Is Best Buy's big-box business model dead?

The rise of online shopping is taking a toll on the electronics chain -- and casting doubt on the future of sprawling, warehouse-like stores.

By TheWeek.com Mar 30, 2012 12:53PM
It may only be a matter of time before those familiar blue-and-yellow behemoths disappear from America's suburban shopping landscape. Best Buy (BBY) is closing 50 of its signature "big box" electronics stores amidst falling profits and the implacable rise of Amazon (AMZN) and other online retailers. Like other brick-and-mortar chains that have run aground in recent years --think Circuit City and Borders  -- Best Buy is struggling to adapt to the e-commerce economy, with more customers turning to the internet to buy their HD TVs and iPods.

Do Best Buy's problems herald the demise of the big-box model?

Best Buy is in big trouble: "The era of big-box retail dominance is coming to an end," says Bloomberg Businessweek. While the sluggish economy is partly to blame for Best Buy's falling profits, the electronics giant's model has deep structural flaws that don't bode well for the future. Best Buy has to pay for real estate and sales staff, while Amazon does not, allowing the online retailer to sell the same products at a steep discount. "After 50 years of putting mom and pops out of business, big-box retail is having a mid-life crisis."

It all depends on how Best Buy adjusts: Best Buy isn't just closing 50 stores, says Stacey Higginbotham at GigaOm. At many of its remaining locations, Best Buy is boosting worker training, increasing opportunities for customers to actually try out devices, and refocusing on smaller gadgets like mobile phones. That shift in strategy could save Best Buy. After all, Apple's (AAPL) stores are wildly popular, and show that "brick-and-mortar retail can succeed." If Best Buy can mimic Apple's model of having knowledgeable salespeople and streamlined interiors, its stores could once again become desirable destinations. 


But Best Buy can never be Apple: Best Buy is hoping that its "Knowledge Desk" and "Geek Squad" is the answer to Apple's "Genius Bar," says Beth Carter at Wired. But the difference is that Best Buy "is just a middleman, selling things other companies make," while "nobody else really services" Apple's products. Apple is a tough act to follow, and Best Buy is in danger of becoming a "showroom for shoppers" who will test products, scan the bar code into their phones, and then order the gadget at a discount from an online retailer. 


Sources: Bloomberg Businessweek, GigaOm, Wired

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387Comments
Apr 2, 2012 11:13AM
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 Brick and mortar stores still work if you pay attention to your customers.
Apr 2, 2012 7:57AM
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I was a loyal customer of Best Buy's for many years. I was in & out of there so often that employees knew my name. I purchased 2 "Bundles" from them, at separate times.  A computer bundle, (comp & printer) & a camera, (Cam & batteries,bag etc) & the extended warranty packages. I had an issue with the printer & wanted to return it & upgrade to a fax/printer, I took it in & was told it had not been scanned through the register & that I could not return it. I spoke to the manager & he basically told me I'd "stolen" the printer & voided my warranty on the printer! I later had an issue with the camera  & was once again told that it had not been scanned & warranty voided! I have not nor will not EVER purchase ANYTHING from the rip off artists called BEST BUY. Good riddance! Hope your "warranty" is VOIDED!
Mar 30, 2012 3:52PM
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I have been saying this for years... technology is replacing jobs. As technology improves, less people are required to do the same job. All those best buy jobs will disappear, being replaced by online sales which require significantly smaller staffs to manage.

Tax cuts won't change this, a new President won't change this, less regulations will not change this... it is inevitable. This happened to the newspaper industry, the music industry, and now the movie and electronic industries are seeing it.

Get used to high-unemployment while people are replaced with technology solutions.

Mar 31, 2012 12:23AM
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People never learn.  Be careful of what you wish for because you just may get it.  Can you imagine ONLY having the choice to buy tvs online.  No way to check out the picture, no way to check out the quality, the features, the looks.  And then, of course, you have the inevitable returns that will happen.  Remember folks, Amazons policy states "Return shipping may be deducted from the amount of your refund if the reason for your return is not the result of Amazon error." meaning if the tv is broken, YOU will likely pay that 60 or 70 bucks to ship the tv back to them.  Then, of course, you have the wait.  Oh, that dvd/bluray you bought isnt working?  Thats okay, ship it back, you'll get a replacement in 7-10 days.  And then we'll have the inevitable and I can GUARANTEE this will happen... "we have no "real" competitors any more so we're going to raise our prices to help our bottom line.   

 

As for restocking fees.  Not sure what Best Buy people shop at but there is NO restocking fee except a 25% restocking fee on Special Order items.  Restocking fees were done away with by Best Buy in 2010.  Thats clearly marked in their return policy.  You can google that question and get the answer from snopes dot com which has disproven the existance of current restocking fees.  If and thats a big IF you are charged restocking fees on a normal item, either you have returned too many items (ie tried using the store as a "lender") or it was erroneously charged and can be returned simply by talking to the manager. 

 

I have never had any problems at a Best Buy, having shopped there since they opened.  My first dvds were purchased there way back when dvds were first introduced on the market.  I have purchased tvs, stereos, games, computer parts, pretty much a boatload of electronics from them and have returned my fair share of broken, mspurchased or nonwanted items and have never had any problems returning anything to the stores with or without receipts.  And not once was I ever charged a restocking fee. 

 

Yes, they can take a lesson in the knowledge department when it comes to their items, but I make it a point to do a massive amount of research myself before going into a store to buy anything anyway.  The layout of the stores are in serious need of a revamp, but again, nothing that would make me stop buying there.  If Best Buy actually were to close, it wouldnt fall into the category of a "good" thing.  Sad to see so many people spew so much hatred towards companies, and many with the excuse "well I heard it from a friend who heard it from a friend".....

Apr 2, 2012 7:36PM
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if these stores would offer true customer service and work as hard at helping you with your product needs as they do trying to sell extended protection policies,  they would still be around.

 

 

Apr 2, 2012 9:18AM
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Best Buy isn't going out of business because of Amazon...they are going out of business because of Best Buy.  I won't shop there even if their prices are lower because the service is so poor.  Their sales force has no problem outright telling you outright lies in order to get you to buy.  Price-match guarantee????  Gotta talk to a manager and take an extra half an hour arguing just to get it.  Any promises better get em in writing or they won't honor them.  Online???  They sell stuff that they have no intention of delivering.   At Christmas they take orders on Black friday then sell their stock at a higher price over the course of the next month...when they can't deliver they send you an e-mail a couple of days before x-mas telling you that you will get your money back in 6 to 8 weeks so you can't even buy another gift to replace the one that you thought you already bought.  OH...and especially don't trust the Direct TV subcontractors...they are the worst of the bunch.
Mar 31, 2012 3:50AM
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If the consumer in this country continues down the path of the cheapest price at all costs, then we will continue to see The Wal-Mart scenario play itself out ad infinitum. We have seen the closing of our local businesses; auto parts where the employees and owners were "gear heads" and really knew what they were talking about, camera stores where you could go in and compare hands on the equipment you were interested in and then get personal instruction on how to use this new equipment. Yes, this has to be considered a value added service for which we paid a small differential of price (if we shopped around). It was a more pleasurable buying experience and one that enabled me to become somewhat knowledgeable if not professional in the afore mentioned areas. The decline in customer service we are now experiencing is progressive in response to the warped sense of the retail consumer today. Expecting the very cheapest pricing, the most knowledgeable sales people with local availability in a hands on purchasing experience. As you move your support away from the local or even big box retailers, they simply have to adjust their operational model to include reduced staff, less knowledgeable people and reduced inventories. If you see it at Best Buy, you will see it throughout the markets.

And as we continue to shutter these retailers, perhaps your local economy will find some miracle way to survive. Perhaps supporting (not just Best Buy) brick and mortar businesses will enable the improvement of their services.

Apr 2, 2012 5:56PM
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Best Buy not only needs product training, they need a lot of customer service training.  Every time I have gone to the local location, I get greeted at the door and 'that's all folks'. The rest is stagger through the place to find something and be ignored by the rest of the employees.  A lot of which are standing around talking to each other and look away from you if they see you look in their direction.  It is very sad.
Mar 30, 2012 5:49PM
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E-COMMERCE FLAW:

 

Amazon is not invincible. You still have to risk buying a product online without having ever seen it.

 

 I think everybody we can all agree that the one problem with buying online is that you never actually get to see the actual size, material, and overall esthedics of a product by looking at a computer screen. Best Buy needs to be able to take advantage of that without just becoming a "free showroom."

Apr 2, 2012 9:26AM
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You DO NOT want geek squad working on your conputer.
Apr 2, 2012 6:01PM
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Another reason Best Buy is in trouble is because of their lousy attitude toward customers and because of unethical business practices. I swore off buying anything at Best Buy years ago.
Mar 30, 2012 11:29PM
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These stores have rolled over the small stores and laughed about it. I have worked for a couple of the huge home improvment stores and they just don't care about what they are really doing. Now maybe it is time for the little guy to come back with great service. It really was up to the customers though. They quit buying from the small guy and we paid the price...
Apr 2, 2012 5:05PM
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First off, we are a competitor of Best Buy in our area, so consider that in my response.  We are the last remaining private appliance store in our market (Western North Carolina) and have seem chains stores come and go.  The good news is our city Asheville is very pro "Buy Local", and people are coming around to understanding that when you support a local business and not a big chain store, more profits stay local.  Also the net result of a chain store on employment typically results in a net loss of retail jobs along with lower wages for the chain store employee.    We also do our best to to start employees at or above the current standard living wage.

 

Also, there is a misconception that chain stores prices are always lower.  I can only speak for the appliance industry, but we monitor our prices with our competitors on-line weekly and we actually are very close and typically are lower.  

 

As chain stores close, I hope you will consider checking out your locally owned stores - the sales staff understand their respective industries, and like many other local appliance stores, we have a fully trained Parts and Service department, we answer the phone when you call, and I guess we're old school as we think it is good have a relationship with our clients.  Just saying :)

Apr 2, 2012 7:17AM
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I've been saying for years that this was going to happen, even before companies started to close their stores.  I am a business owner of a computer store.  We learned to live off of small margins because of big stores like Best Buy and Walmart.  Both of these companies are having problems now.  They tried, and succeeded, at putting most small stores out of business because of prices.  Customers have learned that price isn't always the answer.  Service is.  Knowledge is.  People still buy locally, but not because of price - knowledge and service sells more than anyone realize.  I can't wait for Best Buy to close.  Their site is becoming more like Amazon anyway.  Walmart is shrinking their electronics section.  They are also shrinking their new stores to Express stores, or whatever they call them.  I predict within the next ten years most of Walmart will become a grocery store with some other items, not anything like they are today.
Apr 2, 2012 10:49AM
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I use to work at best buy for over 5 1/2 years and I saw this coming last Aug of 2011 and I left for a better job, but it is not the store I remember being hired by. When I first started I loved my job and being part of it, the black Friday madness, everything. On my departure it just got to be about numbers, not the employees or the customers just numbers. I really think they forgot where they came from and who buys most of the products they sell, the working class American consumer.
Apr 2, 2012 9:28AM
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I can only hope that this will pave the way for the mom -n- pop stores to make a comeback..

Apr 2, 2012 11:12AM
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If Best Buy closes, there will not be anywhere to buy appliances here.  Sears, Home Depot, & Lowes are way too expensive.  Why does anyone want to buy an unseen refrigerator, stove, washer or dryer or dishwasher online?  And pay the exorbitant shipping cost?  The same for digital books - Many of us would rather have a real book in our hands.  Or a real CD, DVD,and video games as opposed to digital copies.  This world has gone haywire on so many levels!
Mar 31, 2012 12:30AM
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Some of you people just dont understand best buys system . They hire people as part time and pay them minium wage so they dont have to pay for benefits , This is why they are failing , You cannott expect someone with experience to work for a minium wage job on a part time schedule , They need to pay people and their benifits in order to get quality work from from experience , they also own and auto parts company and treat it the same way but i will not say in ADVANCE what the name of that company is , but as long as best buy keeps doing business this way they will fail their other company as well they are ruining their main business , HIRE MORE FULL TIME PEOPLE THAT KNOW WHAT THE HELL THEY ARE DOING AT FULL TIME JOBS WITH BENEFITS AND YOU WILL GET QUALITY WORK WITH QUALITY KNOWLEDGE THAT CUSTOMERS WILL APPRECIATE AND THEY WILL BUY MORE OF YOUR PRODUCTS !!!!

 

Apr 2, 2012 3:22PM
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Best Buy should be gone.  Their model is so bad and very unethical.  Last year, I saw a laptop ad was on sale for $399.  I checked their 'availability' and located a store to come in to buy it.  When I came in, there was tons on the shelf.  I picked one up and went to pay for it, they said the thing cost $469 instead of $399.  Their reason was because the Geek Squad had finetune the machine to make it run smoother.  I asked what exactly did they do?  Their response was that they removed the junks that pre-installed and put in an anti-virus free for 6 months.  I said, I could do that myself and can I get the one that you guys have not touched?  And plus, if your Geek Squad has touched it, to me that's considered OPEN BOX.  They said, we ran out of the ones that have not been 'fine tuned'.  I said, fine... .  I pulled out my iPHONE and ordered online right in front the the sales guy's face and select the pick up location at that very same store.  15 mins later, they sold me the laptop for $399...and guess what, they picked it from the shelf that they said their Geek Sqad did the finetune on.

 

Seiously, with this kind of model...they are going down the drain....and I am surprised they are still in business. 

 

Remember the Good Guys and Circuit City?  This is exactly what Best Busy is doing... they are just following those guys to the grave yard.

 

Mar 30, 2012 5:35PM
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Good riddance.... very poor customer service.
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