One of the interesting things about Best Buy is that they went to Edwin Schlossberg, a well known museum designer (and husband of Caroline Kennedy), to create the new, customer-centric stores. Said Schlossber, "We want to make the shopping experience as comfortable, easy and, if possible, as social as possible. One of the nice things about shopping, typically, is other people.” The social aspect of shopping is something that people usually don't think about in designing retail spaces and it will be interesting to see how it works for Best Buy. Of course, the Apple store in Soho has been recently ranked as one of the top 10 places to hang and meet people and the Apple stores are also doing a robust business. Once again, there are two paths for retailers, those that compete on price and those that compete on experience. If your straddling the fence, you're sure to lose both fights!
Best Buy ranks number one among consumer electronics retailers, with sales in 2003 topping $24 billion, a more than 17% surge over its 2002 sales. The company ranked third among category dominant specialty chains, behind only Home Depot and Lowe's, in Retail Merchandiser's annual Retailer Fact Book (July 2004). And that trend continues into 2004. Last month, Best Buy reported that its 2Q 2004 comps rose 4.3%.
However, Best Buy is no longer merely facing off against ce players in the specialty channel like Circuit City, but against mass players as well, particularly Wal-Mart, Target, Sears and even the re-vitalized Kmart.
While Circuit City in 2003 lost 2% in sales over 2002, Wal-Mart moved up to second place on the ce retail list of Twice magazine, a ce industry trade publication, with ce sales passing $16 billion, a nearly 11% gain over 2002. Add to that the $3 billion in ce sales at its Sam's Club division, a 9% gain, plus the fact that Wal-Mart is expanding at a quicker pace, particularly globally, and Best Buy is likely to lose further ground to the Bentonville giant.
In addition, a month ago Kmart unveiled a new format in White Plains, NY, and Boca Raton, FL, that features a wide range of branded electronics items, including high-end wide screen TVs. Kmart seems to be positioning itself to become a destination for video games, home entertainment centers and MP3 players. Kmart reportedly plans 50 of these re-vamps.
Brad Anderson, Best Buy's chairman and ceo, acknowledges the squeeze. In a recent front page article in The Wall Street Journal, he admitted that Best Buy cannot match the lower overhead and bigger size of Wal-Mart and Dell. He even went so far as to surmise that in five years his chain might even be forced into a position much like that suffered by Toys “R” Us — unable to compete against Wal-Mart for price, while its higher end items are sold more effectively to more affluent consumers by online players.
Customer service is emerging as the big differentiator.
“Best Buy is a growth company that continually innovates in order to increase our market share in our core businesses,” Anderson recently told RM. “The customer is at the center of all that we do. Customer centricity, at its very heart, is all about innovation. It's innovation in connecting with customers, and meeting their needs in unique ways. It's also about the energy and new ideas that come out of our network of store employees who are improving the customer experience. This is a fundamental driver of financial success, and the real value of customer centricity.
“Enabling customer centricity in our stores requires meaningful change throughout other parts of the company as well. In this regard, we are building four foundational capabilities. First, customer data management and insights, or understanding our customers better and using the information to create exceptional customer experiences. Second, we're creating customer-driven systems, processes and decision-making to help our store employees and customer segment leaders manage resources around customer needs. Third, simple, efficient corporate support functions, which focus on differentiated customer activities. And, fourth, creating a better system of acquiring, selecting and developing and putting employees in the right roles to maximize their contributions — it's about being talent-powered. These capabilities also will provide a foundation to achieve other business growth in the future.”
But being selective about who it attracts, not just going fishing for any consumer, is a bold new strategy the company is pursuing. A few months ago, the company rolled out 70 newly converted stores in California — primarily in and around Los Angeles, San Francisco and San Diego. Based on tests of customer centricity lab stores in Los Angeles and a few other markets, the stores revamp the shopping environment to target five particular consumer groups: upper income men, suburban mothers, small-business owners, young family men and technology enthusiasts. Each store was then charged with determining the demographics of its local market, choosing two of these groups and then stocking merchandise accordingly.
Store personnel have been receiving training to help them identify the five groups. The high-income men group, dubbed Barrys, are likely purchasers of action movies and cameras. Suburban moms, dubbed Jills, have a strong predilection for purchasing items and services that help their family. The male technology enthusiasts, or Buzzes, are early adopters with a love of showing off the latest and greatest.
To attract these groups, Best Buy is offering personal shoppers to hand-hold the customer through the shopping and gathering experience. Each Tuesday, when new DVDs reach shelf, i.e., store personnel are out cruising the section to steer customers to the home theater area which offers $12,000 integrated systems in a setting with couches and popcorn.
In November, ceo Anderson went even further. In the Wall Street Journal piece, he separated his 1.5 million daily customers into two camps: angels and devils.
The shopping experience at big-box retailers used to be about lots of merchandise, he says. The message was: ‘We have 52 versions of all the things you need. Pick out the one you want, and you won't be paying for any of the other things that you don't need.’
That was a big break from the traditional department and specialty store where you had stuff presented in a well-lit, organized way, he explains. The big-box retailer became a completely different warehouse style of communicating. People knew what they needed and, if you gave them a good price and a no-frills environment, that would be an effective complement to existing retail.
“But now the world has evolved and the retail world has grown up,” he says. “People now see that when there's lots of stuff, and when things are complicated — especially in the world of Best Buy, where the things they sell can be complicated — you need help picking the tools that you need, and, if possible, see it in the context of the use you have for it rather than only in terms of the product that is being sold.”
