Bob's Gutsy Leadership Blog

Best Buy – Common Sense Creates a Retail Miracle

Back in 2012, Best Buy was on the ropes.  The stock price was in the neighborhood of $1.00/share. Its competitors Circuit City, CompUSA, and Radio Shack were even in worse shape: all three went bankrupt within a year or so. The fast-emerging online service and low prices of Amazon were killing the tech retail trade.  The CEO of Best Buy had recently been fired for his involvement in a scandal and the popular press was full on articles predicting that the company would die, like all the rest of the tech retailers, unable to cope with the low-cost online competition.  

In Fall of 2012, Best Buy hired a new CEO who had no retail experience.  He had spent his career in videogames, technology, travel, and consulting.  Once onboard, he spent his first three days working at a Best Buy store and wearing the store uniform of khakis and blue Best Buy shirt.  He spent his time meeting with all levels of the store staff, listening, asking questions, and visiting every department.  At the end of the first day, he spent dinner with the store management team at a local pizzeria, picking their brains, and probing for improvement suggestions.  Here is what he learned:

  • • Website Problems and the Online Challenge – The employees got out a laptop and demonstrated how clumsy the website really was and how the company really didn’t have a way to compete with online services of Amazon and its vast network of warehouses enabling excellent delivery times.
  • • Employee Morale – The fresh CEO found out that recently worker discounts had been discontinued, which generated huge employee disappoint since most loved electronics and were heavy users, which had real value as they interacted with customers in stores.  
  • • Store Layout – Slower moving merchandise was allocated too much space and the fast-growing areas not enough.  For example, only 4% of the floor space was allocated to the booming smartphone business, and even less for the hot area of coffee makers (e.g., Keurig) and blenders. 

Within 60 days, the new CEO had a plan developed and launched.  It was a commonsense approach to make giant progress on the key weaknesses.  Specifically, to “stop the bleeding” within weeks, a new store floorplan layout was implemented that lined up floor space with sales and profits. The employee discount was restored, and product pricing was reviewed and optimized for growth and profit.  Most importantly, Best Buy announced it would match online retailer’s prices, including Amazon’s. 

By far the most dramatic change was the announcement that Best Buy would ship online orders directly from stores.  In essence, each store also serves as a warehouse, leading to super-fast delivery of online orders.  Since 70% of the US populations lives within 10 miles of Best Buy store, this led to one- or two-day delivery on most online orders.  Net, overnight, Best Buy became a direct competitor to Amazon.  Most important, a customer could also go to a store to look at products and talk to a salesperson with questions as they sort through the various product options.  This, and all the other changes, put Best Buy on a growth path that continues today, 

The Best Buy stock price now sits at $116/share, up from $1 in 2012.  So…what do we learn?  Keep it simple.  Use common sense: objectively analyze the problem, quickly develop a bold and creative plan, and execute with excellence.  Easy to say, but somehow humans often mess it up!

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