Best Buy, one of the most recognisable US brands among the consumer-electronic-shopping-public, is beginning to downsize from its massive superstores in order to remain competitive. What can we learn from this? Four takeaways are offered.
Last week, the news wires were flooded with reports that Best Buy will be closing 50 of its big-box stores in the 2013 financial year. While the number sent shock waves through the industry, the closures would represent around 3.5% of the company’s footprint of 1450 stores in the US, and around 2% of its 2,200 stores globally. Nevertheless, the company, which is still considered the No.1 consumer electronics store in the US, has been experiencing declining revenue, which is fuelling its restructuring and the need to reposition itself in the market.
The downsizing of Best Buy highlights the fact that the retail business has changed in recent years, and companies must be prepared to revamp their approach to be better aligned with current trends. This post discusses some of the changes that are occurring in the retail consumer electronic space, which would have influenced Best Buy’s decision to restructure. We also provide four takeaways that you may apply to your own context.
Consumer consumption habits are changing
Thanks to the extensive availability of affordable Internet service, along with the staggering development of e-commerce, virtually anything can be purchased online. As a result, our shopping habits have changed. We can research products and services, secure second opinions and demonstrations, make purchases and have them delivered all via the Internet and from the comfort of our own homes. With such an option, there is little incentive to use what limited time we have to engage in the physical legwork that visiting stores and comparison-shopping demand.
With the growing trend to shop online, customers may be prepared to revert to purchasing from physical stores, if:
- a particular product or service is not available online, and can only be purchased from a physical location
- the online selection is limited, or otherwise is not as attractive as those available in a brick-and-mortar loation
- they does not trust the online seller
- sufficient inducements to choose a physical store over an online store have been offered, or
- somehow it is to their advantage to go in and purchase from a physical store, than an online one.
Takeaway #1: If a choice of cost-effective products and services are offered in a customer/service-oriented environment, today’s consumers are increasingly choosing to shop online rather than physically going to stores. Whenever possible, it is advisable to consider establishing or expanding your online storefront (or presence), as it could improve your reach directly to your customers.
Broadband has changed how we access entertainment
Do you remember what is was like trying to download music, or to stream a video clip over the Internet before high-speed broadband service became affordable and readily available? Table 1 below highlights how far Internet speeds have developed, which in turn has increased the ease with which we can access and manipulate large files, or have large volumes of data continuously streaming to our personal devices.
Table 1: Comparison of download times for select Internet speeds (Source: 123myip.co.uk)
Thanks to the availability of high-speed broadband, there has been a growing shift away from purchasing (or renting) DVDs, music CDs and games. We can not only purchase them online, but with on-Demand services becoming the norm for videos, games, music, etc. they can also be streamed directly to (or accessed from) your PC, laptop, tablet, smartphone and gaming device. Moreover, software applications are being created to supplement such content, which is enhancing the user experience.
Takeaway #2: As reflected in areas of declining sales for Best Buy, we no longer need a plethora of equipment, e.g. DVD players, TVs, and gaming devices, and to regularly update our stock of music, videos and games. A single computing device has replaced all of those single-purpose appliances, and the replenishment of “consumables” (which in this case means movies, music and games, etc) can be done almost exclusively and most conveniently online.
Large physical storefronts are a declining trend
Historically, Best Buy had mastered the “big-box model”, with a proliferation of “superstores” of well over 55,000 square feet, which completely outclassed its competition. However, these spaces are expensive to operate, and tend to have a complicated back-end – to manage and coordinate orders, stock, distribution, etc., across a number of stores. In the case of Best Buy, it is being reported that it plans to replace the 50 closing big-boxes with 100 small mobile/cellular locations, but still expects to cut USD 800 million in costs by 2015 (Source: USA Today).
Takeaway #3: Size no longer matters. Large storefronts are expensive to operate and maintain, and might be unnecessary when consumer spending habits and market trends towards online shopping are considered.
Online stores are competing directly with physical stores
It should come as no surprise that online properties, such as Amazon.com, have been eroding sales at Best Buy.
Consumers armed with smartphones are changing the fundamental relationship between shopper and retailer. The new ease of mobile shopping and price comparison is accelerating the trend of “showrooming”—where shoppers come in to stores to see an item but buy it elsewhere.
It is a particular problem for Best Buy because electronics are expensive enough to make price comparisons worthwhile, and because electronics are easy to order online.
The trend greatly benefits Amazon.com Inc. AMZN +0.81% and other Internet retailers, which aren’t required to collect sales taxes in most states and aren’t encumbered by the costs of running physical locations… (Source: Wall Street Journal)
Takeaway #4: Businesses must be agile and responsive to the market. In this fast-paced environment, it is critical to continually re-evaluate one’s strategy and be prepared to overhaul it to ensure that your business can remain competitive and relevant.
Are there any trends or lessons you are learning through the changing market place? Do share…
Image courtesy of Tommy Ironic, flickr.
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Interesting insights and conclusion around size and consumption patterns.
Despite the parallels some may draw from the topic’s by line, its a serious concern for big Box retailers. We have already seen the demise of Bookstore retailer Borders last year and similarly has led to Barnes & Noble to reinventing it self with a focus on Digital consumption via its Nook tablet. One could link the growth in Apple and its plethora of “smaller” devices over the past few years to the decline in “big” box retailer sales. beginning with the ipod the decline in CD sales. Tablets like iPad could equally be linked to declining movie and games via traditional devices.
Conclusion: “Is Small is the new BIG?”
“Is small the new BIG?” That is indeed the question!
One of my observations, which may also be contributing to this new paradigm, is the growing shift towards “ultra-personalisation” of products and services. We, as consumers, are being given more control of our choices. E.g. if you liked a particular song, you no longer have to go to the shop and buy the entire CD; you can go online, pay for just the one song that you like, and you have a device that will allow you to just that – with ease.
Hence, the one-size-fits-all approach to retailing is changing, thanks I think in part to the options that we now enjoy on our smartphones, tablets, etc.
I shopped both locally and online for tv and computer in the past 3 months. Best Buy was up to $200 more for the exact same models as other local stores (Sams Club, Office Max) and online with shipping added. There is no mystery about their decline: they have been treating their employees poorly for years via management policies that chase away the best people, and they overprice.
Thanks for that insight TeacherGloria, and clearly there is something to learn: You might be large enough to be a force in the market – and hence do as you feel like, but it is critical to remain in touch with the needs of your internal teams and your customers, or else your competitors will!