Best Buy

Amazon has retailers everywhere scared. Once an online bookstore, Amazon now sells just about anyt Low prices and fast delivery. Meanw Faced with mon The more than century old retailer Sears, once the country's largest chain, filed for Chapter 11 bankruptcy in 2018, just one of the many victims of the so-called retail apocalypse. There is no question, the world is dramatically different than it was even a decade ago. So how do traditional retailers survive? Some answers may lie with Best Buy. It might seem to be a relic of a bygone era. Much of its business model is based on large format physical stores, pretty much the very definition of what is failing across the industry. But Best Buy is killing it. Shares are hovering near an all-time It is a rebirth many in the industry consider miraculous. In 2012, Best Buy was in dire shape. Sales were pl Morale had tanked and executives were scrambling to save the company. Wit Then somehow it didn't. W Now the CEO who pulled off t So how did Best Buy engineer such a renaissance? Is its massive recovery sustainable and can it be replicated? Best Buy's origins can be traced back to St. Paul, Minnesota in the late 1960s. Electronics salesman Richard Schultz founded a store in the area called Sound of Music. It sold stereos, speakers, vinyl records and other audio equipment. It grew into a chain, but the business found greater success after Schultz adopted the big box format. The Best Buy concept was born and Schultz renamed the store in 1983. Let me introduce you to a new kind of store, Sound of Music's Best Buy Superstore. Two years later it went public. Growth was slow at first. In its first decade as a public company, its stock only peaked at a 03 in late 1994. But over the next 20 years, Best Buy became the largest U. S. seller of electronics in the golden age of America's big box retailers. These big stores, modeled on warehouses, really rose to dominance in the 1980s and 1990s, and they spread across segments. Home Depot and Lowe's became major home improvement stores. Petco and PetSmart ruled the pets category. Stores such as Bed Bath and Beyond and linens and t Best Buy was considered a best-in-class retailer, and the growth was spectacular. Best Buy had 679 stores at the end of 2003. By the end of 2009, it had 3,889. Sales climbed from roughly $21 billion to $45 billion over the same period. Its stock j But Amazon was starting to rise in the late 1990s, and it seemed to offer deals too good to refuse. It could sell a customer the same exact products they could find in a store, but often at lower prices and with free s Due to the nature of e-commerce, Amazon often did not have to charge sales tax, which could make a huge difference in price on high-ticket items Amazon's first wave of success began to shake out smaller competitors, such as CompUSA and Twitter. But it took a bit longer and a few other blows to dent bigger players In 2008, Circuit City was fending off an activist investor who wanted to shake up its management. Then the financial crisis hit and sparked a slowdown in cons In November 2008, it filed for bankruptcy, and with the lack of credit, was forced to liquidate. Circuit City closed its last 567 stores in 2009. At that point, the retailer had been around for more than 60 years, and it had more than 700 stores in its heyday. Circuit City's demise gave Best Buy a bit of a tailwind. Best Buy sales were down about 10% that year, but as Circuit City began closing up stores, shopper s The result, Best Buy sales fell only 5%. It had gone from being the biggest of several national electronics chains to the only one left. But competing with fellow brick-and-mortar stores Shops who follow Best Buy say the company might have underestimated the threat from the Seattle-based e-commerce giant. The Amazon threat, for years, had been masked by the arrival of the flat-screen television. Massive technological leaps to sleek televisions with crystal-clear pictures motivated people all over the country to go out and buy new sets. Perhaps the best years for the product cycle were 2005 and 2006, but retailers benefited for the better part of the decade as e-commerce continued to quietly strengthen its grip on the market. But by the time the Great Recession began to A slowing housing market in 2007 hit sales of appliances and large home electronics, and the following financial crisis dried up credit and tightened cons Finding the lowest prices possible on what items a buyer could afford became even more of a priority. Best Buy'same-store sales fell 1. 3% in 2008. T Best Buy went from pulling in $1. 2 billion in net income in 2011 to a $1 billion loss in 2012, and another $443 million loss in 2013. Other then CEO Brian Dunn, a lifelong Best Buy employee who had started as a blue s The fallout from the episode led Schultz to resign as chairman. In 2012, Best Buy's board brought in Uber Jolie, a relative outsider who had previously worked at McKinsey and Vivendi, where he approved the launch of successful video games such as World of Warcraft. It is Jolie's tenure that is credited with turning the company around. When he joined, it was a very there are very few retailers that have experienced going through such a period of hatred and concern as Best Buy was going through in 2012. If you looked at valuation metrics, the stock was priced as if the initial reaction from the Wall Street community and investors was, who is Uber Jolie and how is the new CEO and It started with service and stores. Up to that point, Best Buy was one of many retailers faced with a problem sometimes referred to as showrooming, where customers would walk into a store to inspect and learn about products they wanted, only to go home and buy them online, often via Amazon and usually at cheaper prices. So Best Buy had to take the fight to them, and it did so by leveraging its large network of stores, matc In 2012, Best Buy began matc That meant a customer checking out a stereo system, computer or phone could walk out of one of Best Buy'stores with that product on that day and pay the same price. The company also started s They also put in place an easy process for returning online products in stores, saving customers the trouble of packing somet If you they have physical stores. Why not leverage that? Use those stores as pickup points, drop off points, s The web can't really do that. The web, that last mile is really where the stores can come in and try to be more effective. And you've seen that, you know, Walmart, Target, Costco, they're going big time after the Omni Channel cons Best Buy also began working closely with the store's vendors, w The company started giving electronics makers their own dedicated sections of Best Buy stores. Then Microsoft followed. Best Buy also made a deal with Apple to revamp its displays, even worked with Amazon to be the exclusive seller of smart TVs embedded with Amazon's Fire TV technology. The retailer keeps the exact details of these deals close to its chest, but essentially it shares the cost of investments and the revenues with each manufacturer. In turn, device makers can exercise greater control over how their products are presented to customers. They can set up their displays and tailor the shopping experience much the way they want. They often bring their own staff into the stores, who obviously know their products best. Customers can learn about somet The store wit Best Buy's troubles had spelled danger for many of these device makers, who do not really have their own physical retail networks. But in talking to suppliers, that was a scary time for them. All of a sudden they started to t And I t And so, The company also bet on service both inside and outside its stores. Best Buy invested in training for its floor employees, commonly known as blue s The retailer figured that a store can offer customers somet They also have online blood authorities on products who can answer questions and make recommendations. One of the pillars of Best Buy's approach to service is its Geek Squad division, w Geek Squad sends technicians to homes to set up troubleshoot and repair electronics, bought at Best Buy or elsewhere. The group has a members From home theaters to networking devices to appliances. Geek Squad has 23 years of experience making house calls and currently employs 20,000 people who make 33 million total interactions with cons 8 million home visits according to Jeffries. Geek Squad and other services make up a small but growing portion of Best Buy's revenues. The chain pulled in about 5% of its sales from services in 2018, up from about 4% the previous year. Best Buy is betting that as our homes fill up with complex interconnected devices, customers will increasingly want one company that can tackle everyt It is also pus In 2018, it acquired Great Call for $800 million. Great Call makes smartphones and wearables aimed at older adults and sells a service customers can use to quickly access caregivers and first responders. The work has paid off. Best Buy shares have risen from a 66 a share in 2013 to $75. 91 a share in 2019. Same store sales have grown every year since 2015. In the process, the company is becoming somet Now that Best Buy has turned itself around, the question is, where does it go from here? Jolie is stepping down, and Best Buy has appointed its c Berry oversees the company'service division and its health division, and was a key player in the Great Call acquisition. And she's a veteran. She's worked at the company since 1999. Financialists say Berry is certainly qualified to take the job, and she's well- But Jolie'shoes will not be easy to fill. Corey Berry is a very strong leader wit She has big shoes to fill. Hubert Jolie did a phenomenal job turning Best Buy around and making it relevant again. But I t For now, the company is focused on execution. It has put together some plans that give it a solid chance at a future. But what about competitors? Amazon, after all, surprised the world by buying whole foods and entering the grocery business. Best Buy is still the largest seller of electronics. It sold $32. 4 billion in electronics in 2017, a 5% increase over the previous year, according to industry publication twice. But Amazon was not far be 1 billion worth, a 4% increase over 2016. Could the online giant move onto Best Buy's turf once again, t For now, Best Buy has found a way to dig deep into what it knows, electronics. It has also leveraged its strengths in stores and service w Analysts are optimistic, but t If Best Buy expects to stick around, it needs to keep a pretty wide moat between it and rivals, especially Amazon.