Bye-Bye, Best Buy?

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\"TheI’m not talking about Brian Dunn’s “bye-bye,” as we wait to hear what happened. Let\’s get to a bigger story.

What happened to Tower Records and Virgin Megastores in the music business? What happened to bookstores and now, potentially publishers?  What happened to Blockbuster for movie renters? What happened to some 4000 Fotomat stores and brought global icon Kodak to its knees? And, a little closer to home, what’s happened to the newspaper and magazine business?

By now, you know exactly what happened.  The two “A’s”: Amazon and Apple, digital mega-stores that have wiped out, and continue to decimate entire industries: books; TV shows; magazines; newspapers; music and movies.  Is Best Buy next up on the chopping block? For that matter, are some of its other brethren such as hhgregg, Comp USA, Radio Shack and others?

Best Buy enjoyed rapid growth in the early 2000’s when the Internet accounted for a mere 2% of total retail sales and when Circuit City was just beginning to lay off and cut pay to its highly trained tech specialist associates, widely considered their primary competitive advantage. This move would lead to Circuit City’s demise in 2009.  Best Buy not only picked up a large share of Circuit City’s business, they ramped up their own blue-shirted “Geek Squad” strategy, providing great tech instruction and assistance. Their business continued to soar, until it didn’t. Over the past five years revenue growth has fallen steadily from a high of about 17% in 2007 to about 2% today, actually showing a decline of 1% during the 2011 holiday period.

What happened on the way to that 17%?  Amazon and other e-commerce sites happened. Online retail sales grew from 2% to 8%, primarily by stealing consumer electronics share from all brick and mortar space, and by dominating in all the basic stuff Best Buy carries.  Even in states where Amazon collects sales taxes, its prices are about 8% lower than Best Buy.  And, all of e-commerce can thank the new “showrooming” consumer. In 2011, Amazon was ranked as the 13th largest retailer in the U.S., up from 19th a year before, and now owning about a 36% share of online sales.  What else happened?  Apple’s blistering growth happened and will continue to happen.

What amazes me is how in the world did Brian Dunn and his team not see all of this coming, especially since it’s all happening loudly and at warp speed, and also since they are right in the “geeky” digital world themselves? It’s not like they were in the widget industry or some other off-the- radar business. Maybe Mr. Dunn was distracted.

So, Best Buy has declared a major four-pronged strategy going forward to re-position itself for return to a positive growth trajectory.  They are implementing a multi-year cost reduction program to reduce expenses by $800 million by 2015, are closing 50 big box stores and opening smaller ones, focusing more on the customer experience, and are implementing a more aggressive online strategy.

Sounds good, but is it good enough?  Would any magnitude of strategic repositioning be enough to roll back the tsunami that keeps cresting higher and higher, threatening to wipe out other entire industries in its wake?  Look at Barnes & Noble, hanging by a proverbial book jacket.

And, what about The Robin Report?  Enjoy the print read while you can, guys. Just kidding.



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