Best Buy is Doomed

I’m in Minneapolis this week and the top story here concerns the future of Best Buy (BBY), the large electronics retailer headquartered here.  After being downgraded to junk status, with shares priced near a nine-year low and with weaker-than-expected quarterly earnings announced today, Best Buy suspended profit forecasts and share buybacks for the rest of the year in order to give its newly named chief executive time to try to construct a turnaround plan. The company reported profit of $33 million in the second quarter as compared with $260 million a year ago for the same period, a drop of nearly 90 percent.

Critics have complained that Best Buy is merely a showroom for Amazon.com (AMZN) and other online retailers as shoppers go to its stores to check out electronics, only to buy them for less from online retailers who have much lower overhead and which need not charge sales tax. The company is also fending off takeover interest from founder and largest shareholder Richard Schulze, who was forced out as chairman after an internal probe found that he did not inform the board of allegations that its former CEO was having an inappropriate relationship with a female employee.  Not surprisingly, analysts are skeptical about the company’s future.

Although I recognize that I run the risk of overemphasizing anecdotal evidence by using it and relying upon it, I have an experience to relate that is indicative of why I think that Best Buy is doomed (DISCLOSURE: I have no long or short interest nor the intent to obtain any such interest in BBY and advise no clients with any interest in the company). 

A 20-something close family member went to Best Buy recently (because he wanted to watch the Olympics on actual live television right away) and bought an over-the-air television antenna.  The salesman — one of  the alleged experts who are said to offer “value” that online retailers cannot — in response to a direct question, insisted that no digital converter box was necessary.  After driving back home and installing the antenna, it became clear that a converter box was indeed necessary.

So our would-be Best Buy customer returned to the store to buy a converter box.  He decided to buy a previously opened box for half price; it was presumably a customer return that had been taped back up and put back on the shelf. But he only made the purchase after being assured that the box had been carefully inspected to make sure that it contained everything it was supposed to and that the purchase was fully guaranteed — as if the box had never been opened.  After driving home again (to complete round-trip #2), our poor soul discovered that the cable that connected the converter box to the TV was missing.

Back to Best Buy yet again for trip #3.  After waiting 30 minutes for service, our unfortunate consumer was told to go get another box to swap out. He returned to the service counter in less than a minute but someone else was being served. A 10 minute wait ensued this time.

When our reluctant warrior finally got to the register for the second time that trip he was told that since the swapped out box was a new one, he had to pay full price for it — not the discounted price he had received for the “guaranteed” pre-opened box.  When advised that that didn’t seem quite right since the error was Best Buy’s and since he was on his third trip to the store on account of Best Buy’s poor service, the cashier agreed and radioed her manager for help. After (another) 5-10 minute wait, the manager showed up.  He offered no apology and claimed that the box purchased didn’t include the cable needed to complete the job. After being shown in the product manual that the cable was indeed part of the package, the manager claimed that the full price still needed to be paid.

After being reminded that the purchased product was fully guaranteed and that it had been a major inconvenience to keep coming back to the store, the manager offered an ever-so-gracious 10 percent discount on the purchase — still an additional 25 dollars (without counting wasted time and travel expense).

Our frustrated but dogged would-be purchaser asked the manager if he couldn’t honor the discounted price on the replacement box, could he at least do the common sense thing and provide the missing cable (sold separately as well) for free. The manager replied that he wouldn’t do that, but he would deign to offer a discount on the cable.

That’s when our protagonist finally got angry and asked the following.  “Just so we’re clear, you want me either to pay 25 dollars more for a product I already bought because I had to return it due to Best Buy’s inability to package and sell a quality product OR you want me to buy a cable that I already paid for with the original purchase, essentially making me pay for it twice, right?”

The manager remained silent, perhaps thinking he ought to invoke his Fifth Amendment right.

So the question was reiterated: “You realize what you’re asking me to do, yes?”

He didn’t answer.

So our fine (and well-informed) young man asked a follow-up question:  “Don’t you know that Best Buy is really struggling and even with Circuit City out of the market your market share is decreasing?”

He didn’t say anything.

Yet another question:  “Don’t you realize that the only thing you offer me is immediacy? People like me who want to watch the Olympics might be willing to pay more and go through the hassle of getting here to get something right away, especially if it’s not too big a purchase. But for bigger purchases like cameras, TVs, and appliances? People generally plan for those and can buy them online. Only things like this box will keep bringing people into your store.”

The silence was deafening.

Our hero then asked if it made sense to remind one of the few customers the company had left that the one thing their failing business had to offer wasn’t in fact being offered.

Not surprisingly, there was no response.

Next came a reminder and a warning: “I’m in my 20s and use a lot of technology.  I’m your target consumer and I will be making large electronics purchases for the foreseeable future.  But on account of this horrible service and my dreadful experience here I will never return to a Best Buy even if it manages to beat the odds and stay open unless you do the right thing here.”

More silence.

One final reprise:  “Are you going to replace the box, give me a free cable or make me walk out of your store forever?”

The manager finally spoke, but only to offer a refund.

So our Amazon customer took the refund and thanked the manager for making his life simpler and saving him money.  He bought a better-reviewed product from Amazon at a price lower than the discounted, pre-opened item he returned and it was shipped free to his door in two days. He didn’t even have to pay sales tax on it.

Perhaps the best detail?  Everyone in the then large Best Buy service line applauded him as he left.

And besides, the Olympics were being shown at his local pub.  He bought his beer with some of the savings and pocketed the rest.

I don’t think it’s hard to figure out that Best Buy is in real trouble.

9 thoughts on “Best Buy is Doomed

  1. Hate to see a hometown company in trouble, but then again I hate BBY. It is amazing that BBY has no defensible business model so many years after it became apparent that their current one was failing. It is too easy to get online reviews of tech goods, and have it delivered to your door cheaper. Use Best Buy to “showroom” the product if you must, but you can buy it on your smartphone as you exit the store.

    Yes, one poorly-served market opportunity is customers wanting immediate gratification. But with Amazon Prime goods two days away, this is a very niche market.

    Geek Squad is the worst thing that happened to BBY because of the other two market opportunities.

    Second, BBY has the opportunity to be the store that non-techie people go to other than Apple. The stuff that Apple sells “just works”. Even for non Apple devotees, while there are a plethora of online reviews and online how to articles, it is to complicated for most people to figure out how to set up a central hard drive (NAS) and get all of a homes computers to back up to it, or to forward a port on their router to allow a video game to be played.

    BBY needs to become the store for the non-Apple stuff that just works. They should curate a range of products that work well separately and together, and be there for consumers to solve any technical problems. This is where Geek Squad is a problem. BBY’s interest is in stocking every product, most of which are difficult to use, and pushing people to pay high prices for tech support from Geek Squad.

    In other words, the only future for BBY is as a curator of technology focused on user experience. This will probably require total store shrinking and redesign, and a massive reduction in SKUs. And either ditching the Geek Squad business, or turning it into a non-revenue generating help desk.

    BBY will know it is on the right path when manufacturers are competing with each other for limited space on BBY shelves, and redesigning their products to meet BBY user experience expert and engineers’ high standards.

  2. Had a similar experience with BB. The floor salesman was total jerk…I will never by anything there.. I am into gadgets and have money…No place for BB..Just arrogant youg dudes!!

  3. Can we get over the Best Buy is a showroom for Amazon? The boundaries between online and offline are porous, which means that they work both ways. This young man already probably looked up the product he wanted on Amazon and then went to Best Buy because he needed immediacy. I do the same thing, if I need it today. However, if I need something 2 days later, than Amazon’s computers with all their customer reviews offer better customer service than a Best Buy employee hands down.

    • Actually, he didn’t look it up first. Note that when he ultimately bought from Amazon it was a different (higher-rated) product. As our hero points out, immediacy is key for BBY. Thanks for reading.

  4. Service at my Best Buy is terrible too. The clerks don’t know nothing anything and they are almost every single one of them illmannered, inattentive and lazy. Poor management oversight is all too evident. The internets no sales tax and lower prices keep getting blamed for retails demise and that is part of it but really it is the awful customer experience which is behind the brick and mortar retail decline. My computer and Amazon are NEVER rude or unhelpful to me. And I don’t have to waste time standing in an understaffed check out line to spend my money. Best Buy is filled with staff milling about talking to each other while they have just one register open with presumably the newest, slowest staff member running it. Good riddance, let market forces apply some creative destruction to this blight on commercialism.

  5. If I want immediacy I go to Costco. There are people there to help and they seem to know what they are talking about. They keep their word, double the warrenty, and will repair or replace the product on site. At Best Buy this is an upsell to a service contract

    Amazon just replaced a 10 month old Kindle Fire, no questions asked, no charge, and they shipped it overnight so we could have it for vacation.

    So why go to Best Buy?

  6. There really is no good reason for Best Buy, I would say 99% of the people working there are clueless and just care about when their next break is. It’s just teenagers working there for beer money while they’re still living at home. I had a bad experience with an expensive plasma that I returned because it was defective.

    The only two reasons for NOT buying online is knowledgeable sales people and good return policy. Best Buy has neither.

    Also, early on, Best Buy was not even trying to compete with online dealers, I remember buying the same exact big screen I wanted online for a $1,000 less than Best Buy. They’ve gotten better now, but it pushed millions of people to buy online because it was VASTLY cheaper.

    There’s no question they’ll be out of business in a few years. I’m honestly not one to cheer that as less competition is not good for the industry. i hate, for instance, that book stores are essentially a thing of the past because of Amazon.

  7. I bought my current PC at BB three years ago. I had to dig the product out from under a pile of other PCs on a pallette in the aisle because all the “salespeople” were chatting in the back of the store or on their cell phones. The price for the PC was OK but the service was non-existent. Too bad for BB because I purchased a $1,000+ flat screen TV a few months later from another retailer with real salespeople. I won’t be going back to BB for anything. Bye-bye to Bust-Buy.

  8. I must say I agree with a lot of what is said on this blog but there is one thing I was compelled to respond to. My Step-Son works at Best Buy and I can tell you without a doubt he is not working there for beer money and he doesn’t live at home. He works there to pay his rent and live day to day. He usually has barely enough money to pay his rent eat and ay his bills. That being said, I still agree that the clerks at Best Buy can be very condencending and act like jerks. One thing these people don’t understand is this – I hate it when a clerk will tell me – “I don’t work on commision” . Like thats going to make everything all better. I have worked in the sales business and I will tell you that when a clerk tells me that, I run. I know that if a clerk isn’t on commision he is more than likely going to be more pushy and more of a jerk. Why is this you might ask? Here’s why…If a company is paying you $8-$12 and hour they expect results for their investment. when sales clerks do not meet certain goals they start pressuring the clerk. If the goals are missed too often, then they lose their job! If a person is on commision most of their pay doesn’t come from the company directly so to speak and the only person that motivates the clerk is the clerk himself. In this scenario the clerk is going to be more polite and professional because they really do want to make the sale and the means of doing it is more up to the clerk than anyone else. So hence, you have a better chance of being treated more polite by a comissioned clerk. Thats why Best Buy employees bug you every minute you turn a corner. “Big Brother” is making them do so!

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