Yesterday, Best Buy announced that they will close 50 stores across America, which will lead to 400 firings through the company. While this seems minor, given that Best Buy operates 1,450 stores in North America, it is indicative of a much more interesting trend that’s forming in the greater market.
At the moment, while Best Buy’s sales of big-ticket items like televisions are up, the company continues to see diminishing returns. Same-store sales have cratered, and hover barely above the zero-growth point. In addition, the company saw general weakness in sales of normally hot items, like video games, notebooks, and digital cameras. Business Insider highlights what is most intriguing about Best Buy’s current situation:
“Consumers have been using its locations as a testing ground for products before making final purchases at competitors like Amazon and Walmart.”
Same-store sales are in free-fall. (Image courtesy of Business Insider)
Basically, Best Buy’s stores are being used as a test bed for products that people buy elsewhere. Now, the really good question to ask about this is “Why?” The specific name-drops of Wal-Mart and Amazon are dead give-aways that the company’s customers are going to where most saving are. Amazon sells products for well below retail, ships for free, and charges zero sales tax. Wal-Mart, as a brick and mortar store, offers the instant gratification of a brick and mortar purchase and prices that undercut their nearest competitors by a healthy margin when their products are on sale.
Best Buy, at this point, can’t match competitors in this regard. Because they deal almost entirely in electronics, Best Buy are forced to work on razor-thin margins. They don’t have the same clout with merchandisers as Wal-Mart, nor do they have the sheer lack of overhead the Best Buy can match. Instead, they must work with smaller discounts and rely on the sales of supplementary items like warranty plans or accessories to fill the gap.
And, let’s face it: nobody likes being pressured to drop $200 on a two-year warranty.
This is a difficult situation for Best Buy to overcome, as they are “big box” stores by nature. They’re known for the large showrooms and the smattering of electronic products that range from DVDs to clothes dryers. And, unfortunately, this business model is both outdated and incredibly difficult to get away from. Changing too much will alienate the gadget fiends, while changing too little will ensure that the company languishes in the market.
The company has already committed to opening over 100 new mobile locations, which focus on items like tablets, cell phones, and data-driven items that currently fuel the gadget market. While it is interesting to see the company try to reduce its footprint, much of the company’s strategy revolves around throwing money at a crowding market. They’re playing things safe and, unfortunately, “safe is risky.” By focusing on mobile, the company faces competiton from both a number of angles, from smaller cell phone shops, to the direct-line stores from mobile powerhouses like AT&T and Verizon. And, since a vast majority of people are within driving distance of such a provider, Best Buy will need to work within a much more competitive framework to make a dent in the marketplace. Unfortunately, in this case, they will likely run into the same situation as they are with their Big Box stores, as they are forced to compete with entities that can (and certanly will) undercut the retailer to keep their upper hand on the market.
The company would be better served in these smaller locations if they could scale back their standard operations – reduce the breadth of products, but stay within the company’s general focus. The savings gained from maintaining smaller locations could be used to reduce overall pricing (given that the company still runs 1,400 big box stores, an extra 100 satellite stores would add shelf space and leverage to reduce prices to some degree with a distributor), and to take on more talented staff. Customers react to positive stimuli, and are more likely to shop at locations that they feel welcome at. Workers that are genuinely interested in seeing a customer leave with the right product over the most profitable are an attractor for a business, as they generate word-of-mouth and reputation among customers, as word spreads from excited customers.
As it is, Best Buy’s closures will ensure a that number of new locations will no longer stock anime, and our market will contract a little more. While the overall impact will be negligible on the greater anime market, it will be interesting to see how this ripples through the industry as a whole.
