Renew Blue, Ignite the Possible

Best Buy, who I wrote off a few years ago, has more than bounced back.  They are aggressively combating "showrooming" and winning. With sales up and their stock rising, they're well on the road to recovery.  RIS News recently reported on Best Buy's transformation, quoting CEO Hubert Joly:

"The next chapter of our transformation is what we call Renew Blue Ignite the Possible.  Our aspiration is to create end-to-end customer experiences that allow our customers to smoothly and fully experience the possibilities of technology.  In retail we've evolved our store organization to better support the nation of retail which is the execution of our category and functional strategies the development and implementation of effective market level strategies that take into account local specificities and lifting our performance in terms of employee engagement, sales, customer satisfaction and profitability."

Well said.  I think there are three keys to Best Buy's turnaround, and other retailers should take notice.  First, Best Buy is focusing on the customer experience, offering store-within-a-store concepts by partnering with suppliers like Sony and Samsung.  This experience continues to extend into homes with Geek Squad, which I believe is a big differentiator in the complicated electronics market.  Second, Best Buy offers a low price guarantee for both local stores and major online retailers.  No longer are they routinely beat on price.  Also, it doesn't hurt that Amazon now charges tax in many states, removing one of Amazon's advantages.

The third and most important key is using stores for fulfillment.  Consumers don't like waiting.  Best Buy allows order online, pickup from store and the ability to ship from a nearby store thus shortening delivery time.  As depicted in the graph below, in many cases Best Buy now beats Amazon in delivery time.

You can clearly see the ship-from-store change occurring around October 2013.  As Sharon McCollam, Best Buy’s CFO, put it:

"The amount of inventory that has actually been unlocked represents about two-thirds of our inventory.  We have already seen margin benefits and we expect that to continue to grow as we progress through the year and the merchants and the demand planners learn more about how to use ship-from-store as a pricing leverage tool. The big opportunity is from the merchant organization, whereas they are now pulling and pushing levers in order to move that inventory through the system faster. You should expect to be seeing more positives."

Turning stores into an offensive weapon against online retailers is clearly making a difference.

Comments:

While no question that Best Buy has stopped the bleeding, its stock price is up ~30% ( $31.49/$24.22 - http://finance.yahoo.com/echarts?s=BBY+Interactive#symbol=BBY;range=5y ) since your original post on 1/3/12, I also wouldn't say Best Buy is out of the woods yet either. Revenues, $42.4B in 2014, are down 3%+ from 2010's $43.8B, http://phx.corporate-ir.net/phoenix.zhtml?c=83192&p=irol-reportsannual (pg. 23 of the annual report) and Q115 revenues are down 3%+ from Q114, http://phx.corporate-ir.net/phoenix.zhtml?c=83192&p=irol-newsArticle&ID=1933479&highlight= .

While Best Buy deserves credit for stopping the bleeding, getting the company growing again is still going to prove challenging. Agree the store within a store, Geek Squad, price matching and using stores for fulfillment are all positive steps, but Amazon and Walmart are not sitting idly by, https://knowledge.wharton.upenn.edu/article/amazon-walmarts-battle-dominance-future-retail-stake/ . While I wish Best Buy well in their Renew Blue initiative, the road ahead is still filled with potholes.

Posted by Bill Davis on July 09, 2014 at 08:17 PM CDT #

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David Dorf, Sr Director Technology Strategy for Oracle Retail, shares news and ideas about the retail industry with a focus on innovation and emerging technologies.


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