Best Buy (BBY) reported quarterly earnings that were worse even than critics had expected. The world's largest electronics chain earned four cents a share compared to estimates of twelve cents. More concerning still, Best Buy said free cash flow would be as much as 30% lower than expectations.
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The numbers call into question yet again whether or not Best Buy has a place in a world of e-commerce stores and low-price televisions. The answer depends on whether or not the chain can learn how to embrace what they are and stop complaining about what they aren't.
The Showrooming Solution
Specifically, Best Buy needs to stop complaining about things like Showrooming. Defined as customers coming into stores to "kick the tires" on products prior to buying online, showrooming has been fingered as one of the key reasons Best Buy won't make it. The reality is just the opposite.
Every circular advertisement you'll see from now until Christmas is designed to drive traffic into a store. With high gas prices, parking hassles and crowding, just getting people off the couch and into the store is tantamount to a major victory. To complain about customers looking for the best price is ludicrous.
Best Buy is getting store traffic almost despite its own efforts to alienate shoppers. Here's a three step process for Best Buy to save itself but using its store base and workers on hand:
1. Match Prices of Key Competitors
It's a losing game to try to be the lowest price option for every product from every retailer online and in the store. Still, Best Buy does need to have or match the lowest prices offered by major competitors WalMart (WMT), Target (TGT) and Amazon (AMZN).
One press release to this effect and the whole price comparison issue goes away immediately.
2. Train Staff to Add Value
The former home of the Geek Squad, Best Buy has been cutting back on store staffing and training in order to control expenses. That's exactly wrong. Having employees available to answer questions and help with the basics like loading big screen plasmas in your car is a huge advantage for Best Buy. They need to capitalize on it.
The best trained employees in retail work at Tiffany's (TIF) and Apple (AAPL). Not at all coincidentally those chains are number 1 and 2 in sales per square foot. Customers don't expect red-carpet treatment at Best Buy but knowledgeable employees capable of help would be a step up.
3. Give loyal shoppers more TLC
Retail expert Hitha Prabhakar says Best Buy should embrace the move more aggressively using their installed customer base. "There are 40 million people in Best Buy's loyalty customer program," she notes in the attached clip. "Why are they not focusing on those customers?"
Giving a little love to your loyal customers goes a long way and is a key differentiation point between the bricks and mortar stores and internet price mercenaries.
If Best Buy wants to be alive next year it needs to stop running from its history. Having stores is a huge advantage. It gives Best Buy a sense of presence and respectability customers won't find on-line or on EBay (EBAY). Best Buy is trying to save cash when they should be trying to save the company. Plowing money back into stores is counter-intuitive but it's also the only chance Best Buy has to stay alive in the long term.
Source: http://finance.yahoo.com/blogs/breakout/does-best-buy-chance-survival-130251676.html
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