

Best Buy: Grasping at Straws  - kapgoals
http://www.forbes.com/sites/larrydownes/2012/03/29/best-buy-grasping-at-straws/

======
shalmanese
I don't know if the economics of this make sense but it's always seemed to me
that the logical end goal of this is that brick and mortar stores should
refocus as marketing arms of manufacturers. That is, they should price goods
basically at cost such that they're economically indifferent to whether a sale
is made or not but charge manufacturers a significant sum for shelf space and
promotion.

Lots of goods genuinely do require an in person experience to evaluate whether
to buy but can be had cheaper online. What ends up happening is that people go
to the stores to handle the goods & chat with the salespeople, then later buy
online. In effect, B&M stores have been giving a huge, inadvertent subsidy to
online stores the entire time and I can't help but imagine that's what's
really crippled their businesses.

I think perfumes will be one of the early indicators of how these new business
models will play out. The entirety of the experience of a perfume is how it
smells and that's something impossible to convey online. At the same time, all
perfumes of the same brand are guaranteed to be chemically identical and
shipping costs are a minor part of total costs so it's perfect as an online
good.

~~~
va_coder
"In effect, B&M stores have been giving a huge, inadvertent subsidy to online
stores the entire time and I can't help but imagine that's what's really
crippled their businesses."

True, but on the other hand online stores subsidize B&M too. I've often looked
at the ratings on Amazon and then bought something at a B&M because I wanted
it right away or wanted an easy return, if needed.

~~~
shalmanese
I imagine the cost of developing and maintaining an online review system is
relatively trivial in the overall scope of running an online business. Your
example is just online vs B&M competing on their own merits. OTOH, it costs
real money to hire knowledgable salespeople and real estate for attractive
displays.

I don't know if this is a causal relationship but I noticed companies
drastically cutting back on the quality of salespeople around the time online
shopping became big. This would make sense economically as stores could no
longer capture the full economic value of good service. OTOH, for vertically
integrated stores like Apple, the incentives are aligned and the quality of
staff is noticeably higher.

------
tzs
Someone at Reddit pointed out something interesting, in response to a
different article covering much of the same information.

Back when Circuit City was around, Best Buy was aggressively responding to
Circuit City opening new stores by trying hard to put a Best Buy near that
Circuit City. They would do this even if there was already a Best Buy within a
few miles of that location.

Now that Circuit City is gone, Best Buy is left with quite a few stores that
really have no reason to exist--they are too close to another Best Buy. These
are a major contribution to the list of stores they are closing.

Closing these stores is not necessarily a sign of trouble.

~~~
mcphilip
Maybe that's true in some sort of a common sense perspective, but the closing
of those stores still translates to diminished growth from an investor's
perspective which will tend to really punish the stock price and put more
pressure on the leadership for cost cutting and/or restructuring.

~~~
ryanhuff
I don't think I agree that slower growth due to closing stores necessarily
leads investors to sell the stock. A typical metric in retail is same-store-
sales. If you close a BB store that is in close proximity to another BB store,
its possible (probable?) that the surviving store could see a jump in same-
store-sales. Investors may see this as a good thing.

------
jballanc
When I, and Ron Johnson, still worked for Apple, he told a story that has
stuck with me. As he told it, he was talking with the CEO of Williams Sonoma
who was complaining about the difficulty of getting people to make return
visits. "If you need a pot, you come in to the Williams Sonoma, buy a pot and
leave. You don't come back unless you need another pot or something else for
the kitchen...and how often is that?"

Johnson's replied that the key to return visits is to make each visit an
experience. "Put on cooking demonstrations, teach classes, provide samples.
Then people will go to the mall _just_ to visit the Williams Sonoma."

Sure enough, every time I'm near a Williams Sonoma, I make sure to stop
inside.

Of course, it's easy to follow the MBA handbook and talk to investors about
"changing compensation schemes" and "reducing cost, improving product mix,
blah, blah, blah". To get ahead, you have to be daring...a little crazy even.

For example, the "Apple Creative" program was one of Johnson's ideas: hire
top-notch trainers, and charge people $99/yr for weekly lessons.

What?!? That's positively INSANE! Have you ever looked at what it costs to
take lessons with a certified Final Cut Pro trainer? And yet every Apple
Creative was certified in at least one of the pro products. How on earth could
such a plan make any money?

How on earth could such a plan result in a $100 billion bank balance?

How indeed...

~~~
prodigal_erik
It didn't, though. Apple was circling the drain for many years until the iPod
and iPhone saved them. At this point they've even taken "computer" out of
their name.

~~~
bradleyland
You're making an argument that the parent isn't. No one in their right mind
would claim that the iPod and iPhone aren't major contributors to Apple's
current condition, but are the two mutually exclusive? Are you claiming that
the Apple retail strategy hasn't contributed to Apple's success? That seems
just as silly.

I don't believe that there are many of Apple's decisions you can cherry pick
and still arrive at the same Apple you have today. The "experience" at the
Apple store is definitely one of the decisions that are inextricable from
Apple's overall success.

------
jasonkester
My new philosophy: If Amazon doesn't sell it, it's not for sale.

Roughly 100% of the electronics, toys, and assorted crap that I purchase comes
to my front door. Certainly everything that you could imagine a store like
Best Buy selling, I just buy online these days. And I'm by no means ahead of
the curve in this respect.

I'm sure there's still a store in my town that would sell me a television. But
I have no idea where it is.

------
zred
_If you want to see how consumer electronics can still be sold in retail
locations, just spend ten minutes in an Apple store. They are selling some of
the same products as Best Buy, but the two experiences couldn’t be more
different._

I think the comparison to the Apple Store is unfair. Apple doesn't have to
compete on price. A MacBook Pro costs the same regardless of where one
purchases it and so Apple can create a store that's a joy to be in and know
that customers will purchase there. If you're going to be paying the same
price, why not shop where the experience is the best.

On the other hand, most of what Best Buy sells can be bought in a competitive
market. If I go to Best Buy to buy an Asus computer, I might find better
prices elsewhere. I'm going to buy it at Best Buy if they have the lowest
price. As such, if Best Buy spends money to make that experience of buying an
Asus a joy and has to charge a bit more because of it, I might browse there
and buy elsewhere.

It's Apple's tight control of the pricing of their products that allows the
Apple Store to be a viable business model. Apple doesn't have to worry about
MacMall or Target or Best Buy undercutting them.* They don't have to worry
about a customer asking their trained staff all of the questions and then
going to Best Buy to actually make the purchase. Best Buy does need to worry
about that on the majority of their products. If Best Buy puts money into
smart staff members to explain my different laptop options, I can easily go
elsewhere to make the purchase cheaper should those staff costs appear in the
price.

It's a lot easier to provide a great experience when you don't have to compete
on price.

*Yes, Amazon and B&H do offer discounts on Apple computers, but those discounts are usually small compared to the overall price and small compared to the variation in PC pricing.

------
guynamedloren
HDMI cable query, first search result:

$13 - Best Buy

$6 - Amazon

HDMI cable query, most expensive on first page:

$696 - Best Buy

$14 - Amazon

 _That's_ why Best Buy is dying. If the meaning is unclear here, my comparison
represents how distorted and convoluted Best Buy is as a company.

------
apinstein
I remember thinking during class at business school (1992-1996) that the
internet was going to cause a major shift in retail. To survive in the
internet age, retail would need to morph into basically a manufacturer
showroom, with very knowledgeable staff and where most goods were ordered in-
store or online and just drop-shipped.

Why? Because the retail industry had devolved into essentially a real estate
business; manufacturers bought shelf space from retailers. Manufacturers had
essentially no control over the person-to-person sales/education experience
for their own goods. Manufacturers hated it, especially new entrants, since it
was so hard to introduce a new and actually better product.

It's taken about 20 years, but this is finally starting to happen at scale.
Companies like Sony and Dell tried it, but they didn't really invest in the
right floor salespeople or retail experience to make it anything other than a
Sony store vs a Best Buy. Apple is really the first company to nail it, and
it's paying off big time. It is really cool to see, as I think it's such a
move in the right direction for both manufacturers and customers.

------
thedragon4453
I think there are several problems with Best Buy.

* only seems to stock the cheap crap with high markup. You quickly learn to avoid this (looking at you, monster cable.) * Staff is not knowledgeable. There is not a lot of imperative to buy at Best Buy, since you get the same level of help as you do at an online retailer - at best, none. At worst, misinformation. You generally figure it out based on reviews and research either way. * The corporation aggressively pushes things that will cause ill will. Lying about HDMI cables, high warranty costs, upselling way beyond the customer's need, etc. * Its usually more expensive than an online competitor.

I still think that there is a place for a brick and mortar retailer of
electronics. In fact, done well, I think it could thrive. I'd pay a couple of
extra bucks to talk to someone who knows what they are talking about, and to
be able to get something I want _now._ But Best Buy is predatory. Somehow
treating your customer shitty while charging more isn't sought after. Odd.

~~~
thematt
Frye's is a brick and mortar retailer of electronics and they seem to be doing
pretty well. Granted, they're in the same boat in terms of customer service,
but they've at least found a market for themselves.

------
learc83
From working at Best Buy during college, a major part of their problem was the
independence of the local management.

HQ would pass down all these lovely plans they spent millions to develop and
test, then there was no real follow through. Store management just did
whatever they wanted anyway.

We'd spend all this time at Saturday morning meetings learning about our new
initiatives; how to relate to the customer and make recommendations instead of
selling.

Then come monday it was back to the same thing we were doing before we wasted
300 hours of labor learning about some already forgotten scheme.

Another huge problem was they way they promote. Supervisors and managers were
almost universally promoted completely based on sales ability.

For some reason they couldn't quite figure out that sales ability and
management are two completely unrelated skills.

------
fruchtose
The bottom end is Best Buy's biggest problem--mainly that this is how Best Buy
makes money. Much of what Best Buy sells requires no physical interaction with
consumers. This is as much about experience goods as it is about Best Buy's
market. There are a variety of experience goods sold online--headphones,
iPods, laptops, TVs, musical equipment--and its probable that a large number
of these sales are not decided because a consumer walked into a physical store
and experienced the product beforehand.

For instance, the first headphones I spent more than $30 on where a pair of
Audio-Technica M-30s. I could not find these headphones in a physical
retailer. I found them online, and I bought them purely based on the
recommendations of others. I now own a pair of Audio Technica M-50s, which I
bought based on the experience of the first pair of Audio-Technicas and the
recommendations of others.

The element not explored in the article is authority. Authority plays a big
role in how we buy things. Best Buy is perceived to have little authority;
they hold little regard for consumers and have questionable customer service.
Newegg, on the other hand, treats consumers well, and consumers come back to
the site. Apple stores have authority, because Apple has created the
impression in people's minds that you can go to the store to get your
electronics needs fulfilled.

The other variable is price. jrockway commented here that he wouldn't buy a
$60 USB cable from Best Buy. Why? Because he knows USB cables are much cheaper
online, new or used. The problem here is price _and_ authority. Best Buy
reduces their perceived authority when they sell generic goods obviously
overpriced. Best Buy is selling cheap goods as expensive goods; their biggest
obstacle to success is people's knowledge that Best Buy is overcharging you.
That is the symptom (not the cause) of their issues; knowledge for most people
is irreversible.

What does Best Buy actually need to do? Get their authority back. Give people
a reason to come back to Best Buy. Actual customer service goes a long way.

------
rdl
Maybe they should charge a membership fee, like Costco, and sell their
products close to cost. Especially once Amazon has to start paying sales tax,
this might be enough to make it work.

Although, I had a gift card or something which required I make a $25 purchase
(batteries) in person at a Best Buy, and the experience was horrible. I'd pay
1.2-1.5x as much to buy from Amazon and not have to deal with an icky store,
obnoxious salespeople, and painfully slow checkout process.

~~~
jrockway
Amazon charges sales tax in NYC, and I still prefer them to Best Buy. The
problem is that Best Buy never stocks high-end items, only overpriced low-end
items. So there is just no point in visiting unless I want to pay $60 for a
shitty USB cable, which I never do :)

~~~
rdl
NYC has B&H, so I don't understand why the issue of where to buy AV equipment
is even an open question :)

~~~
jrockway
This was a big shock to me when I moved from NYC to Chicago. Stores in NYC
actually stock things I want to buy, and the employees actually care about
their customers. It's very, very strange.

(My first experience was buying shoes from the Asics store. I walked in, asked
for a Gel Evolution 6 in size 11 2E, and they had it in stock. Never in my
life have I been able to buy shoes at a store...)

------
s3graham
Pretty soon, the only end-customer things in cities will be coffee,
restaurants, bars, yoga, and gyms. And Apple stores, apparently.

It seems nostalgically sad, but there's also going to be lots of space for
doing "something" locally. I don't know what though.

~~~
merraksh
_And Apple stores, apparently._

And maybe stores for other brands, provided they will come up with a way to
offer a similar experience as that of an Apple store.

------
JunkDNA
I'm having trouble locating the source, but 5 - 10 years ago (when Best Buy
was flying high) I read an article that talked about Best Buy's financials and
it revealed that a massive portion of their profits came from (mostly impulse)
buying of CD's and DVD's, not all the big ticket electronics and appliances.
This was one of the reasons all that stuff was in the front of the store right
by the registers. I remembered wondering at the time what their long-term plan
was for extracting themselves from that dependency once it was commonplace for
those goods to be entirely digital. Apparently they didn't have one.

------
jballanc
Reading the article and the comments here... I have to say it's rather sad how
many are completely ignoring the single biggest differentiator between brick
and mortar retail and online shopping: human interaction.

------
rodly
This is an interesting example of how disruptive technology is. E-commerce is
just too powerful a force and the low costs and ease of use will soon demolish
our conceptions of what a retail store should be. With rising gas prices, no
one wants to drive to a store, spend time searching for products, and be
subject to annoying taxes and price hikes that B&M need to have to profit.
It's an interesting but scary proposition because as more stores close down
and jobs are displaced to programmers/web developers/etc, you get a pool of
uneducated workers who saturate the employment pool with good work experience.
This leads to lower and lower wages due to obvious excess supply and, well,
you know how that goes. This is truly a scary transition that will become more
commonplace in the coming years. There will be an uptick in jobs for people
like us, but most people, even college students now, have no idea how to do
much more than load memes in a "internet explorer thingy firefox". An even
scarier question is when will E-commerce no longer need an abundance of highly
paid programmers to build their infrastructure? I fear Amazon has nailed the
proper way to shop online and their template is just that, a template.
Wordpress killed the idea of a unique blog. Everyone can have a wonderful
looking site and have no clue how anything works. When everyone can be
extraordinary and stand out, no one stands out.

~~~
trafficlight
This is a little too post-apocalyptic. I think the biggest thing you miss in
your argument is that a lot of human beings don't really want to do the same
thing as all the other humans. There will never be a point where Amazon is the
only option for E-commerce. Wordpress will never be the only blog software
option. There are millions of people who won't go to Walmart simply for the
fact that it's Walmart.

Honestly, do you think there will be point when we say, "Welp, we've written
all the software. Now what?".

