Best Buy Gets The Message – Why Amazon Is In Trouble, Joly Has A Masterplan

I wrote previously of how Best Buy has the ability to crush Amazon. Hubert Joly was on Bloomberg yesterday and agreed with my assessment.

http://www.bloomberg.com/video/best-buy-ceo-says-stores-match-amazon-com-prices-PeDkuuOLQriv~9jGRtQjuA.html

Basically Joly said he is going to welcome the “showroom effect” and he is not going to fight the consumer. If a customer wants to come into a Best Buy store and feel and touch the products he is going to embrace it.

How is Best Buy going to embrace the showroom effect?

By giving customers the chance of buying the products online, in store and have the products delivered to their door at a the online price.

As I mentioned in my previous article this strategy has simply massive potential for Best Buy.

1. It will allow Best Buy to sell more products due to the lower prices.

2. It gives Best Buy an advantage over Amazon as Amazon is not even in the race when it comes to have a physical try-b4u-buy stores although this is something they say they will address.

3. Less stock. The move to try try-4bu-buy stores will mean Best Buy can massively reduce the stock holdings in its stores. Freeing up millions in dead money sitting on shelves.

4. Bigger range. With try-b4u-buy stores Best Buy can offer a bigger range of brands. Currently Best Buy would be reluctant to take on small volume products because it is uneconomical to stock every store with these items. The sales volume is not there. With try-b4u-buy Best Buy can offer niche products without the headache of having to keep stocks in every store. Best Buy can offer the niche products as an online order only item.

5. Less property costs. Try-b4u-buy stores will allow Best Buy to get closer to its customers. It opens up the way to local neighbourhood stores. Currently Best Buy uses large stores due to the economies of scale. Neighbourhood stores with no stock holding can be massively smaller while still offering close to the same range of products.

6. Lower logistic costs. Moving products to and from stores costs money. Try-b4u-buy stores move all of the logistic costs onto the customer. Instead of stores receiving returns and returning them to central warehouses customers can do this directly for the products they order online. Online orders also reduce the cost of supplying the stores with products. Less and smaller shipments means less cost and more flexibility and more efficiency.

7. Larger profit margins. All of the factors above will dramatically increase the profit margins of Best Buy. Currently best Buy has millions of dollars of idle product in its stores. Try-b4u-buy stores would allow Best Buy to slash this huge overhead. Smaller stores open the possibility of more sales. The try-b4u-buy concept could even allow Best buy to abandon its big box model slashing staff and overhead costs while offering better prices and close to the same quality of service. Lower logistics costs with unprofitable activities such as reverse logistics moved onto the customer.

It is economic suicide for Best Buy with its physical locations to try and price match with Amazon and its online only presence.

And this model is not something that is unique to Best Buy. All the traditional retailers have the same opportunities. They can leverage their physical presence to promote and assist their online business.

Offering discounts to customers who order online in store or online at home brings massive costs savings that can be passed onto the customer. It may be a tough sell to the customer ie “why should I pay more to buy online when I am in store today” but if the retailer explains the costs savings in the right way I do not see any reason why people would not jump at the chance.

The chance being they can go to a store, touch, feel and try the product and if they like they can order from the same retailer. Either they can pay a premium for taking it there and then or they can have it delivered to their home.

And really, following this to its logical conclusion you can see stores only allowing customers to try-b4u-buy and forcing them to order online is store or at home.

If the high street retailers feel they need to have a stronger connection between the in store “tryer” and the online “buyer” they could issue limited life coupons in store which can be used when the customer orders online so they can get their discount.

This would give the retailer massive data ie of the people who order online what percentage went in store first and which store did they go to.

In short, as Joly of Best Buy highlights there is no reason for the traditional retailers to be afraid of the internet or for them to separate the online and physical activities. They can work together to multiply the effectiveness of both.

Joly’s interview on Bloomberg gave me a massive confidence boost in Best Buy. The guy has the right idea and he has a solid long-term goal for the future which would see it become the leading electronics retailer in the USA if not the world.

It is much easier for Best Buy to develop its website than it is for Amazon to open hundreds of try-b4u-buy stores. In short, Best Buy has the advantage to squander.

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