Can Best Buy Still Be the Best Show in Town?

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Best Buy (NYSE: BBY) has gotten a lucky response from investors lately, with its stock trending higher over the last three months or so. But the ongoing, dynamic shifts between online retailers and physical stores can snap that fortunate streak at anytime. To avoid leaving its future to chance, Best Buy needs a winning strategy that encourages customers to buy at its physical stores. Competing online with Internet retailers such as (NASDAQ: AMZN) won't help attract customers to Best Buy's retail outlets.

Challenges from Online Retailers

The consumer electronics markets are expansive and versatile, and retail sites on the Internet and physical stores on the block may be able to coexist. The convenience of selling and buying products online has no doubt pressured and overwhelmed traditional retailers. Moreover, brick-and-mortar stores have no actual means to directly address the competitive disadvantage imposed by e-commerce. Fighting for longer opening hours or wider geographic coverage would only draw those brick-and-mortar stores into a losing battle.

Even with online stores of their own, physical retailers often lack online operating expertise, especially when compared to dedicated Web operators such as Amazon. What companies like Best Buy should do is to better leverage their physical presence -- for example, by providing easier in-store product testing to consumers before their purchases. This is inherently a physical-store operator’s capability, and a difficult feature for online retailers to match.

Strategies for Best Buy

Simply stated, as the largest consumer electronics retailer, Best Buy could put on a potentially grand show of product demonstrations across its stores, effectively staging an electronics exhibition every day. This would give customers a special experience not found from their online purchases. Old displays on shelves and counters often restrict product interaction for customers and could be replaced with open-space showrooms and product demonstration booths. Trained floor staff would host each of the product sections, and customers could test and play devices themselves.

With its physical locations, Best Buy could also offer walk-in customers lectures and seminars on the latest electronics gadgets, with sessions scheduled throughout the day and advertised beforehand. It could cooperate with device manufacturers to bring in experts for such events. Real-world retailers like Best Buy have to stand firm in making real and close connections with customers. This way, companies like Best Buy can distinguish themselves from retailers in the virtual and distant online world.

Potential Threats

These selling strategies are not readily available to online retailers such as Amazon, which also sells a wide array of consumer electronics. When it comes to staging a product show, Amazon at best could sport some visually effective product photos on its site. To touch a product and have a feel of it, its customers would have to come to a store and cruise along product aisles.

This has become a buying strategy for some online consumers; after "showrooming" a store to try out products firsthand, they would leave and buy the same goods more cheaply online. All of these are causing concerns for many store owners. Thus, in-store product demonstration and on-site consumer education might help turn those online consumers into store customers.

Such selling strategies may be best suited for a large specialty retailer like Best Buy. All-inclusive big-box stores such as Wal-Mart (NYSE: WAT) are bound to have resource allocation problems when trying to step up their electronics sales. Large-scale product demonstrations and consumer information sessions require unusual technical support, the ability to rearrange shelves and counters, and most importantly, a dedicated team that is immersed in consumer electronics. As a generalist merchandiser, Wal-Mart would find such tasks extremely burdensome.

Latest Actions

The latest team-up between Best Buy and Microsoft to showcase Windows devices separately within Best Buy stores looks like a small step in the right direction for the struggling in-store retailing business. The Microsoft alliance follows Samsung’s earlier move to open mini-stores inside Best Buy, as showrooms to demonstrate new features of its Galaxy phones. But in the age of ubiquitous online sales, Best Buy needs to further step up its game and transform its physical-store retailing for the better.  

Current and potential Best Buy investors must pay close attention to these kinds of business moves, since they feed right into the winning strategies discussed above. Traditional retailers like Best Buy could be like an old gold mine; with some innovative efforts by management, investors may be able to recover all the wealth there it still is. 

Jay Wei has no position in any stocks mentioned. The Motley Fool recommends The Motley Fool owns shares of Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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