Best Buy rides ‘total retail’ to recovery
Company learns relationship between online and in-store is key
Electronics stores have been among the hardest hit by online giants such as Amazon and Alibaba, but Best Buy Canada has managed to hold its own since folding its Future Shop banner two years ago.
“We knew that radical change was required,” Kamy Scarlett, the retailer’s senior vice-president of retail and chief of human resources, told an industry audience at the Retail Council of Canada’s Store 2017 conference on Tuesday, of the decision to shut down the original Canadian banner and close 66 stores.
Controlling expenses to compensate for declining overall sales had led the company to skimp on labour and marketing expenses, eroding the brand and its service in the eyes of the customer, Scarlett said.
“Internally we had begun to compete with each other, brand against brand,” she said. “Given the commission structure at Future Shop, every single change we tried to make to our online business took incredible amounts of effort. Future Shop employees saw online sales as a threat, because the online (business) was growing and their personal sales were declining.”
Today the company, with 134 bigbox stores and 53 smaller “mobile” stores in Canada, has embraced a “total retail” approach, where online and bricks and mortar sales are regarded in the same way rather than as distinct “channels” that compete with one another and employees are given bonuses based on a location’s in-store and online performance.
The changes prefaced a transformational period in retail.
Big-box style stores were prized for having an endless selection and low prices before the Internet came along and topped that notion. Best Buy’s niche of electronics and entertainment has been hit particularly hard: HMV Canada announced in January that it would close all 102 of its locations, and in the U.S., rival HH Gregg closed all 220 of its stores last month.
Best Buy’s international revenue in Canada and Mexico, where it has 20 large and five small stores, slid 0.3 per cent in the retailer’s last fiscal year to US$3.16 billion. But its international operating income improved to US$90 million last year from a loss of US$210 million in 2016, and comparable-store sales appear to be bouncing back.
International same-stores sales jumped four per cent in the first quarter of the year compared with a year ago, Best Buy reported last week, as the company enjoyed an unexpected surge in overall sales, sending its share price up 19 percent.
In Canada, Best Buy has renovated 15 of its box stores to a much more connected and interactive model, and they have been bringing in 20 per cent higher per-store sales on average than its older locations. Sixteen more of the new concepts will open this fall, executives said.
“Our greatest learning is that success lies in the relationship between online and in-store,” said Thierry Hay-Sabourin, senior vice-president of eCommerce at Best Buy Canada.
The company now leverages its Canadian stores as points of distribution for online sales in addition to using its warehouse, which has led to faster shipping times and fewer out-of-stocks for customers ordering online.
Best Buy also began challenging Amazon’s “marketplace” business last year by opening up its website and store as a point of distribution for other retailers, allowing consumers to buy non-Best Buy goods at the Best Buy website and make returns of those goods to the store.
But a key reason why people might go to a bricks and mortar store is for additional help and information, the executives said.
Now, if store staffers are asked for more technical help than they are able to offer, they can Skype one of the company’s Geek Squad members in real time to provide more detail and advice to the customer.
“Best Buy is trying to operate in both worlds in terms of having a robust e-commerce model and being able to drive people to physical stores by being able to offer them something different in terms of an experience,” said Craig Patterson, director of Applied Research at the University of Alberta’s School of Retailing. “Most stores can’t tap into something like a Geek Squad, and that is a point of difference for them that they can leverage.”