| April 08, 2019
Who would have thought? Suddenly American electrical retailer Best Buy is newsworthy again. You see, Best Buy did something amazing. It survived the Amazon onslaught. The question is: will it now thrive?
To recognise just how amazing it is that Best Buy survived, let’s rewind to 2014, a year when the big box electrical retailer announced its tenth straight quarter of declining sales. Best Buy’s share price was hovering around $25, but change was in the air and CEO Hubert Joly’s “Renew Blue” restructuring was about to take hold. In 2015 Radio Shack filed for bankruptcy but Best Buy announced a 77 percent jump in quarterly profit off strong sales growth. Eventually, the brand’s share price started to climb and now stands at over $70. A pre-holiday slump was offset when Best Buy announced better than expected fourth quarter earnings in February this year
How was such a turnaround achieved? Essentially, Joly’s strategy was to blunt the competition’s strengths and play to Best Buy’s own: match Amazon’s prices and speed, while focusing on delivering customer experience. It was the corporate equivalent of a Jujitsu move that, rather than seeking to directly oppose an enemy’s attack, neutralises their advantage and ‘blends’ with it. Once touted as the death of brick and mortar retail ‘showrooming’ became an opportunity to engage customers and demonstrate a degree of service that cannot be matched online.
Google “best buy turnaround” and article upon article from Forbes, Bloomberg, Motley Fool, Barron’s and Seeking Alpha laud Best Buy’s success. So am I the only one who now wonders how long this success can last? You see, I think there is an ingredient missing from the turnaround and longer-term success will all depend on whether Joly and his team recognize that fact. It is worth reading this coverage of Joly’s appearance at the Adobe Summit to truly appreciate all the different things that had to be done to achieve this stunning turnaround but among all the right moves something just seems wrong to me.
Joly talks about the power of Best Buy’s customer database, he talks about the shift from mass marketing to digital (digital now makes up 90 percent of the company’s media spend) and the ability to send 40 million versions of its promotional emails. But what about reaching out to new customers? What about building predisposition among people who are not buying electrical goods today? A quick look at BrandZ finds a steady downward trend in Best Buy’s attitudinal power since 2014 led by a decline in both difference and salience, the brand seems increasingly reliant on persuading people to choose it rather than them wanting to do so.
The problem with relying on your customer base for growth is that – putting it bluntly – people die, they forget about you or are unaware of what your brand has to offer. Great customer experience is critical to growth because it encourages repeat purchase but unless you continually reach out to new customers attrition will take its toll. So maybe the time has come to divert some of that media spend back to mass marketing, even if it is digital not traditional. But what do you think? Am I wrong? Please share your thoughts.