I had occasion to spend time in a Best Buy store today, for the first time in a long time. And I was struck by how much they’ve changed in the last few years. We’ve touched on some of those changes before, but this was the first time I’ve really examined them up close. It was an eye-opening experience.
The other day I ran across an amusing satire piece on Hard Times, positing a struggling Barnes & Noble store expanding its manga section to incorporate the pornographic “hentai” genre (and associated…accessories). Like any good satire, it was remarkably true in its untruthfulness—the flailing Barnes & Noble chain has been trying to expand to encompass practically any line of business except traditional books. But I hadn’t quite expected Best Buy to do the same thing—apparently with a greater degree of success.
I remember back in the 1990s and 2000s, when I lived in Springfield, Missouri, Best Buy was my main source for anime. Their video section was huge, and encompassed the best selection of genres of pretty much any store in the area. In cardboard boxes in my basement, I still have a number of anime VHS tapes I bought there. I remember one time I got a videotape of the Macross Plus subtitled version that had been mislabeled with the cheaper dub version’s price. And their music section was nearly as big. Between them, movies and music took up almost all of the store that wasn’t occupied by the home theater, computer, and appliance areas.
But today, things are different. Perhaps a quarter of the store I visited is taken up by the computer and tablet area—including a prominent display of Amazon Fires, Kindles, and accessories. (I examined an Amazon-branded folio case for my Fire HD 10 marked at the same $39.99 Amazon charges online, but decided against it for now.) Another quarter, in the back, is the home theater section, still selling a mix of Best Buy store-brand and major name-brand TVs, Blu-ray players, receivers, and so on.
Much of the rest is taken up by what amount to pop-up store kiosks for various device manufacturers and mobile services, some of them with their own dedicated staff. The Apple area is a little nook within the computer and tablet section, but nearby were kiosks for Samsung, AT&T, Verizon, and Sprint. There was a whole row of unlocked phones ready to use with any service (including a 64 GB Moto X4 for $199). Further on in the store were island displays of Google and Amazon’s home assistants, and devices embedded in them. There was also a small section for appliances.
But the thing that came as the biggest surprise to me is that Best Buy now has its own toy section. And I don’t must mean the odd shelf or two. I mean at least half a dozen rows in the very heart of the store—making up another quarter or so of the store. Some of the toys were video-game-related stuff, like branded headphones, figurines, and other accessories—the kind of thing you might find at one of the brick-and-mortar ThinkGeek stores that opened recently. But most of them were ordinary toy toys—Legos, Transformers, and so on.
And the movie and music sections that once made up the lion’s share of the store? Relegated to two rows of Blu-ray and DVD shelves, and a couple of bins of assorted $4 to $6 bargain CDs, respectively.
I wasn’t the only one bemused by the change. I talked to a store employee who regarded the toys with mingled disgust and disbelief. “That’s Wal-Mart,” he said. But he agreed that the change had probably been brought on by Amazon—or by online commerce in general. Customers having the ability to order whatever they wanted online had made major changes in the kinds of things they were willing to buy in person.
Of course, that’s likely not the only reason. The shrinkage of the store’s media section can probably be put down to the popularity of online streaming media, via services like Netflix or Hulu, and digital media sales via on-demand music and video purchases. The employee said he’d heard that CDs were on the way out altogether. And they had to fill the leftover space with something, didn’t they?
The changing selection is only part of the way Best Buy is competing with Amazon, of course. It is also matching key online and local competitors’ prices, as well as pricematching BestBuy.com prices in stores and vice versa.
At the time of sale, we price match all local retail competitors (including their online prices) and we price match products shipped from and sold by these major online retailers: Amazon.com, Crutchfield.com, Dell.com, HP.com, Newegg.com, and TigerDirect.com.
Perhaps Best Buy is banking on a “reverse showrooming” effect—that customers might look around online to decide what they want, then come to Best Buy to get the item immediately for the same price—including Amazon’s own hardware, like the Kindle, Fire, or Echo. An Amazon sale on the Kindle could thus become a Best Buy sale on the Kindle, too. And those customers might just pick up some other things at regular prices while they’re there.
Best Buy doesn’t seem to carry any paper books at all, with the exception of some video game strategy guides lumped in with the toys section—but then, trying to match Amazon’s low-margin prices on paper books would probably be folly anyway. (Which also means it’s not a strategy Barnes & Noble could readily adapt. For all that B&N sells a lot of other things now, its core business is those very paper books on which Amazon happily throws away much of its margin.)
And this strategy seems, on the whole, to be working for Best Buy. Since hitting a low in October, 2013, Best Buy’s stock price has trended largely upward. It has fallen back a few times since then, but each time quickly recovered and then surpassed where it was before. Best Buy stock did have a steep crash in October of last year, when it lost 10% of its value due to a management shakeup and weak sales expectations, but it has already gained back over half of what it lost since then and looks like it will keep on going that way. Compare that with Barnes & Noble, which peaked in 2006 and has mostly trended downward since then.
Why does this “kitchen sink” strategy work for Best Buy where it seems to have failed for Barnes & Noble? Perhaps because Best Buy was effectively diversified already. It did sell a lot of movies and music, to be sure, but they weren’t the only basket where it kept its eggs. When those eggs started to spoil, it could simply shrink that basket and pick up some new ones. And offering dedicated kiosk space to related businesses, rather than just pitching their items onto another shelf, is a great way to build synergy and really add some value to their store.
People associate Best Buy with neat techie stuff in general—so if someone’s shopping for video games, it’s not that much of a stretch to imagine they might be interested in other toys, too. If someone wants a new Kindle, perhaps they might also grab an unlocked smartphone (and download the Kindle Reader app onto it). But people know Barnes & Noble as a bookstore. If they stop in for a paper book, why would they also want a toy, or a bottle of wine, or whatever?
In my last look at Best Buy, I wondered whether its new strategy could serve as a blueprint to help the flailing Barnes & Noble. But given these factors, I now have to suppose it’s doubtful. Barnes & Noble can’t pricematch competitors (indeed, for the longest time it couldn’t even pricematch its own web site), and people don’t come to that kind of store looking for a “kitchen sink” experience they way they do a big-box outlet like Best Buy.
Can B&N adapt to the shifting retail market? It’s anybody’s guess, but my Magic 8-Ball told me “Outlook not so good.”
On a not necessarily unrelated note, Amazon has announced that by the end of April, it’s going to close all of the 87 pop-up stores it was operating in Whole Foods, Kohl’s, and malls in 21 states. Instead, it will open more full-sized brick-and-mortar outlet locations like its Amazon Books and Amazon 4-Star stores. This seems to suggest that Amazon sees a future in brick-and-mortar retail.
This might seem odd, given that it is largely online retail (and web hosting) that made Amazon the monster that it is today, but Amazon is also a master of crunching numbers. It’s run a handful of brick and mortar stores for some time already, in addition to the aforementioned 87 pop-up stores and its product placement in Best Buys and other such places. The numbers it’s gotten from all that retail experience will give Amazon a lot clearer picture of the future than that Magic 8-Ball would. If Amazon thinks it has a future in brick-and-mortar retail, then it could very well be right.
Does that bode ill for places currently stocking the Kindle, like Best Buy, or retail outlets like Kohl’s that have been participating in a pilot program to accept Amazon returns at their stores? Probably not immediately—it could take time to build out a brick-and-mortar chain of any great size. Amazon can’t be everywhere, and it would probably prefer to sell its devices anywhere it can. But still, it’s an interesting reminder that change is one of the only constants in the retail industry—and that change is going to keep right on happening.
Best Buy’s revenues are still down considerably from the $50B it earned in 2010, 2011, and 2012. Last fiscal year it earned $42B, meaning it’s down 16% or so from its good years.
It does seem that BB has survived the transition, though, while B&N has not.
I don’t know what the profit margins are, but Best Buy sells appliances and TVs, as well as extremely profitable extended warranties for them. It’s probably a lot easier for BB to branch out to things like toys when so many of its products sell for hundreds or thousands of dollars than it is for B&N, when most of its merchandise is $10-40.
Yeah, that’s another good point. I touched on it obliquely when I mentioned Best Buy couldn’t afford to keep price matching Amazon all the time on low margin items like books, but yeah, you’re right, I did kind of leave that part out.
Perhaps the more valid comparison would be to Circuit City, which did one of the most spectacular self-destructs I’ve ever seen.
That’s a good insight that the loss of sales in DVDs/CDs led to more space for physical goods. I guess I have to wonder how pricey the toys are.
Gaming is somewhat different because you can try out games on their instore consoles..
One of the other factors came from opportunity — when Toys’R’Us closed, Best Buy’s toy offerings expanded geometrically. Certainly in our region there was a lot of overlap between Best Buy locations and Toys’R locations, so clearly Best Buy wanted to grab some of that casual “let’s go look at toys” traffic, and expand their potential base.
Also, in our nearest Best Buy location, Barnes and Noble is literally next door. We go to that shopping plaza often (it’s also where we grocery shop much of the time), and we probably go to Best Buy one out of four times.
We go to Barnes and Noble maybe one out of twelve. There’s just… almost never a reason to go in. Which kind of makes me sad.