April 2, 2012
Best Buy to Test ‘Connected’ Stores
Best Buy last week gave details of its “Connected Store,” a slightly smaller format which CEO Brian Dunn described as “remodeled big box stores that focus on connections, services and an enhanced multichannel experience.”
As part of a test, two full markets in the Twin Cities and San Antonio will be reset with the new format later this year. On the company’s fourth-quarter conference call, Mr. Dunn described some features of Connected Store:
- A Buy Back and Tech Support service, which will enable new tablet owners to walk out with a wireless plan;
- One larger, combined team in computing and mobile phones and tablets “that’s on a singular mission to grow market share in hardware, accessories, services, and, in particular, profitable connections”;
- In what several reports likened to Apple’s Genius Bar, a central knowledge desk in the center of the store will assist customers with services and connections and offer training and classes;
- Geek Squad services will be expanded and anchored at the front of the store for an improved customer and employee experience;
- The checkout area will be more geared toward driving a “dedicated multichannel experience,” including enhanced in-store pickup;
- Inside bigger stores, its Pacific Kitchen and Bath and Magnolia Design Centers openings will be accelerated.
In the two test markets, the big box square footage in aggregate will be decreased by almost 20 percent from store closures and downsizing of stores. At the same time, customer touchpoints or doors are expected to increase by over 20 percent, driven by the continued build out of more Best Buy Mobile standalone stores in these markets.
The new concept test dovetails with Best Buy’s overarching goals to expand its healthy e-commerce operations; grow its mobile business, including opening 100 Best Buy Mobile units in 2012; and expand services such as its warranties and tech support. Customer service will also be enhanced by programs such as 30-days-free phone support and greater investments in training and incentive-pay for associates.
The changes come as the electronics giant logged a $1.7 billion quarterly loss, its sixth straight decline in comps, and its most-aggressive cost-cutting plans yet to reduce operating costs by $800 million over the next three years by closing 50 big-box stores, laying off 400 workers, and other moves. The savings will free up money to invest in “Connected,” expand in China, and grow digital.
Mr. Dunn said that over the last three years the industry has been hurt by lack of innovation in many traditional CE categories such as television, PCs and gaming while getting squeezed by “greater price transparency and ease of cross shopping.” Added Mr. Dunn, “We knew we had to accelerate our cost reduction efforts, adjust our sales mix and significantly improve on the experience we were delivering for our customers.”
- Best Buy Reports Fiscal Fourth Quarter and Full Year 2012 Results – Best Buy
- Best Buy’s CEO Discusses Q4 2012 Results – Earnings Call Transcript – Seeking Alpha
- Death Of Best Buy’s Big Box Store? Company Will Shift To New Model, Close 50 Existing Stores – Forbes
- Ax falls on 50 stores, hundreds of jobs in a reboot of Best Buy – Minneapolis Star Tribune
- Best Buy Forced to Rethink Big Box – The Wall Street Journal
BrainTrust
Recent Discussions
Discussion Questions
Discussion Questions: What do you think of Best Buy’s Connected Store concept? Which enhanced focus in the Connected Store — mobile, tech services, customer service or multi-channel — has a best chance to become the notable differentiator against its largest competitors?
Poll
Given Best Buy’s recent performance, this is a smart move. The profit in CE, for Best Buy and RadioShack, has always been in the add-ons not the big shiny objects.
A higher-touch brick-and-mortar format with service and expertise that is much better delivered face-to-face, positions them more against RadioShack (especially the new small footprint Best Buy mobile stores they are launching) and successfully against the WMT/TGT and even Amazon who are great on value but not expertise or enhanced services.
Best Buy will have two divergent customers in this new model: the customer who knows little about what they are looking for, and the customer who is technically knowledgeable and looking to upgrade. Each will require a different knowledge base from a sales associate. The training and ability to share the knowledge is going to be the important step. My personal experience in Best Buy is the TV sales associates know and can explain the differences between the sets. I do not find that knowledge with the higher-tech sales associates. If they can pull this off with demonstrated service, it will put them ahead of the competition.
If Best Buy can’t compete on price, it has to win on service and helping customers solve problems. I think the focus on leaving the store with a knowledge of how to use that CE device is key and also having an avenue for future support if needed will be a differentiator.
It will be interesting to see how they increase the multi-channel presence in the store. In store pickup is one avenue but also the ability to provide 1000’s of additional SKUs online as they shrink the box may be another. They could use it as a cost cutting technique to stock less inventory — one to show, none to go!
Selection of products and ability to contract with any provider in mobile is a big advantage for Best Buy. Car stereos/custom shop, music and video are becoming dust collectors. Home appliances may have a continued draw if they can maintain MAP advantage, as they do today in Consumer Electronics. High-end audio should continue to be a strength, leveraged off of informed sales associates.
What isn’t being leveraged optimally is the Reward Zone loyalty program, and their private label and MasterCard portfolio. As an example, for my birthday this month I received an email “celebrating” my big day and offering me Reward Zone bonus points on a single regularly priced item. Seriously? This best-in-class operator is trying to claw their way back from a disappointing holiday season, and soft sales in 2012, and the best they can do to motivate a valued customer is with truly one of the weakest offers I’ve ever received – for b-day trigger or otherwise.
Moving from a product model to an experience model is a very smart and necessary move for Best Buy. It’s useful to remember that this company is the last man standing in the big-box, CE arena. These are very sharp people.
This is a great move for Best Buy. Understanding your customer is job one and that means serving them appropriately. Will this stop the “showrooming” problem? Probably not, but the value the connected store format will add in merchandise and service will definitely slow it down.
BB is going in the right direction. They need to go just one step further.
One of the complaints in the articles this week about what BB was experiencing was that shoppers were using BB as a showroom. That is, people were coming to the store, scoping the merchandise, learning the features, then going home and ordering what they wanted online at the best price.
Why not give that customer the opportunity to access all online alternatives in the store? Find the price they want, meet it via BB online and have it delivered in the same time frame that Amazon, et al, would deliver it. If people want to use you as a showroom, be a showroom, but make it easy for them to buy.
Get the customer while they are in the buying mode. From a business model point of view, it cuts down on inventory, increases corporate turns and ROI. Who says we must sell the product in the store? Our objective is to sell the product.
The question isn’t whether or not this is a good idea — which, at least in principle, it is — it’s whether or not it’s too late to be effective.
If Best Buy had done this two, three, four or five years ago it would have been a home run. Today, it feels more like hoping you’ll get to first base by getting hit by a wild pitch.
We’re living in a consumer electronics world of four screens — television, computer, tablet, and an ever-expanding mobile device group (overseas markets are well ahead on the later).
In the process, that tidy world of televisions and computers has shifted. The halcyon days don’t last forever. And, Best Buy is making the right moves to act decisively. They enjoy a dominant share of mind position with the consumer. Pushing the envelope on the multi-channel, combined with their strong customer and tech services of the Geek Squad, and they’ll remain atop of the game.
If it was easy, we still have thousands of consumer electronics stores scattered about the country. Don’t count this talented retailer out just yet.
Shoppers will go to Best Buy stores for a few specific items, where store associate knowledge or in-store experience will add significant value. I see how Best Buy could refocus on a smaller assortment of high-margin/highly experiential products (the Magnolia offering is a good example). Realistically, consumers will buy everything else online.
I think there’s a huge opportunity for Best Buy to deliver education and training to its customers across a multitude of categories and perhaps even develop a new revenue channel in doing so. There’s really nothing here though that strikes me as game-changing. It sounds like they’re planning to do a little of what others are already doing. Today, being a little of a lot of things can be perilous. They haven’t answered the all important question… “What will I go to Best Buy for that I can’t get anywhere else?”
This is exactly what Best Buy needed to do. I am only surprised that they did not take it even further by downsizing the stores even more. I can see Best Buy embracing the business model I have been urging for RadioShack for years: A local store presence dominated by service offerings with a robust website for expanded assortment.
Best Buy can differentiate itself by continuing to expand the services from the Geek Squad and offering consumers a total satisfaction experience by making sure all the gadgets in their home work together. I can imagine viewing and listening rooms that let customers experience different combinations of electronics and a van pulling up in front of the house with everything pretested and ready to work. As appliances become “more intelligent” and network access becomes necessary for all of them, the need for this kind of service moves into the kitchen and pantry.
I always thought RadioShack would develop this model, but they seem satisfied with slowly going out of business. Maybe Best Buy will buy up their locations for its “small footprint” stores.
It’s clearly the right direction for Best Buy. We’re leaving an era where one ecosystem (Apple) was dominant in high-end devices and consumers could self-serve when it came to making all of their devices work and work together. Now with increasing competition from Android and soon, Windows 8 plus the proliferation of online services and apps, the average consumer may well see a need for an adviser to help them sort it all out. If Best Buy can position themselves in that role at scale, it may mark the beginning of their comeback.
Retailing is theatre. This Best Buy experiment will only work if people walk in and are overwhelmed with a “shock and awe” shopping experience. If it is another simple box store execution, no matter how the store might be set up, and how many lifestyle solutions the chain is looking to provide, without the theatre component the consumer will continued to be bored to the point that they will seek out a better experience elsewhere.
I like this move a lot. Best Buy obviously listened to their customers and created an organic model that is designed to adapt and evolve even further as they learn more.
One feature that impressed me more than some other features was “enhanced in-store pickup.” This ties directly to their e-commerce site and figuratively expands their inventory while competing with other online retailers. If BB offers a competitive price with face-to-face support and free shipping, that trumps other online retailers.
It has been well documented that consumers struggle with the ability to connect the various devices that they purchase. While they may own smart phones, tablets, PCs, cable boxes, digital thermostats and so on, it is very challenging to connect the devices so that they work in concert.
While the connected store concept can have significant consumer value, is critical to remember that one of the key issues facing Best Buy is the quality of the customer experience, driven by under-trained associates and an excess of bureaucracy. For the company to realize the revenue opportunities of a store that focuses on reducing customer confusion, it will be critical that such a store is filled with highly trained, motivated, empowered store associates more focused on satisfying the customer than on driving incremental revenue in the short term. Many consumers who have frequented Best Buy recount tales of excessive selling of insurance policies to customers who have no such need, reducing trust and creating hostility.
For this “empowered consumer” approach to work, it requires “empowered associates” to make it happen.
This integrated approach has a solid potential to help differentiate against competitors. Knowledgeable, consistent customer service in helping customers determine the best solutions for their needs is important, but integrating multichannel is a major step forward.
This is a very smart move for Best Buy. No better way to up the ‘switching cost’ than to get the customer invested. Providing services and experience will certainly do just that!
I’m confused. Best Buy launched connected stores a while back and I took a group on a tour of one of them last June. While I’m sure that Best Buy will continue to tweak the concept and add new bells and whistles, the one that I visited was noticeably different from a traditional Best Buy in good and not-so-good ways. I liked the clear sight lines and the way that products were pulled together into vignettes by occasions and seasonality. Blue shirts were doing a great job of working with customers on solutions and services (as in, sitting next to them and talking through options), and products that normally wouldn’t see the light of day (such as personal care items) were showcased on end caps. The self-help touch screens were problematic because I noticed that many customers thought that they were reserved for employees. I also think that Best Buy associates are going to have a hard time training customers to use them (isn’t that what the Blue Shirts are for?). Best Buy has been dinged for pushing service plans and such in the past. Positioning this service and subscription-heavy environment as a value-add to customers will take some finesse.
It’s fascinating that Best Buy is actually erecting walls inside of existing stores in order to reduce square footage (at least in the store that I visited). The only retailer that is truly turning into a smaller format retailer (not just adding it to the go-forward fleet).
I like Mr. Dunn’s approach. Providing more points for customers to engage with the Best Buy brand using a smaller format makes sense. Best Buy may struggle to compete on price from online retailers, but they still have an advantage when it comes to tech services and customer support. Blow people away with these added services and it will be much tougher for online price driven retailers to compete with them.
The connected store concept should also provide an advantage since they are offering a solution and not just components of the solution. A customer may be willing to spend a few dollars more knowing they don’t have to source from multiple vendors, and Best Buy will support the entire solution.
Best Buy has taken stock of its weaknesses and the new Connected Store concept is, as many have already commented, a step in the right direction. I would agree with Doug Stephens in that there isn’t really anything new or unique to differentiate Best Buy from the crowd here. However, improving customer service, product education, device activation, and the multi-channel experience (with in-store pickup) are all tangible ways for Best Buy to improve its in-store customer experience/engagement. To compete with showrooming, Best Buy must offer added value to visiting the store — all of these initiatives do that.
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Given Best Buy’s recent performance, this is a smart move. The profit in CE, for Best Buy and RadioShack, has always been in the add-ons not the big shiny objects.
A higher-touch brick-and-mortar format with service and expertise that is much better delivered face-to-face, positions them more against RadioShack (especially the new small footprint Best Buy mobile stores they are launching) and successfully against the WMT/TGT and even Amazon who are great on value but not expertise or enhanced services.
Best Buy will have two divergent customers in this new model: the customer who knows little about what they are looking for, and the customer who is technically knowledgeable and looking to upgrade. Each will require a different knowledge base from a sales associate. The training and ability to share the knowledge is going to be the important step. My personal experience in Best Buy is the TV sales associates know and can explain the differences between the sets. I do not find that knowledge with the higher-tech sales associates. If they can pull this off with demonstrated service, it will put them ahead of the competition.
If Best Buy can’t compete on price, it has to win on service and helping customers solve problems. I think the focus on leaving the store with a knowledge of how to use that CE device is key and also having an avenue for future support if needed will be a differentiator.
It will be interesting to see how they increase the multi-channel presence in the store. In store pickup is one avenue but also the ability to provide 1000’s of additional SKUs online as they shrink the box may be another. They could use it as a cost cutting technique to stock less inventory — one to show, none to go!
Selection of products and ability to contract with any provider in mobile is a big advantage for Best Buy. Car stereos/custom shop, music and video are becoming dust collectors. Home appliances may have a continued draw if they can maintain MAP advantage, as they do today in Consumer Electronics. High-end audio should continue to be a strength, leveraged off of informed sales associates.
What isn’t being leveraged optimally is the Reward Zone loyalty program, and their private label and MasterCard portfolio. As an example, for my birthday this month I received an email “celebrating” my big day and offering me Reward Zone bonus points on a single regularly priced item. Seriously? This best-in-class operator is trying to claw their way back from a disappointing holiday season, and soft sales in 2012, and the best they can do to motivate a valued customer is with truly one of the weakest offers I’ve ever received – for b-day trigger or otherwise.
Moving from a product model to an experience model is a very smart and necessary move for Best Buy. It’s useful to remember that this company is the last man standing in the big-box, CE arena. These are very sharp people.
This is a great move for Best Buy. Understanding your customer is job one and that means serving them appropriately. Will this stop the “showrooming” problem? Probably not, but the value the connected store format will add in merchandise and service will definitely slow it down.
BB is going in the right direction. They need to go just one step further.
One of the complaints in the articles this week about what BB was experiencing was that shoppers were using BB as a showroom. That is, people were coming to the store, scoping the merchandise, learning the features, then going home and ordering what they wanted online at the best price.
Why not give that customer the opportunity to access all online alternatives in the store? Find the price they want, meet it via BB online and have it delivered in the same time frame that Amazon, et al, would deliver it. If people want to use you as a showroom, be a showroom, but make it easy for them to buy.
Get the customer while they are in the buying mode. From a business model point of view, it cuts down on inventory, increases corporate turns and ROI. Who says we must sell the product in the store? Our objective is to sell the product.
The question isn’t whether or not this is a good idea — which, at least in principle, it is — it’s whether or not it’s too late to be effective.
If Best Buy had done this two, three, four or five years ago it would have been a home run. Today, it feels more like hoping you’ll get to first base by getting hit by a wild pitch.
We’re living in a consumer electronics world of four screens — television, computer, tablet, and an ever-expanding mobile device group (overseas markets are well ahead on the later).
In the process, that tidy world of televisions and computers has shifted. The halcyon days don’t last forever. And, Best Buy is making the right moves to act decisively. They enjoy a dominant share of mind position with the consumer. Pushing the envelope on the multi-channel, combined with their strong customer and tech services of the Geek Squad, and they’ll remain atop of the game.
If it was easy, we still have thousands of consumer electronics stores scattered about the country. Don’t count this talented retailer out just yet.
Shoppers will go to Best Buy stores for a few specific items, where store associate knowledge or in-store experience will add significant value. I see how Best Buy could refocus on a smaller assortment of high-margin/highly experiential products (the Magnolia offering is a good example). Realistically, consumers will buy everything else online.
I think there’s a huge opportunity for Best Buy to deliver education and training to its customers across a multitude of categories and perhaps even develop a new revenue channel in doing so. There’s really nothing here though that strikes me as game-changing. It sounds like they’re planning to do a little of what others are already doing. Today, being a little of a lot of things can be perilous. They haven’t answered the all important question… “What will I go to Best Buy for that I can’t get anywhere else?”
This is exactly what Best Buy needed to do. I am only surprised that they did not take it even further by downsizing the stores even more. I can see Best Buy embracing the business model I have been urging for RadioShack for years: A local store presence dominated by service offerings with a robust website for expanded assortment.
Best Buy can differentiate itself by continuing to expand the services from the Geek Squad and offering consumers a total satisfaction experience by making sure all the gadgets in their home work together. I can imagine viewing and listening rooms that let customers experience different combinations of electronics and a van pulling up in front of the house with everything pretested and ready to work. As appliances become “more intelligent” and network access becomes necessary for all of them, the need for this kind of service moves into the kitchen and pantry.
I always thought RadioShack would develop this model, but they seem satisfied with slowly going out of business. Maybe Best Buy will buy up their locations for its “small footprint” stores.
It’s clearly the right direction for Best Buy. We’re leaving an era where one ecosystem (Apple) was dominant in high-end devices and consumers could self-serve when it came to making all of their devices work and work together. Now with increasing competition from Android and soon, Windows 8 plus the proliferation of online services and apps, the average consumer may well see a need for an adviser to help them sort it all out. If Best Buy can position themselves in that role at scale, it may mark the beginning of their comeback.
Retailing is theatre. This Best Buy experiment will only work if people walk in and are overwhelmed with a “shock and awe” shopping experience. If it is another simple box store execution, no matter how the store might be set up, and how many lifestyle solutions the chain is looking to provide, without the theatre component the consumer will continued to be bored to the point that they will seek out a better experience elsewhere.
I like this move a lot. Best Buy obviously listened to their customers and created an organic model that is designed to adapt and evolve even further as they learn more.
One feature that impressed me more than some other features was “enhanced in-store pickup.” This ties directly to their e-commerce site and figuratively expands their inventory while competing with other online retailers. If BB offers a competitive price with face-to-face support and free shipping, that trumps other online retailers.
It has been well documented that consumers struggle with the ability to connect the various devices that they purchase. While they may own smart phones, tablets, PCs, cable boxes, digital thermostats and so on, it is very challenging to connect the devices so that they work in concert.
While the connected store concept can have significant consumer value, is critical to remember that one of the key issues facing Best Buy is the quality of the customer experience, driven by under-trained associates and an excess of bureaucracy. For the company to realize the revenue opportunities of a store that focuses on reducing customer confusion, it will be critical that such a store is filled with highly trained, motivated, empowered store associates more focused on satisfying the customer than on driving incremental revenue in the short term. Many consumers who have frequented Best Buy recount tales of excessive selling of insurance policies to customers who have no such need, reducing trust and creating hostility.
For this “empowered consumer” approach to work, it requires “empowered associates” to make it happen.
This integrated approach has a solid potential to help differentiate against competitors. Knowledgeable, consistent customer service in helping customers determine the best solutions for their needs is important, but integrating multichannel is a major step forward.
This is a very smart move for Best Buy. No better way to up the ‘switching cost’ than to get the customer invested. Providing services and experience will certainly do just that!
I’m confused. Best Buy launched connected stores a while back and I took a group on a tour of one of them last June. While I’m sure that Best Buy will continue to tweak the concept and add new bells and whistles, the one that I visited was noticeably different from a traditional Best Buy in good and not-so-good ways. I liked the clear sight lines and the way that products were pulled together into vignettes by occasions and seasonality. Blue shirts were doing a great job of working with customers on solutions and services (as in, sitting next to them and talking through options), and products that normally wouldn’t see the light of day (such as personal care items) were showcased on end caps. The self-help touch screens were problematic because I noticed that many customers thought that they were reserved for employees. I also think that Best Buy associates are going to have a hard time training customers to use them (isn’t that what the Blue Shirts are for?). Best Buy has been dinged for pushing service plans and such in the past. Positioning this service and subscription-heavy environment as a value-add to customers will take some finesse.
It’s fascinating that Best Buy is actually erecting walls inside of existing stores in order to reduce square footage (at least in the store that I visited). The only retailer that is truly turning into a smaller format retailer (not just adding it to the go-forward fleet).
I like Mr. Dunn’s approach. Providing more points for customers to engage with the Best Buy brand using a smaller format makes sense. Best Buy may struggle to compete on price from online retailers, but they still have an advantage when it comes to tech services and customer support. Blow people away with these added services and it will be much tougher for online price driven retailers to compete with them.
The connected store concept should also provide an advantage since they are offering a solution and not just components of the solution. A customer may be willing to spend a few dollars more knowing they don’t have to source from multiple vendors, and Best Buy will support the entire solution.
Best Buy has taken stock of its weaknesses and the new Connected Store concept is, as many have already commented, a step in the right direction. I would agree with Doug Stephens in that there isn’t really anything new or unique to differentiate Best Buy from the crowd here. However, improving customer service, product education, device activation, and the multi-channel experience (with in-store pickup) are all tangible ways for Best Buy to improve its in-store customer experience/engagement. To compete with showrooming, Best Buy must offer added value to visiting the store — all of these initiatives do that.