Best Buy is currently
facing a difficult situation under an interim CEO. The past CEO, Brian Dunn,
had an inappropriate relationship with an employee and was forced to step down.
The founder of Best Buy, Richard Shulze has stepped down as chairman of the board.
All of this has happened after a weak 2011 holiday sales report.
Among the scandals and
the cover-ups, Best Buy is also trying to introduce a turnaround strategy that
will allow them to become more competitive. In March of 2012, Best Buy released
information on a turnaround strategy that will hopefully allow them to increase
their competitiveness.
The biggest problem Best
Buy is currently facing is an issue called, “show-rooming.” This is when
consumers come in to brick-and-mortar stores to touch and feel the item before
they purchase it online for a cheaper deal. Many of our current big box
department stores are feeling the effect of increased competition due to the
online markets. Amazon is a major competitor across many industries including
electronics. Best Buy has a major disadvantage against online retailers because
they have to maintain physical locations. Best Buy is trying to create a
company strategy that will allow them to continue to be competitive.
Best Buy is trying out a
new strategy in stores to create more of an Apple-store atmosphere. They
currently have implemented one of these stores which have fewer televisions,
and more hand held devices. They also have removed the registers from the front
of the store and provide checkout throughout the smaller sized store. In the
new trial stores, fewer products are placed on display, and they have focused
their employee on helping the customer. This restructuring of their stores will
allow Best Buy to shrink its retail floor size almost 20 percent. The first
stage of this strategy involves closing about 50 superstores and opening 100
Mobile Stores. This involves firing about 2,400 store employees and about 400
corporate positions. This is an effort to cut costs and restructure their
organization in order to survive against online markets.
As Best Buy continues to
search for a new leader, some analysts think they already have the guy to do
the job on staff, Stephen Gillett. He is the former executive from Starbucks.
Gillett’s current position is “President of Best Buy Digital, Global Marketingand Strategy.” Gillett recently pitched an idea of having monitors throughout
the store that show current competitor prices, such as Wal-Mart and Amazon.
This may allow Best Buy to use its showroom to increase market share instead of
customers leaving and purchasing items elsewhere. This position seems like it would deal with
the same issues that the CEO would encounter in a company that needs to renew
its corporate structure in order to survive in this global and internet driven
economy.
Interesting. A mobile Best Buy store, hmmm? I like the idea. Show rooming is major problem for stores like Best Buy. When I was in the market for a TV, I went to Best Buy to look at TV's, but then purchased online because it was cheaper. I do the same when I buy golf clubs. I always go to Golfsmith, try out the club I am interested in and then buy it online.
ReplyDeleteI'll be paying attention over the next year or so to see how this plays out.
I think that many people like to go into Best Buy and touch and feel different items until they decide what they want. We were talking in Strategic Management Seminar about how this "show-rooming" can also occur in other markets, such as clothing and textiles. I am not sure however that Best Buy will be able to make it as a mobile store because then that brings on a new set of competition. I think it will be interesting to see how these decisions play out and what effect a new CEO has on the company.
DeleteThis is quite interesting. I knew Best Buy was struggling but I personally don't think its because of "show-rooming". The problem with Best Buy and other companies like it are that they are selling someone else's product. The Apple store has been a success because of the fact that they sell their own product. When you go to Best Buy you find apple products and many other brands.So in order for Best Buy to make a profit, they have to pass their cost to the customer. Another reason is that Best Buy continues to have physical stores while Amazon doesn't and can pass these overhead savings to their clients. Also by having monitors comparing their prices to the competitors will that actually benefit them or cause to take a serious hit on their profit margins? In my opinion, I would ditch the whole physical store concept and do an all virtual business. This would allow them to compete with Amazon and such. Or become a niche market that caters to the consumer who still likes to go and touch their products before they buy them.
ReplyDeleteThat is right that Amazon does not have to pay to maintain a physical location. However, I think that many people find it easier to go through Amazon to purchase an item if they can touch and feel it first. I think Best Buy is not answering the market soon enough. I agree that setting up monitors would put them at a constant price war with Amazon and I do not think that Best Buy can handle that at this point.
DeleteThanks for sharing, Lauren. As we know, Best Buy is a big traditional consumer electrics company, but it was losing its market share to online retailer Amazon and Apple retail stores last year. It does need the transition of strategic management in the face of today’s changing market. Of course, the change of “showing room” may be good but not enough, even trivial. Best Buy needs to do more changes, such as customer services, pricing strategy, online sales model, and so on. I think Bust Buy is not right to imitate others blindly. Each business has its specific advantage not the same with others. The key is how to develop your strategy with the best use of your own resource advantage.
ReplyDeleteI agree, this goes hand and hand with the article we covered in class on Tuesday. The company needs to develop a strategy that uses their own current resources just packaged in a different way. This would allow them to continue. However there are other market issues that Best Buy has to take. Show-rooming does not play to an advantage of Best Buy, it is a very strong weakness. One article I had read did attack Best Buy for their customer services. I would have to agree that their customer service is not up to par. I think it will be interesting to see how the next few quarters play out. I think it is going to show whether Best Buy can implement strategies to gain market share back.
DeleteI think having the monitors will hurt Best Buy's profit margins. What if Walmart is selling the same item for less? Why would I want to buy it at Best Buy when they themselves are telling me it's cheaper somewhere else? Best Buy will have to have a price matching or price-beating policy to keep the customer from buying elsewhere. This will affect profits.
ReplyDeleteThe Best Buy near my house appears to be using this Apple store atmosphere. It will be interesting to watch the strategy unfold.
In order for the monitors to have a positive impact, Best Buy would have to try to narrow its profit margin and try to increase volume. That would be the only way that showing prices of competitors would help the company. I agree, it will be interesting to see the impact of these Apple-like stores. I know that at the Galleria, Microsoft has a store that looks exactly like an Apple store with obviously a Microsoft logo and products. It will be interesting to see if other companies can benefit the same way Apple has from these stores.
DeleteInteresting article. I think it is going to be very hard for Best Buy to turn things around. There best opportunity to make a real change was when when circuit city went under. Instead of pushing full steam ahead they slacked off believing that they had no real threat from other competitors. They failed to see the possible effects of "show-rooming" and how their business model would be affected. I feel that it will be a long bumpy road for Best Buy going forward.
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