans in them, so make the place a continuous open house. Bring down make-shift ceilings, to provide a more cozy, comfortable feel as oppose to a cold, wide-open space.
Locations become warehouses - The space savings from redesigning the locations allows for great storage space. What is this good for? No more stock-outs and guess what, an ability to ship even faster to those consumers that purchase products online.
Price such that a consumer will not feel "cheated" - Understandable to those in business are Gross Margins. Additionally understandable is that brick-and-mortar locations are overhead, which require wider margins in order to make a respectable, Wall Street-ready bottom line. However, because of those consumers scanning bar codes, there is an immediate understanding of how much Best Buy is taking out of the consumer's pockets for each transaction. I suggest limiting the margin (say 20% with a targeted average of 15%), removing loss leaders (because lets face it, consumers now know what those are so they buy them and leave, which negates the theory behind loss leaders), and control costs within the means of a respectable organization. Health care reform has forces the health insurance companies into managing to a gross margin on their commercial business. If those companies can make it work and are still afloat, why not Best Buy?
Workforce management - Cut workforce overhead without the option of voluntary buy-outs. I think what you will find is that many candidates try very hard to get into a company, finally succeed, only to see their level of skills eclipse those of the staff in place, which leaves the newly hired employee to wonder "what took them so long to hire me, were they really in a rush to hire these people?" Best Buy needs to seek out such wasted human capital and remove it. However, this must be done without voluntary buy-outs. With this type of option, those good employees that are necessary for success have options elsewhere and they know it, which as a result will propel them to exit, leaving those employees that aren't as good, and don't have options elsewhere. The trouble is the strategic leaders are gone, leaving those unfit for strategic and management in important positions, slowly killing the company from within.
Remove bonuses - Suggesting the removal of bonuses on the surface may seem harsh, but stick with me, because this is business. In removing bonuses, there is more room to provide raises and salary adjustments. These amounts are paid out over time, ensuring a greater chance for an employees longevity, a steadier stream of increased wages, and far more visible changes in their overall budgetary finances as opposed to one-time, blips in salary which rarely are seen to make an impact because of what is lost to taxes on that very paycheck, unless the employee was savvy enough to time the changing of their withholding.
Lease out the corporate offices - Apparently of the four towers at the Best Buy corporate campus, three are occupied by Best Buy staff, whereas the fourth holds Accenture staff. However, in taking a lean approach to staffing at Best Buy, my sense is that a consolidation of department layouts in terms of real estate would render an additional tower to let.
Divest or spin-off Geek Squad - This idea stems mostly from cheating the consumer with obscene prices for services that do not require the level of expertise claimed by the provider. If anything, its an added expense that irks the consumer into not working with Best Buy again. Additionally, and perhaps even more important is noticing the advent of Apple and Microsoft store locations, which too provide service. I think this model will expand to include other computer manufacturers, television manufacturers, and even internet/cable service providers. While some of these store fronts already exist and offer trouble-shooting and installation services to consumers, I think we will see a greater push for such activities in the next decade. Apple has proven that good products and the ability to play with them in hundreds of convenient locations has increased revenue at astronomical and effective levels. Other companies are bound to find ways to duplicate such a model, which again mirrors my notion of changing Best Buy locations in experiential "showrooms".
Remove the DVD/CD/Video Game section - Apple is leading the way in electronic delivery of content from movies and music to software. Leaving are the days of physical disks and in are the days of cloud storage and wireless, on-demand delivery. To embrace this experientially, Best Buy should remove this entire section of its locations in developing kiosks or vending machines that allow for consumer-specific and individualized interaction with the media. From videos, to music, to games, a consumer at such a station would experience a song, like it, want to buy the song so they get routed to the digital collection for a download or they may choose to receive a physical copy, which being stored in the location's warehouse is automatically retrieved by the tube like system and straight to the consumer's hands.
Improve Insignia & Dynex - While I understand the concept of a store-brand, does it have to be this crappy? If these cannot be improved, shut them down.
Online vs. In-Person vs. Both - We are human beings. We like to touch things, play with things, understand what makes things work, have satisfaction in our dealings, and be in control. These may be self-centered traits, and I'm not saying that these are the only human traits, but they do a fair job of summing up the consumer of today. The swiftness and availability of online content, the decision-making prowess due to such swiftness and availability, tend to give way to the lack of touch and personal interaction. As a result, Best Buy needs to function in both the online and in-person spaces. Online, Best Buy needs to be innovative and kick-off Web 3.0. To execute this activity, Best But needs partner with consumers. Through such partnering Best Buy can understand the interfaces that serve the consumer best. Such as an online store that is specific to gaming councils. Auto suggestions based on taste or similar consumer preferences. Skype customer service availability. All of this needs to be done with the in-person activities I have presented above.
I have more ideas of what I would to be a catalyst for Best Buy to lead the company into the new forming and competitive marketplace, but for now, this is what I want to put out there. For now, I await a call for an interview. Thank you.
-Steven Janke
