Can Best Buy survive?

Last Updated on November 22, 2018 by Dave Farquhar

Retail is taking a beating right now, thanks to online sales and an overall economy that’s just acting a bit weird. Best Buy had its struggles in the past, so that leads to a fair question. Can Best Buy survive?

I can see both sides of the argument.

Can Best Buy Survive? No.

Let’s take the negative first, because Best Buy has a lot of things working against it.

The big-box store format is obsolete

Can Best Buy survive
Best Buy’s business model was packing giant stores like this one with giant product up to the tall ceiling, Costco-style. Those products don’t exist anymore so these stores look empty today.

Best Buy grew and thrived in the 1980s and 1990s selling consumer electronics in huge quantities. That market changed. TVs and computers last longer now than they did in the 1980s and 1990s. They don’t go obsolete nearly as quickly anymore, and they don’t break as often as they used to either. That’s a double whammy for Best Buy, since that also means fewer opportunities for repair income and makes it harder to sell extended warranties.

Furthermore, as TVs and computers got smaller, it means general discount stores can sell a greater variety of electronics than they used to. Nothing stops you from just buying a TV or a computer at Target along with the rest of your shopping list for the week. The small size means delivery and installation aren’t the businesses they used to be either.

Competing with online shipping

For that matter, much of what you used to buy in person at Best Buy is available online with free or cheap shipping. If you’re willing to wait a few days, you can get a better selection and a better price and you don’t even have to leave whatever room you’re in. As Amazon same-day delivery becomes more widespread, it’s going to get even harder to compete. Amazon even has a better return policy.

Competing with Amazon has led to a practice called showrooming, where people browse at a local store, then order on Amazon. Sometimes they do this intentionally. Sometimes the salespeople lead them to it.

Finding product to fill that empty space

What’s making matters worse is there’s less and less product for Best Buy to sell. Its biggest store format, developed in the 1990s, was big enough to put in sections of music and movies the size of a Musicland or a Suncoast and a computer software section the same size. Today everything Best Buy sells in those three categories, combined, fits in a space half the size of one of those 1990s departments, so those big, open stores look desolate today. As the world moves to digital distribution, there will be less and less reason for Best Buy to sell any of those things. Best Buy used to be able to use those as loss leaders to get people into the store. That doesn’t work anymore.

There’s less and less reason to go to big-box electronics stores anymore and that’s going to provide a real challenge going forward.

Can Best Buy Survive? Yes.

That’s a pretty bleak picture. But I’m not willing to completely write the company off at this point either. Here’s why.

The sole survivor advantage

Can Best Buy survive? Only if it can compete with this.
Competing with same-day delivery is going to be key for Best Buy’s survival going forward.

Best Buy has one thing going for it. Its national competitors are all gone. Circuit City and H H Gregg are out of business. There are a few regional chains in some parts of the country but even those are downsizing. Being the only survivor in its category gives it a bit of an advantage. As long as Best Buy can offer something you can’t buy at stores like Target and offer more knowledgeable help than you’ll find at a store like Target, it will have a market.

Sears is another wild card. Home Depot and Lowe’s have both capitalized on Sears’ troubles because they sell appliances and tools. Best Buy’s appliance sales are up too. Best Buy would do well to play up the rest of its overlap with Sears to gain customers.

Finding new products to sell

Another path forward is finding new products to sell. Its experiments with selling home automation and home energy products helped fill part of the store that once held aisle after aisle of music and movies. They will need to continue to do so. Their old format stores don’t look good when there isn’t a lot of product in them.

They will need to continue to do this, because in this fast-paced world, what worked last year isn’t guaranteed to still work next year.

Competing with Amazon

The bigger problem for Best Buy, and every other retailer, is Amazon. Being able to order online and pick up in the store on the same day helps when competing with Amazon. But to compete with same-day delivery, they will have to offer things Amazon doesn’t. If they can’t do that, they will have to at least offer things that Amazon can’t deliver the same day.

This may prove difficult, but it’s something all brick-and-mortar retailers, not just Best Buy, will have to do. Something else that will help is finding a mix of product that people prefer to buy in person rather than online, to get people into the stores.

Finding new things to sell and figuring out what people prefer to buy in person rather than online will be difficult. Best Buy has a hard road ahead, but that doesn’t necessarily mean it’s doomed.

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