Best Buy is doomed

Best Buy is in trouble you know. It’s in the news all the time. I wrote a big column about it myself last year. Same store sales have suffered, corporate employees are being laid off, the big U.S. electronics retailer is pulling out of Europe. Best Buy management is in turmoil. The founder leaves in a huff, then tries and fails to take the company private, and is now making nice-nice with the same management he previously reviled. There’s a new head of stores (I wish him well), who thinks the answer is price matching, better sales training and paying workers to sell more stuff, which sounds like commissions to me (Best Buy was always anti-commission).

All this drama is generally lain at the feet of Amazon.com on the Internet and Walmart down the street, both of which have reportedly been cleaning Best Buy’s clock. Only they haven’t. Best Buy has been killing itself with bad Information Technology. It’s been a long, long time since I introduced a new Cringely Law, but here comes one (I’m not sure what number this is), courtesy of Best Buy: compartmentalized IT can kill companies that are understaffed and overstressed.

IT Spread Too Thin

Compartmentalized IT is where you have firm A running your Intel servers, firm B running your Unix servers, firm C running your mainframes, firm D managing your users and desktops, firm E running your network, firm F managing your firewalls and security, etc. Companies believe they can get better service and lower prices doing this. The problem with this model is it introduces huge risks.

The vendors don’t talk or cooperate with each other. When there is a problem, their first inclination is to blame each other.  When a problem is isolated to a single system or platform, the vendor can usually fix it. But when the cause of a problem is not obvious or it spans multiple platforms, then you are in trouble. The teamwork you need to diagnose and fix the problem is weak with that crowd of vendors often refusing to work together at all

That’s how IT works today at Best Buy. Best Buy needs better inventory management, better customer sales experience (both in stores and on the Internet), a much better web site, better product information and support, better product management, better purchasing, etc. In a modern global retailer most of these functions are IT’s responsibility. If you have a highly fragmented IT organization that is not cooperating internally and not contributing to the development of your business, then management will never know what IT improvements and investments they need.

Corporate Banality

It’s noteworthy that in all the press releases from Best Buy about this turnaround program or that, IT is never mentioned. That’s because they don’t even know it’s a problem.

I have visited Best Buy intergalactic HQ in Minnesota and was totally unimpressed. The IT people I met were incurious. That’s a bad sign. They were complacent. That’s a worse sign. Their website wasn’t very good but you know they didn’t care because making the online experience better might keep customers shopping at home and not coming to the stores. Honest to God, they think that way.

I am not making this up.

Companies like Best Buy purchase products in huge volumes then resell them. That is most of what they do. There’s no genius in purchasing at Best Buy. They have no reverse auctions I know of to get wholesale prices down to rock bottom. Even worse is their poor inventory management -- an area of expertise where Walmart is king and Best Buy isn’t.

Visit a Best Buy and you’ll see a lot of product that doesn’t move and collects dust. You don’t want to be in the technology sales business and have inventory that doesn’t move.  Those TVs that sold for $1,000 at Christmas are now priced at $800. The slower Best Buy moves its inventory, the more of it they will have to write off or sell at a loss.

It is clear what Best Buy needs to do and it starts with IT providing the systems needed to better run the business. With over 1,000 contract and outsourced IT workers and only a handful of direct Best Buy IT employees, that’s not going to happen easily. Most of the stuff needed already exists, but instead of just laying-off corporate IT employees, Best Buy should be hiring better ones -- lots of better ones.

If it takes Best Buy 2-3 years to fix inventory management, that’s a lot of product that may sell at a loss. It’s also a lot of stores that will be closed.

Easy Fixes (Ignored)

There are ways Best Buy could use technology to run a smarter business. Why does Best Buy have such large CD & DVD departments?  I am amazed by stagnant inventory and high prices.  Best Buy would be much smarter to stock only the new and fast-moving CDs and DVDs.  Put in a system in each store where you can (legally) burn on demand any CD or DVD in existence.  Put in some really nice kiosks that can quickly and easily find any song, any group, any scene, any movie, any TV show.  Just swipe your credit card and you can walk out the store with anything you want.

But Best Buy, which still has the clout to do something like that fairly easily, probably couldn’t figure out how. It would require too many different vendors.

Instead the retailer relies on a new price matching policy, but those don’t work well unless the store does the price matching instead of waiting for customers to request a lower price. But you know Best Buy isn’t up for a data-intensive task like that. Who would manage it? So it won’t happen.

I’ve asked Best Buy to match competitor prices. The onus is on the customer, and the company looks for every chance it can to deny the match, which means losing the sale.

So it’s not that Amazon and Walmart are stealing the business from Best Buy. As far as I can see they are earning the business. And unless there’s a complete corporate change of thinking soon, Best Buy is doomed.

Reprinted with permission

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