In this morning's Wall Street Journal, it was reported that Best Buy lost $1.7 billion dollars in the third quarter of this fiscal year, which ended for them on March 3. This massive loss triggered a 9% slide in their stock price, down to $24.16 in Thursday midday trading. This loss comes as Best Buy has difficulty adjusting to the changing landscape of the retail industry, losing key sales to companies like Amazon and Apple. The main reason they have been losing sales to Amazon is because customer often come into their stores, look at products, and using their mobile phones, find cheaper prices for the same product on Amazon, from whom they end up making the purchase. Amazon can compete on price because they do not have the costs associated with the massive retail stores that Best Buy does. Apple has been biting into their sales as they continue to open up their own retail locations to sell their popular consumer electronics. As gloomy as these numbers seem, Best Buy does have some positive numbers, including a small increase in market share, growth in online sales, growth in overall revenue by 2% for the fiscal year, and the fact that this loss was affected by a one-time $2.6 billion dollar cost associated with exiting their UK business. However, same-store sales decreasing by 1.7% is not a good sign.
All is not lost for Best Buy, however. CEO Brian Dunn (pictured) has a plan to revive the retail giant. The first aspect of this plan is to reduce the amount of the big-box stores. He wants to eliminate 50 of the large stores across the company in the next year, this is expected to save the company $800 million in costs in the next few years. This decrease in total square footage is a key strategic move as the company looks to shift its retail strategy.
The company's shift in retail strategy will begin with the test launching of so-called "connected stores" in San Antonio and the Twin Cities. These stores will focus on giving customers tech support and setting up wireless connections, while also offering large hubs in the middle of the store where shoppers can go for help. Also, these stores will emphasize faster checkout and the ability to pick up items ordered online. These stores also represent the "customer transfer" strategy Best Buy is trying to roll out. These stores will be 20% smaller than old ones in terms of space, which analysts think is a change long overdue and has the potential to further the change in the company's business model. These changes relate directly to Krishnan and Prahalad's N=1 model. Best Buy's new format will allow them to give each customer a better individual experience, mainly through the assistance hubs and the faster checkout. These create a much simpler customer interface and can be scaled to happen in stores across the country.
The next portion of the shift in retail strategy will be to improve the staff. The company will achieve this in a few ways. They will be increasing training for workers by 40% as well as offering financial incentives to employees. The financial incentives program has been proven to work at Best Buy, as it is already incorporated into the sales of mobile phones. These changes also relate to the N=1 model. Better trained employees will provide better service to each customer, which will allow them to have better individual experiences.
The last part of their shift is to focus more on developing their Best Buy Mobile locations, which are stand alone stores that sell mostly smart phones and tablets. These smaller locations will create a more intimate setting for customers to shop, furthering their shopping experience.
Overall, Best Buy is heading in the right direction with its plans to cut down the size and number of locations it has across the country. The decrease in size will be a cost cutting measure as well as allow customers to have a better, more individualized, shopping experience. The addition of the assistance hubs and emphasis on tech support will also be important, as it gives customers a reason to come to the store instead of buying something online. Adding more mobile stores will also aid in enhancing the customer experience. Best Buy has begun to change the value it offers to customers, going from a store that offers every consumer electronic to a retailer that offers many products as well as an enjoyable shopping experience.
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