Once an online bookstore, Amazon nowsells just about anything you would find in a home or business, and has developed a formidable formula.
Meanwhile storied andonce dominant U.
retail chains everywhereare struggling.
Faced with monumental shifts inthe way consumers shop.
Once remarkably durable brands have shutteredtheir stores, which sometimes number in the hundreds.
The more than century-old retailer, Sears, once the country’s largest chain, filed for Chapter11 bankruptcy in 2018.
Just one of the many victimsof the so-called retail apocalypse.
There is no question, the worldis dramatically different than it was even a decade ago.
So how dotraditional retailers survive? Some answers may lie with Best Buy.
It might seem to be arelic of a bygone era.
Much of its business model isbased on large format physical stores.
Pretty much the very definition ofwhat is failing across the industry.
But Best Buy is killing it.
Shares are hovering near an alltime high fueled by a transformation centered on in-store service and stockingits shelves with new key products in health careand smart homes.
It is a rebirth manyin the industry consider miraculous.
In 2012, Best Buy was in dire shape.
Sales were plummeting, morale hadtanked, and executives were scrambling to save the company.
Within the space of just a fewyears, a retail giant that employed nearly 170, 000 people and dominatedits industry, nearly died.
Then, somehow, it didn’t.
While retailers such as Toys R Usbit the dust, Best Buy bucked the trend.
Now the CEO who pulled offthis miraculous turnaround is stepping down, and the company’s CFO will now steerthe revived retailer and fend off still growing threats.
So how did Best Buyengineered such a renaissance? Is its massive recovery sustainable? And can it be replicated? Best Buy’s origins can betraced back to St.
Paul Minnesota in the late 1960s.
Electronics salesman, Richard Schultz, foundeda store in the area called Sound of Music.
It sold stereos, speakers, vinylrecords and other audio equipment.
It grew into a chain butthe business found greater success after Schultz adopted the big box format.
The Best Buy concept was born, andSchultz renamed the store in 1983.
Two years later it went public.
Growth was slow at first in itsfirst decade as a public company.
Its stock only peaked at a high offive dollars and three cents in late 1994.
But over the next 20 years, Best Buy became the largest U.
seller of electronics in the GoldenAge of America’s big box retailers.
These big stores, modeled on warehouses, really rose to dominance in the 1980s and 1990s andthey spread across segments.
Home Depot and Lowe’s becamemajor home improvement stores.
Petco and Petsmart ruledthe pets category.
Stores such as Bed Bath and Beyondand Linens and Things dominated home goods.
Best Buy was considered a best inclass retailer and the growth was spectacular.
Best Buy had 679 storesat the end of 2003.
By the end of 2009, it had 3, 889.
Sales climbed from roughly 21 billionto 45 billion over the same period.
Its stock jumped to above50 dollars a share.
But Amazon was starting to rise in thelate 1990s and it seemed to offer deals too good to refuse.
It could sell a customer the sameexact products they could find in a store, but often at lower prices andwith free shipping due to the nature of e-commerce.
Amazon often did not have to chargesales tax which could make a huge difference in price on highticket items like televisions and appliances.
Amazon’s first wave of success beganto shake out smaller competitors such as Comp USA and Twitter.
But it took a bit longer and afew other blows to dent bigger players like Circuit City, which during BestBuy’s heyday, was its biggest competitor in 2008.
Circuit City was fending off an activeinvestor who wanted to shake up its management.
Then the financial crisis hit andsparked a slowdown in consumer spending that culminated in theGreat Recession in November 2008.
It filed for bankruptcy, and with thelack of credit, was forced to liquidate.
Circuit City closed its last567 stores in 2009.
At that point, the retailer had beenaround for more than 60 years, and it had more than 700stores in its heyday.
Circuit City’s demise gave Best Buya bit of a tailwind.
Industry sales were down about10 percent that year.
But as Circuit City began closingup stores, shoppers shifted to Best Buy.
The result: Best Buy’ssales fell only five percent.
It had gone from being thebiggest of several national electronics chains to the only one left.
But, competing with fellow brick andmortar stores like this was what Best Buy was used to, and therapidly ascending Amazon was a another beast entirely.
Analysts who follow Best Buy saythe company might have underestimated the threat from theSeattle based e-commerce giant.
The Amazon threat, for years, had beenmasked by the arrival of the flat screen television.
Massive technological leaps to sleektelevisions with crystal clear pictures motivated people all over the countryto go out and buy new sets.
Perhaps the best years for theproduct cycle were 2005 and 2006.
B ut retailers benefited for the betterpart of the decade as e-commerce continued to quietly strengthen itsgrip on the market.
But by the time the Great Recessionbegan to hit, Best Buy started to suffer.
A slowing housing market in2007 hit sales of appliances and large home electronics.
The following financial crisis dried upcredit and tightened consumer spending around the country.
Finding the lowest prices possible onwhat items a buyer could afford became even more of a priority.
Best Buy same store sales fell 1.
3 percent in 2008.
Things turned around briefly in 2009, but same store sales fell again every year from 2010 through 2013.
Best Buy went from pulling in 1.
2 billion dollars in net income in 2011, to a one billion dollar loss in 2012, and another forty threemillion dollar loss in 2013.
Other things happening at thecompany did not exactly inspire confidence among investors.
Then CEO Brian Dunn a lifelong bestbuy employee who had started as a blue shirt worker on thestore floor resigned in 2012.
This came after news surfaced that hemay have had a relationship with a younger female employee.
The fallout from the episode led Schultzto resign as chairman in 2012 Best Buy’s board brought in ZubairJoly a relative outsider who had previously worked at McKinsey and Vivendiwhere approved the launch of successful video games suchas World of Warcraft.
It is Jolie’s tenure that iscredited with turning the company around when he joined.
It was a very tumultuous time atBest Buy as a retail analyst with almost 20 years of experience.
There are very few retailers thathave experienced going through such a period of hatred andconcern as Best Buy.
I was going through in 2012 ifyou looked at valuation metrics the stock was priced as if this was acompany that was going to go bankrupt within five years.
And the initial reaction from theWall Street community and investors was who is who bear Jolie and howis this man going to save Best Buy.
The new CEO and his staff begancutting costs and investing in parts of Best Buy’s business that gave itadvantages over its online competitors that started with service andstores up to that point.
Best Buy was one of manyretailers faced with a problem sometimes referred to as showroom where customerswould walk into a store to inspect and learn about products they wantedonly to go home and buy them online often via Amazonand usually at cheaper prices.
So Best Buy had to take the fightto them and it did so by leveraging its large network of stores matchingAmazon’s prices and focusing on providing the customer serviceand online retailer can’t.
In 2012 Best Buy began matching anyprice on an item anyone could find elsewhere.
That meant a customer checkingout a stereo system computer or phone could walk out of oneof Best Buy stores with that product.
On that day and pay the same price.
The company also started shippingonline orders directly from stores turning every store into a smallwarehouse which increased Best Buy’s available inventory andshorten delivery times.
They also put in place an easyprocess for returning online products in stores saving customers the trouble ofpacking something back up in a box.
If you think about it all orall of retail right now is working aggressively to become omni channeland that’s their advantage versus the web.
They have physical stores.
Why not leverage that use those storesas pickup points drop off points shipping points.
The Web can’t really do that.
The web that last mile is really wherethe stores can come in and try to be more effective.
And you’ve seen that you knowWal-Mart Target Costco they’re going big time after theomni channel consumer.
Best Buy also begin working closelywith the store’s vendors which many say has been a crucialstep in the company’s turnaround.
The company started giving electronicsmakers their own dedicated sections at Best Buy stores.
This store within-a-store concept wasmutually beneficial to both Best Buy and these tech firms.
The first deal during Jolie’s tenurewas with Korean electronics maker Samsung in April of 2013.
Then Microsoft followed.
Best Buy also made a deal withApple to revamp its displays even worked with Amazon to be the exclusiveseller of smart TV’s embedded with Amazon’s fired TV technology.
The retailer keeps the exact details ofthese deals close to its chest, but essentially it shares the costof investments and the revenues with each manufacturer in turn.
Device makers can exercise greater controlover how their products are presented to customers.
They can set up their displaysand tailor the shopping experience much the way they want.
They often bring their own staffinto the stores who obviously know their products best.
Customers can learn about somethingdirectly from its manufacturer and Best Buy employees can receivetraining from the vendors.
This arrangement gives sometimes fiercecompetitors such as Google Apple and Amazon a kind of neutral groundwhere each can sell their competing products side by side.
The store within a storeconcept deepened the symbiotic relationship between the retailer and suppliers andkept them invested in Best Buy survival and success.
Best Buy’s troubles had spelled dangerfrom any of these device makers who do not really have theirown physical retail networks and suppliers.
That was a scary time for them.
All of a sudden theystarted to think about.
What if we’re in a worldwhere there is no Best Buy.
Suppliers realized that wasnot a pleasant world.
And I think that themessage was to suppliers from Best Buy was, “You need us asmuch as we need you.
So, you know, help to support us and wewill showcase and sell your products.
” The company also bet on service bothinside and outside its stores Best Buy invested in training for itsfloor employees commonly known as blue shirts for the poloshirts they wear.
The retailer figured that a storecan offer customers something online typically does not flesh and bloodauthorities on products who can answer questions andmake recommendations.
One of the pillars of Best Buy’sapproach to service is its Geek Squad division which it acquiredback in 2002.
Geek Squad sends technicians to homesto set up troubleshoot and repair electronics bought at BestBuy or elsewhere.
The group has a membership programand aims to be a comprehensive in-home service that will set upfix or troubleshoot anything that plugs into a wall from hometheaters to networking devices to appliances.
Geek Squad has 23 yearsof experience making house calls and currently employs 20000 peoplewho make 33 million total interactions with consumers a yearincluding one point eight million home visits according to Jefferies, GeekSquad and other services make up a small but growingportion of Best Buy’s revenues.
The chain pulled in about five percentof its sales from services in 2018 up from about fourpercent the previous year.
Best Buy is betting that asour homes fill up with complex interconnected devices customers willincreasingly want one company that can tackle everything.
It is also pushing a new productareas it thinks offer potentially high margins such as smart hometechnology and health care.
In 2018 it acquired GreatCall for $800 million dollars.
Great call makes smartphones and wearablesaimed at older adults and sells the service customers can useto quickly access caregivers and first responders.
The work has paid off.
Best Buy shares have risenfrom a high of $44.
66 a share in 2013 to $75.
95 cents a share in 2019.
Same store sales have grownevery year since 2015.
In the process the company is becomingsomething of a model for other retailers showing how businesses cansteer through a competitive and rapidly changing technologyfueled retail market.
Now that Best Buy has turned itselfaround though the question is: Where does it go from here? Joly is stepping down, and BestBuy has appointed its chief financial officer Corie Barry to the top job.
Barry oversees the company’s servicedivision and its Health Division and was a key player in theGreat Call acquisition and she’s a veteran.
She’s worked at thecompany since 1999.
Analysts say Barry is certainly qualifiedto take the job and she’s well liked by Wall Street.
But Joly’s shoes will notbe easy to fill.
Corie Barry is a very strongleader within their Best Buy organization and I think she’s going tobe great as the next CEO.
She has big shoes to fill.
Hubert Joly did a phenomenal job turningBest Buy around and making it relevant again.
But I think Corey Barry hasa very strong operating background and strategic thinking background that’s going tohelp her to achieve great things in the future for Best Buy.
For now the companyis focused on execution.
It has put together some plans that giveit a solid chance at a future.
But what about competitors.
Amazon after all surprised the worldby buying Whole Foods and entering the grocery business.
Best Buy is still thelargest seller of electronics.
It sold 32.
4 billion dollars in electronics in 2017, a five percent increase over the previous year accordingto industry publication twice.
But Amazon was notfar behind, selling 30.
1 billion dollars worth a fourpercent increase over 2016.
Could the online giant moveon to Best Buy’s turf? Once again this timewith its own stores.
For now, Best Buy has found a wayto dig deep into what it knows: electronics.
It is also leveraged itsstrengths in stores and service while beefing upits online presence.
Analysts are optimistic but this isan era of unprecedented disruption and there is a long list ofretailers that have gone out of business, in electronics alone.
If Best Buy expects to stick around itneeds to keep a pretty wide moat between it andrivals especially Amazon.