Employees help customers at a Best Buy store in Emeryville, Calif., in March. (David Paul Morris, Bloomberg )
How can Best Buy be saved?
The question has been swirling around the huge retailer for a couple of years, as its same-store sales have been falling. But it picked up steam last week with the sudden resignation of Chief Executive Brian J. Dunn, who had been in his job less than three years.
The unceremonious departure of Dunn, 51, looked at first as though it was connected with his professional performance, which hadn't thrilled many Best Buy watchers. But it soon transpired that the reason had something to do with questionable personal conduct, reportedly involving a female subordinate.
Dunn's method of leaving his job was the most modernistic step he's taken in years — personal behavior has been trending higher in recent years as a rationale for top-level firing in both industry (think Hewlett-Packard's Mark Hurd) and sports (Arkansas football coach Bobby Petrino).
In most other respects, Best Buy under Dunn's leadership was moving backward. The stores have been looking more forlorn and less like the teeming shoppers' carnivals of years past, and the inventory choices shrinking. Meanwhile the sales staff comes off as less knowledgeable and more indifferent. Former customers of the extinct Circuit City and Border's, the last big retailers to go down this road, must be feeling a sense of deja vu.
Best Buy once was one of my favorite retailers. There was a period when I lived in virtually an all-Best Buy household; the chain sold us our flat-screen TV, most of our stereo equipment, desktops and laptops, even a high-tech vacuum. My frequent-buyer account got me cash-back coupons and longer grace periods on returns.
The last time we bought a refrigerator, however, we got a better price and payment terms from Sears for a comparable unit. Here's a retailing maxim: If you're losing sales to Sears, you're in trouble.
The challenges facing Best Buy are easy to discern. It's caught between the Scylla and Charybdis of Apple and Amazon.com. Apple has become a retail juggernaut, generating astronomical sales estimated at $5,600 per square foot at its snazzy toy-stores-for-grown-ups.
Best Buy's figure, according to its most recent annual report, is $866 per square foot — respectable for a retailer in its class, if not in Apple's league. Amazon consistently beats Best Buy on price, even without counting the advantage it gets by not charging sales tax for many customers outside its home state of Washington.
That advantage will soon be extinct in California, as it is in several other populous states. But even without the sales tax bump, Amazon beats Target andWal-Mart as well as Best Buy on the prices of many items, as investment analysts at William Blair & Co. recently documented.
Like Best Buy, those chains suffer from "showrooming," in which customers try out merchandise on their sales floors and then place their orders at Amazon for less money. But Target and Wal-Mart aren't facing the sickness unto death that appears to be confronting Best Buy. Not at the moment, anyway.
Sure, judging Best Buy against premier marketer Apple and online-only Amazon is a mite unfair. Apple stores sell essentially five branded products with cult-like followings (Mac desktops, Mac notebooks, the iPad, the iPhone and the iPod).
Amazon doesn't have to build and maintain walk-in stores; on the other hand, after launching in 1995, it spent so relentlessly on distribution and technology systems that it didn't show a profit until 2003. But that spending yielded what today stands as the best customer experience on the Web.
Every retailer is different, like Tolstoy's unhappy families, and good lifeline-caliber ideas can be found anywhere. The architect of Apple's retail store strategy, Ron Johnson, came from Target at a time when Apple's lack of any retail strategy threatened its very existence. (He was abetted by alumni of Gap, whose founder, Millard Drexler, had joined the Apple board.) Johnson last year was recruited to reviveJ.C. Penney, whose board must think he knows a few things that will transfer to the non-Apple marketplace.
Nothing is stopping Best Buy from picking out the best ideas in the field and adapting them to its own space. At least that would be an improvement over its current strategy, which seems to be to pick out everyone's worst ideas and try to take them to the bank. These include its shift toward smaller, mall-based storefronts with limited merchandise.
Dunn's last major announcement before resigning was that he would close 50 of the chain's 1,100 U.S. big-box stores while expanding small-format locations. One example of the latter is the Best Buy Mobile store I visited the other day in a Lakewood mall. The store was clean, but small enough to give a claustrophobe fits. The two salesclerks were friendly and helpful without being pushy; it's not their fault that it's hard to imagine that Best Buy's future lies in storefronts the size of bathroom stalls.
So what are the best ideas?