Technology Store's Comeback Kid
Best Buy is working to combat the potential demise that companies like Circuit City fell victim to. CoreBrand recently ranked them amongst the top 10 least respected brands although it has moved seven spots since 2014’s ratings. Macro trends in the marketplace are showing that industry lines
have blurred due to the digital convergence and overall emergence of new marketplace disruptors. Consumer behavior has changed the overall experience companies need to provide by driving value in innovative, broader holistic management initiatives. Best Buy must look deeper into their competencies in order to provide ‘brand led innovations’ incrementally and align their business strategy to deliver a great customer experience to the right customer.
Part of what makes companies like Amazon and Apple so competitive is their ability to add talent, brands, and new technology to continuously refocus their brand. They understand the impact of their reputation in the marketplace and its correlation to investment potential. Best Buy recently launched a “renew blue” strategy aiming to recapture market revenue. Cost reductions of $965M by 3Q 2015 reaped positive impacts on the company’s bottom line margin growth. Declining sales and pricing in the marketplace has caused an increase in competition for Best Buy and impacted their margins (they were negative since 2011). Understanding their marketplace was also crucial to establishing the reduction of stores in the Domestic (84% of revenue) and International (16% of revenue) markets (closing all stores in China and Europe).
Distribution has played a large role in Best Buy’s ability to keep up with competition. Online distribution and the online sales network were previously never utilized to successfully help the brand grow. Implementing a “ship-from-store” concept in 1,400 locations has aligned the brand with a growing distribution center network. Competition in the marketplace has utilized strategically placed distribution centers for cost reductions in the market lowering their inventory turnover rate. It has avoided out-of-stock situations online (especially during the holiday season) which has allowed Best Buy to show 20% growth in online revenue.
Best Buy has primarily been a brick and mortal entity. By restructuring their current store layouts and adding partnerships in the creation of “stores-within-stores”; they have created an open community used to help shape ideas and allow customers to feel a deeper connection to the brand. Instead of just “buying a product”, consumers are feeling as though they are a part of something much larger with recognizable luxury brands visible in a friendly environment layout. Microsoft has opened 400 store partnerships and Samsung has launched 1,400 stores-within-store platforms. These companies fall under the 48% revenue generating marketing mix category of consumer electronics (which is Best Buy’s most successful growth category). By highlighting these high-growth markets and eliminating shelf space for low margin goods such as movies and music; Best Buy has increased their ability to create fast-growing market margins.
Best Buy is on the way towards hitting their initial goals set for 2015/2016; however, there needs to be a continued effort in maintaining their customer relationship management. The touch points they gather from transactions across their growing distribution networks will allow them to continue in shaping the brand experience and provide excellent real-time customer service. In an industry that requires marketplace opportunity analysis on a consistent basis, Best Buy will need to formulate dynamic relationships with their stakeholders. Their corporate strategy will need to continue in establishing strategic business units aimed at understanding how to assign their limited resources to industry growth opportunities.