Will Best Buy Go the Way of Blockbuster?

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Will Best Buy Go the Way of Blockbuster?

By Joe Skorupa - 04/16/2012
Best Buy is viewed by many analysts as being in a desperate fight for its life. In previous years its stellar financial results were strongly fueled by the collapse of such competitors as PC America and Circuit city. But now Best Buy is the last man standing and its survival is entirely dependent on its own efforts to respond to marketplace shifts.

These shifts include the dematerializing of once strong product lines (CDs and DVDs, for example, which have largely become digital), commoditization (TVs, laptops and home computers, which are found everywhere and purchased at margin killing prices), and the emergence of a highly promotional environment where competitors are always making creative offers.

On March 29, Best Buy held a Q4 earnings call with financial analysts. It was led by CEO Brian Dunn. Less than two weeks later Dunn resigned, reportedly due to an internal investigation into his professional conduct.

The current distress at Best Buy appears to be a classic case of a company facing merciless head winds and foundering in rough seas. To many experts the survival of Best Buy is at stake.

But Best Buy is not a one-trick pony locked into a narrow segment, like Blockbuster, nor a slow-moving behemoth that can't get out of its own way, like XYZ national supermarket chain (insert the name of one of many that fit the bill).

Here's a detailed look at Best Buy's current status and it's go-forward plans:
  • Revenue and earnings for Q4 missed guidance. Same store sales are also down. Each of these are serious and require immediate redress.
  • Specific areas that showed strong growth include e-commerce (up domestically 18% in the quarter and 50% year over year), tablets, e-readers, appliances and mobile connections (9 million sold last year).
  • Cost reduction is a major initiative and will total $800 million through 2015. The biggest portion of the reduction will come from closing 50 unprofitable big box stores. Other cuts will be made in IT services, mon-merchandise purchases, staff reductions and trimming the budget for outside consultant services.
  • Stores continue to be remodeled to focus on profitable offerings, such as  mobile connections (tablets and smartphones) and services (including the Geek Squad).
  • E-commerce initiatives include in-store pickup, competitive pricing, free shipping, doubling the online SKU count, and expanding the Best Buy Marketplace of affiliate sellers.
  • Perfect Match Promise offers 30 days of free phone support, 30 days of easy returns with no stocking fee, and 30 days of competitor price matching.
  • Reward Zone loyalty program members will be offered free expedited shipping and also free delivery, unpacking and connecting basic appliances.
  • Plan to increase employee training by 40% and adjust the employee compensation model to incent delivering of better customer service.
For the past 10 years Best Buy has been a cutting-edge retailer that has not only reponded quickly to market shifts, but has often been a leader that other retailers have followed.

But that was then and this is now. As it plans and executes a necessary transformation sucess will depend on the speed and depth of the transformation.  

Regardless of the outcome, Best Buy has hit a singularity, a moment when all former rules no longer apply. It is not cruel nor an exaggeration to say it is the end of Best Buy as we know it. It will need to figure out what it wants to be in the next few years and then use its healthy balance sheet, strong customer base and profitable product lines to achieve it.

Related Stories:

Best Buy CEO Resigns

Best Buy Closing 50 Big Box Stores as Part of $250M in Cost Reductions