Best Buy is like a 57-year-old grandpa who consciously redefines the generational gap. We can totally imagine him sharing his breakfast with early-rising boomers, having tea with millennials and playing Call of Duty in a basement.
This grandpa has witnessed the demise of his contemporaries (the likes of Circuit City, Sports Authority, and Toys 'R'Us), the rise of his digitised version, and most recently COVID-19 pandemic. But his mantra seems to be YOLO. He is super practical in life but also believes in winning hearts. It is complicated.
With Grandpa entering the good books of the White House, his story has become only more interesting. Best Buy will help the White House identify devices less vulnerable to cyberattacks along with two internet giants, Amazon and Google.
If Best Buy’s founder, Richard M. Schulze, a Minnesota high school dropout, were told about the aforementioned development, he probably would not have believed it.
After working as a salesman in the Air Force, he started ‘Sound of Music’, a music store with Gary Smoliak in 1966. The store sold stereos, speakers, vinyl records and other music-related products.
He was unafraid of taking mortgages and draining personal savings. This very boldness and risk-taking attitude would become the foundation of Best Buy. It is seen in all their marketing tactics and growth too.
1. The Swift Rise of Best Buy
Best Buy was a go-getter from the word go. The company made $1 million in revenue and $58,000 in profits. It also acquired Kencraft Hi-Fi Company and Bergo Company in the first year. Three years into the business, Schulze opened three more stores and listed his company publicity on the NASDAQ exchange.
Once the company went public, there was no looking back. It hit the $1 billion mark by 1992. As of 2023, the company runs more than 1,000 retail stores across the United States, Canada and Mexico, with an average annual revenue of $42.9 billion, according to Investopedia.
And yet there were several times when it felt like the company would shut the shop. Here are some key milestones and lessons on how they managed to stay afloat on a bumpy ride.
2. Tornado Sale
The first one came in 1981 when a Tornado destroyed the Roseville store. However, seeing the undamaged goods in the storeroom, Schulze announced the famous ‘Tornado Sale’. He used whatever money he had left to advertise the deal. Against expectations, the company made more money in four days than in a month. He saw how people rushed to the parking lot seeing the heavy discounts. It gave him the idea to open a grand superstore in Burnsville under the Best Buy name in 1983.
“The first year’s volume was $28 million, which was more revenue than the entire Sound of Music chain was generating. At that point, we knew the strategy we were building would work, and we immediately wanted to convert the rest of the Sound of Music stores into these Best Buy superstores,” Schulze said in a 2016 interview. Now his stores had computers and other electronics as well.
3. Concepts II, III & V
The Tornado move paid off. Best Buy found itself on New York Stock Exchange in 1985. Riding on this success, the music company approached Circuit City to sell the company in 1988. However, the latter turned down the offer. Around the same time, Detroit-based Highland Appliance started offering lower prices than Best Buy to attract more sales.
In the words of legendary Sylvester Stallone, Schulze took this rejection “as someone blowing a bugle in my ear to wake me up and get going, rather than retreat.” and gave birth to Concept II.
Often touted as a revolutionary concept, this idea put the customer in control of the process. Under this, the company transitioned from commission-based sales to salaried employees. It shifted the primary motivation of salesmen and allowed customers to pick their products.
"It was revolutionary at the time. We lost vendors, and many people thought we'd go under at that point. But Dick was incredibly determined," said Randy Zanatta, a former employee and now co-founder of Golf Galaxy.
Another significant change was moving all the stock from the storeroom to the sales floor, giving more options and transparency to the customers.
There was but a minor setback.
Giants like Sony, Whirlpool and Maytag stopped supplying their products to Best Buy, fearing the salesforce will not aggressively sell them to the customers. However, seeing the success of Concept II, they returned soon.
Best Buy launched ‘Concept III’ stores in several new markets, such as Los Angeles and Washington, DC in 1994. Concept IV stores covered New England in 1998.
The company introduced simple measures to cement the customer-first ideology through the ‘Concepts’. It focussed on adding touchscreen kiosks giving product information, demonstration areas for stereo systems and video games, introducing product categorization, and cash registers at regular intervals.
A year later, the company achieved a major milestone. Best Buy was added to Standard & Poor's S&P 500.
4. Geek Squad
The 2000s saw Best Buy play on the front foot to diversify its operations, Geek Squad being the most significant acquisition.
The company launched Redline Entertainment, an independent music label and action-sports video distributor. They also acquired Magnolia Hi-Fi, Inc., an audio-video retailer; Musicland Stores Corporation, a retailer that sold home-entertainment products and the Canada-based electronics-chain Future Shop Ltd.
The year 2002 saw three big changes:
- Best Buy opened the first Canadian Best Buy-branded store in Mississauga, Ontario.
- Brad Anderson succeeded Schulze as Best Buy CEO.
- Best Buy acquired Geek Squad, a 24-hour residential computer repair business.
Geek Squad would now help Best Buy offer their customers solutions along with the gadgets. Customers got the much-needed tech support at home. It meant a long-term and more personal relationship with the customer. By 2004, Geek Squad covered all bases with 24/7 services, from appliance repairs to car, home theatre and smart home installations. This helped Best Buy triple its stock in 2013.
5. Amazon & The Great American Comeback
It is difficult to survive in a retail world, which has undergone a dramatic shift. E-commerce has been the buzz for some time now, and it is not going anywhere. Brick-and-mortar stores are almost obsolete.
Everything is about convenience. A few taps are all that is needed for giant genies like Amazon to dictate our shopping choices. It has become a norm, albeit with a few exceptions.
Best Buy, America’s largest consumer electronics retailer, is probably the only one to survive the Retail Apocalypse. It is the phoenix in the retail verse if you will.
As Amazon gained a stronghold in the market, Best Buy’s stock dropped from $50 to $11.29 in 2012. The company lost nearly $1.7 billion in one quarter alone.
The company initially slashed its prices to meet online ones and found some success but not the solution. Best Buy observed a pattern in their customers. Although the stores saw an influx of people, they were only for browsing the products. They would go home and order online.
Under Hubert Joly's leadership, the company rose from the ashes.
“Our goal is not to be lower than the competition. It’s to offer a very compelling set of customer promises with the assortment, the advice, the convenience, and the service. So our goal is simply to eliminate price as an obstacle to buying,” New York Times quoted Joly in a 2013 article.
Joly started by visiting stores and understanding the challenges of the employees, including a non-smooth search engine. To retain employees, he bought back employees' discounts.
Realising that customers needed extra knowledge besides the information from salesforce, the company introduced an adviser program. Under this, customers could get free in-home consultations on product types, the latest technologies and installation processes. This way, they could take an informed decision before purchasing anything.
“Best Buy has come through the valley by making investments around the customer experience,” said Peter Keith, a retail analyst with Piper Jaffray.
It went one step ahead and partnered with Samsung, Apple and Microsoft to feature their products in the stores. The companies can set up their kiosks too. This model generated more revenue for Best Buy. In a sweet twist, Amazon also set up kiosks for its Alexa gadgets in Best Buy stores.
Joly also cut costs through an improved streamlining process after he noticed a rise in damage to several flat-screen TVs in warehouses.
“We were breaking $200 million worth of TVs every year,” he says. “By improving packaging, we reduced that [number] by 50 per cent,” Joly told Harvard Business School.
6. What Makes Best Buy Standout
Collaboration & Diversification
Best Buy made history by becoming the first third-party retail seller of Apple’s iPhone across 600 stores.
With Magnolia Hi-Fi, the company integrated audio and video retailers directly into its showrooms. It bought Pacific Sales Kitchen and Bath Centers and started stand-alone showrooms for kitchen and home appliances. Both brands cater to high-end customers willing to pay top extra if it means premium products and excellent customer service.
In recent news, Best Buy has partnered with Atrium Health to sell devices and handle installation so that patients can get hospital care at home. Best Buy has also acquired GreatCall, which caters to senior citizens and Critical Signal Technologies and Current Health, a United Kingdom-based company that deals with remote patient monitoring and telehealth.
Other acquired or partnering companies include the Chinese appliance retailer Jiangsu Five Star Appliance, Speakeasy, Carphone Warehouse, mindSHIFT Technologies and more.
These developments are proof that Best Buy does not shy away from embracing change and competitors while sustaining its original principles.
7. Building Human Connections
“We want to make it easy for customers to learn about and enjoy technology, and to be a trusted adviser and solution provider for customers around their technology needs in pursuit of their passions. We touch people’s lives. I’m not selling you a TV, I’m working with you to make sure your family is entertained. I’m not selling you a thermostat, I’m helping you save the planet and save money,” said Joly at the time of the 50th anniversary of Best Buy.
Joly’s focus on customer needs redefined the company’s purpose as “enriching people’s lives through technology by addressing key human needs.”
The employees were even asked to think of their friends and be one while interacting with the customers and putting their needs first. Geek Squad imparted expert knowledge to Best Buy employees. Now, they had the perfect combination of human touch with in-depth knowledge.
8. Leadership
Whether it was a sex scandal of a former CEO, the 2000 infamous lawsuit or being pulled up by Greenpeace for unethical deforestation, Best Buy has always returned stronger post turbulence. Leadership is a major reason behind this.
In times of crisis, Schulze never refrained from approaching outside consultants, reexamining his strategy or making risky decisions. Joly was named one of the “Best-Performing CEOs in the World” by Harvard Business Review in 2018.
Bradbury H. Anderson (2002-2009) rose from salesperson to CEO at Best Buy Company. Anderson also focussed on ‘customer centricity’, creating new stores based on the shopping patterns of local communities. Forbes labelled Best Buy as boldly "reinventing itself while at the top of its game" under his leadership.
Conclusion
Best Buy's adaptability and customer-centric approach have been the keys to its survival and success in the ever-changing retail landscape. This emphasis on leadership and human connections has allowed Best Buy to overcome challenges, reinvent itself, and build long-term relationships. From its inception as a music store to becoming a tech retail giant, Best Buy has consistently evolved. The company's ability to identify customer needs, implement innovative strategies like Concept II, and establish partnerships with tech giants has helped it stay relevant and competitive, even in the face of e-commerce giants like Amazon.
