Friday, July 21, 2017

Best Buy's Pivoting has Helped the Company Survive Amazon's Expansion

As more consumers look to online sources for many of their purchases, brick-and-mortar retailers have had to work on quickly adjusting their business model to stay in the game. Many such retail outlets have failed and filed for bankruptcy in recent years, including Radio Shack, once one of Best Buy's biggest competitors. Somehow, Best Buy was able to avoid a similar fate and has in fact made great strides since 2012, when most analysts thought they were doomed to fail. A recent L.A. Times article by James F. Peltz and Jack Flemming describes some of the methods Best Buy's CEO used to get the company back on track.

One of the biggest factors hurting the electronics chain's profits was a practice among shoppers called "showrooming." Consumers like to be able to see the products in person before purchasing them, which is one factor that makes people hesitant about making purchases on Amazon. However, they also want to make sure they're getting the best deal and spending the least amount of money. So, what they would do is go into stores like Best Buy, look at the variety of products, figure out which specific model they wanted to buy, then simply order it on Amazon for a cheaper price. To combat this practice, Best Buy invested more into expanding its market to the online sector instead of just focusing on its stores. Additionally, they have cut their profits on individual items in order to match Amazon's prices. In the short run, they may be losing money on an item-by-item basis, but overall, getting back some of their market share on electronics has been beneficial.

Even though Best Buy has been developing the online sales portion of their business model much more in recent years, the CEO of the company still considers the physical stores to be a huge asset. Although "same-store sales," which is a measure of the number of sales within a lasting store as opposed to new locations, was on a decline for 4 years, revenue at the older stores has been steadily increasing over the past 3 years. Online sales rose 21% this year and now account for 12% of Best Buy's overall sales. According to analysts, Best Buy's overall sales have remained flat because the electronics industry has been growing very slowly. The economy may be improving, but people are not buying as many "big-ticket" items anymore. Slower innovation and the vast range of retailers has led to a decrease in prices and less interest among consumers who might otherwise be interested in personal computers or televisions.

By offering the same prices as Amazon and speeding up their shipping times, Best Buy has been able to reel in some customers who want to get their product immediately, rather than waiting a while for it to be delivered. They also integrated a way for online shoppers to pick up the ordered product at their local store, which cuts down on shipping costs for both parties. Finally, Best Buy has invested heavily in education for their employees. By making sure that their employees are tech-savvy enough to explain products to shoppers, they are more likely to make a sale. Additionally, customers are more likely to shop at the store where the product is explained to them than on Amazon, where all they have is a description and some pictures. Improving customer service and lowering prices have helped, but it's still quite a while until we can determine whether Best Buy and other similar retailers will survive Amazon's spread throughout the industry.

Find out more about us at Any Questions? Contact our Escrow Expert! Sepulveda Escrow Corporation (818) 838-1831. Follow our company on FacebookTwitterLinkedIn, and Google+.

No comments:

Post a Comment