Best Buy Co., Inc: Sustainable Customer Centricity Model?
November 13, 2012
Best Buy is the largest national electronics chain and the only one that remains since the closing of Circuit City in 2009 and Comp USA before that. Founded in St Paul, Minnesota in 1966 as the Sound of Music Store, it was rebranded as Best Buy in 1983 with a single flagship store in Burnsville, Minnesota. By 1993, Best Buy had become the United States second-largest consumer electronics retailer, breaking into Fortune magazine’s annual ranking of top 500 companies two years later at number 373. A partnership with Microsoft in 1999 help to boost the company’s profile and lead to the opening of its first retail store in Shanghai which was followed by stores in Canada, Mexico, Turkey, and nine European countries (Lowe, 2008 May 8). Best currently operates 1,105 big box stores in the United States. In addition to personal computers, computer equipment, and consumer video and audio products, Best Buy outlets, which are on average 44,000 square feet in size, also offer large and small appliances, and entertainment software that includes DVD’s, compact discs, video games, and computer software (Funding Universe, n.d.). Best Buy’s subsidiaries include Geek Squad, Magnolia Audio Video, Pacific Sales, and in Canada, it operates under both the Best Buy and Future Shop labels.
Best Buy differentiates itself from its closest competitors, Walmart and Amazon.com, by not focusing on low cost products but by switching from an aggressive commission-based system of service to highly trained sales associates and service solutions. Having a well-trained staff who can educate the customers regarding product features, allows the customer to make informed buying decisions on big-ticket items. In addition, with Geek Squad capabilities available in-store, Best Buy is able to provide installation services, product repair and on-going support for these or other items the customer purchases (Hill & Jones, 2013, pC22). This end-to-end solution is one aspect that separates Best Buy from its competitors.
This is also one of the many strengths Best Buy currently possess’. Best Buy’s customer centricity approach is key in its survival and is something often missing from their competitors. Best Buy takes the time to understand who its customer is and what they need. They then took this information and started selling solutions instead of just products. Best buy also changed the layout of the store based on customer feedback. This included bundling together related products, offering installation help for all electronics, and improving store productivity by adding more technology experts to the sales floor and deploying touch screen monitors with product information. Future plans also include a 10% reduction in US square footage over the next 3 to 5 years. A reduced floor plan will not only be more cost efficient but will provide an overall easier shopping experience for the customer (Briggs, 2011 April 14). Customer centricity is necessary in today’s competitive market and it is a concept Best Buy continues to excel at.
One of Best Buy’s weaknesses includes the decline of net income and operating margins. Although this could be a function of increased costs, it is more likely due to pricing pressure (Hill & Jones, 2013, pC20). The economic decline and consumer pressure has forced the prices of consumer electronic products to be lowered. This decrease in prices has caused the decline in margins which negatively affect net income and operating margins. Another area of concern is the increase in accounts receivable and inventory. Best Buy had a 1% increase in inventory from 2008 to 2009 and a 12.5% increase in revenue accompanied by a 240% increase in accounts receivable (Hill & Jones, 2013, pC20). This creates a potential risk for losses due to bad debts. Best Buy is weak in their ability to quickly adjust inventory level to...