Best Practices: 3 Moves That Could Turn Best Buy Around

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Best BuyThere's never a dull moment at Best Buy (BBY), and now the beleaguered retailer has a new CEO to smoke out.
Brian Dunn is stepping down after 28 years with the company -- and three as CEO -- amid a probe into his personal conduct.

"I leave it today in position for a strong future," Dunn claims -- except he doesn't. Best Buy's in trouble, and the announced layoffs and store closings are just the beginning. Store-level sales have been slipping for more than a year, and there's little reason to expect that to change.

However, while Best Buy may be dying, it's certainly not dead yet. Thinking outside the big box, there are ways to get it back on track.

1. Stop Shoving Big, Bulky, Hard-to-Ship Items to the Back of the Store.

Why is Conn's (CONN) -- a regional consumer electronics chain that is much smaller than Best Buy -- thriving at a time when Best Buy is not? (The company's stock shot up 24% after posting better-than-expected quarterly results. Same-store sales soared 12%.)

While Conn's will be more than happy to sell you a new high-def TV or a laptop, it also sells a ton of appliances, furniture, mattresses, and even lawn-care equipment.

Sure, Best Buy sells appliances as well. Walk into a store and you'll typically see the row of washers and refrigerators -- way off to the side. No wonder appliances made up just 5% of Best Buy's sales this past quarter. Smaller chains, including Conn's and hhgregg (HGG), place their appliances front and center.

The key here is emphasizing bulky items that are both cost-prohibitive for Amazon.com (AMZN) to deliver and even trickier to return. Yes, there are already Web-based retailers selling mattress sets and mowers, but emphasizing bigger items that favor local delivery specialists would buy Best Buy some time.

2. Become the GameStop of Consumer Electronics

As bad as the market has been for consumer electronics, the video game industry has been downright crushed over the past three years. People just aren't buying video game systems or disc-based games in this age of free apps and social networking games.

However, GameStop (GME) has managed to hold up far better than its decaying industry during the sector's downfall.
One of the biggest reasons for GameStop's success during the industry transition, and even the recent recession, is that a big chunk of its business comes from buying back used games, which it refurbishes and sells at healthy markups.

GameStop scores bigger margins on used games and gear than it does on new items. More importantly, customers trading in their old games typically use the proceeds as in-store credit to buy something else.

Best Buy has already followed GameStop in accepting video game trade-ins. It will also accept many other lightly used consumer electronics, which it swaps out for store credit. However, Best Buy isn't aggressively promoting this part of its model. More importantly, the items being traded in aren't winding up for sale at its stores like they do at GameStop. Best Buy's program simply uses the trade-ins for parts through Geek Squad or resells them through secondary market channels or dedicated Best Buy outlet centers.

Why not resell them in the stores where they are actually traded in? Yes, returns may increase as folks complain about the functionality of pre-owned goods. Suppliers would also cringe at Best Buy resales, which would cause them to miss out on a piece of the action. GameStop hears this all the time, but the small-box concept appears to be holding up just fine, and it sells a ton of secondhand stuff.

Best Buy needs this, because it may be the only way it can effectively compete against Amazon and other online retailers on price. Consumers wouldn't assume that Best Buy's offerings will be more expensive, and they will make repeat visits to make sure they don't miss out on one-of-a-kind deals.

3. Serve Customers Outside of the Front Door -- Literally

If you think consumer electronics has it bad, walk into your local video rental store. The country's largest DVD rental chain emerged from bankruptcy two years ago, and its nearest rival had to liquidate its entire operation.

However, Coinstar's (CSTR) Redbox has filled the void with surprising success. The DVD is dead? Tell that to Coinstar. Its Redbox business soared 40% in its latest quarter.

Best Buy isn't in a position to acquire Redbox. However, there's nothing stopping Best Buy from entering the kiosk market itself, or possibly even pairing up with Redbox for a joint venture. Situating DVD and video game rental machines just outside its stores would help increase store traffic. Every rental is followed by a return. More importantly, Best Buy can use these machines to accept DVD, Blu-ray, CD, and video game trade-ins from people who don't want to deal with customer service lines or store hours to trade in their media.

Can Best Buy Be Saved?

It may be too late, of course. The interim CEO is a board member who cut his teeth as a health-care services executive, so maybe he was promoted just to see if the chain still has a pulse. However, if Best Buy is to succeed, it will have to fight Web-based merchants with advantageously local merchandise, lower price points, and increased shopper engagement. These three suggestions -- while far from perfect -- would at least nudge Best Buy in the right direction.

If you have an idea for how to save the staggering retailer, share it in the comment box below.

Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. Motley Fool newsletter services have recommended buying shares of Coinstar, hhgregg, and Amazon.com and writing covered calls on GameStop.



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9 Comments

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cateyesldy

Customer service is so bad i will never go in there again...In stead of looking for a CEO within the company you need to find someone like me the buyer...I went into the store ready to buy it out. I just bought my new home and needed TV's computer's. printer, Fridge, and washer and dryer...You know i stood there for for almost a half hour and no one helped me. So i took my business else were. You need a new CEO well here i am....

April 30 2012 at 1:30 PM Report abuse rate up rate down Reply
loretmsn

I totally agree. Customer Service at BBY is horrible, & has been for years. If you need to take something, i.e., laptop, etc, in for repair, they need to schedule appointments. Additionally, they should let the Geek Squad people who are fixing problems work on the problems. Instead, GS employees are dealing with people at the counter & on the phone & can't work on fixing problems. I agree, there should be GS members at the counter & on the phone, but couldn't they just alternate responsibilities so each person does his/her own thing? (i.e., WK#1: Employee Mans the Counter; WK#2: Employee Fixes Problems; WK#3: Employee Man's the Phone; etc. GS employees could then do one job at a time without constant interruption. Right now, the can't give you an estimated time to pick up your item because they don't know how busy the counter & phone will be. If repairs take longer than expected, a quick telephone call to give the customer an update, would be appreciated. I was told, when I took my computer in for repair, to check online for repair status updates (dah ... kinda difficult without my computer!). GS memberships are expensive & the service needs to justify the price.

April 30 2012 at 12:27 PM Report abuse rate up rate down Reply
cacciw

condescending, uninformed sales personnel and management who seem to hate their jobs and take it out on the unsuspecting customers. Return policy needs revamping as well. I tried to trade a $5 video I got as a gift and because the buyer (they found it on the computer,my son) was not with me, they refused! Is a $5 video worth losing a customer over? I was looking for a large screen tv so I went to COSTCO who has the BEST policies and CS ever--

April 30 2012 at 10:25 AM Report abuse rate up rate down Reply
jobaecker

Best Buy needs no vigorously pursue an outreach program. There are millions of us at the tail end of the baby boomer generation, now in or approaching our 50's, who have grown up with modern electronics, but who have not kept pace with all the ways of using cutting edge technologies. There needs to be some way for us to discover new ways to use and combine electronics to do what we need to get done. Having in-store resident experts would help; offering public forums would also help. Why, YES, I WOULD like to know how to create a hi-tech, manageable home electronics system--without purchasing redundant products. Yes, I WOULD like an electronics coach to answer my "stupid" questions. And for that kind of service, I am willing to pay a fair price and recommend it to others.

April 28 2012 at 12:58 PM Report abuse rate up rate down Reply
mm

I think you missed two of the key reasons why Best Buy is not keeping customers or why customer only go into the stores to look at an item before buying online, their customer service is HORRIBLE and their up-selling tactics are annoying. Wait I take the horrible comment back, they have without a doubt the worst customer service in retail. Customers go into a store like that expecting the employees to actually know something about the products they are selling, but sadly they don’t know any more than someone off the street. Not only do they not know anything they don’t want to be bothered trying to find an answer to customer questions as well. The only thing they do know how to do is up sell their extended warranties or some other costly and unnecessary add on program.

Another issue is that they don’t handle any of their product lines well at all, they have a limited selection and it gets worse every year. The media section at most stores used to be significant, now they hardly carry any new movies or cds. Sure people do buy digital copies, but if you don’t have the inventory you can’t make the sales and you can’t complain sales are down if you didn’t have the inventory to generate those sales to begin with. Its no wonder people shop online, because they can actually find any cd, dvd or game that is still in production. It’s pretty bad when you go into a best buy on Tuesday, which is supposed to be new release day by the way and they only have a couple copies of a new release. Yeah that’s a surefire way to keep customers from coming into the store. On the computer side, what has happened to all the extra components, people are still interested in upgrading their systems and frankly their limited selection, means people are going to other stores.

Ditch the appliances, no one is going to your store to buy them, if you’re not going to carry high end brands you’re not going to make it selling appliances, you’re going to lose that battle to Sears and the Home Improvement Stores.

Bring back the media rooms, knowledgeable staff on home theaters and offer installations. Get some people that know how to integrate all the home electronics and maybe customers will be interested again.

Stop pushing monster brand cables, they are no better and there is no reason anyone needs to pay $50 for a component or HDMI cable, give me a break, same with the power strips

April 11 2012 at 3:39 PM Report abuse rate up rate down Reply
dembee

In my humble opinion, BBY should drop dead! One year ago I purchased a 50" Panasonic from them, complete with delivery, set up and integration with my existing functioning stereo system. Their Geek squad installers insisted that my existing stereo system was burned out. Their Chicago BBY store manager insisted that BBY had no connectioln with GSquad (a lie!) in his attempt to sell me replacement stereo equipiment. My cable system provider came in and got my system going, without the need for any new equipment. I have since never walked into a BBY store!

April 11 2012 at 12:29 PM Report abuse rate up rate down Reply
Sam Sharma

The only way is to match the prices from internet retailer like Amazon. Delievered free at the door, without any hassels. Also, save the sales tax, which may not be possible, but people will not mind paying, if they got at best buy.

April 11 2012 at 11:51 AM Report abuse rate up rate down Reply
KING BEAR

THEY NEED TO HIRE OLDER PEOPLE, THE YOUNG CAN'T SELL, THATS ALL THERE IS TO IT, I COULD SHOW BEST BUY HOW TO BE THE BEST RETAILER IN THE US, BUT CEO WAN'T ALL THE MONEY. THE REASON THEY USE THE YOUNG WORK FORCE BECAUSE THE GIVE THEM BEANS FOR PAY, AND THE CEO TAKE IT HOME.????

April 11 2012 at 11:09 AM Report abuse rate up rate down Reply
slipshield

Listen.....People use Best Buy to see what they want to buy on Amazon. Well if the people are already in the store, why lose the sale? They already have a price match guarantee right? Make the sale and if people find it cheaper on Amazon they will have to come back to get the difference. Simple solution! If Walmart and Amazon are stealing business then steal it back!

April 11 2012 at 10:56 AM Report abuse +2 rate up rate down Reply