Wednesday, May 16, 2012

As Brain Dunn resigned, who will turn Best Buy Around?

Just a month ago, Best Buy CEO Brain Dunn abruptly resigned. The company announced it was due to personal misconduct. Now the company is totally in a mess and without strong leadership. The big question to ask is where is Best Buy headed?

Best Buy cancelled orders right before Christmas
Let’s start by talking about the order cancellation last Christmas. Best Buy canceled some of the orders placed by consumers in November and December, just days before Christmas. For most affected customers, they ordered a Black Friday deal on The deal was confirmed by Best Buy but the products never got delivered to them. For them, the Christmas was simply ruined by their trusted retailer. Below was Best Buy’s official statement on this matter: "Due to overwhelming demand of hot product offerings on during the November and December time period, we have encountered a situation that has affected redemption of some of our customers' online orders. We are very sorry for the inconvenience this has caused and we have notified the affected customers." This was such a weak statement that it was soon inundated by the complaints from angry customers. These customers were rushing to the Best Buy’s online forum and criticizing the big blue in very harsh words. Thieves, boycott and scam were words easy to be found. It went on to go through a fairly disappointing holiday sales in December and January. Comparable sales were down 1.2% from the year-earlier period, including a slight slide in the U.S. and a 4.3% drop internationally.

Best Buy’s bad performance in recent years
As the online retailers continue to play more and more important role in people’s shopping style, the big box’ competitive advantages are gradually turning into its disadvantages. The fixed cost of the blue boxes is just too much for it to handle. Best Buy announced the plan to close out 50 physical stores in North America. Best Buy is losing market share to the competition from all the corners. In 2011, the company’s stock has lost 40% of its value. Forward P/E is a mere 6.23 (industry average is 10.20). Its average analyst rating, according to The, is a B-. What’s really disappointing is that Best Buy’s branded stores simply could not make it in China, the fastest-growing marketplace in the world. In early 2011, all nine branded stores in china were closed. 

What's wrong with Best Buy
I think the easiest way to identify the problem is go into a Best Buy store and talk with its customers. One simple problem is that the chain could not provide “best buy” to its customers. Most people are seeing the showroom as a testing ground for digital product. There are evidences that people still value the physical store experience because they can see, touch and experience the product. However after this is done, chances are that they will go to the online retailers and shop for a lower price. Why would they pay more for the same product when they can get a cheaper one, especially in this bad economy? Obviously Best Buy is struggling to keep pace with all these online retailers.

Another important reason for its decline is that the quality of customer service it used to price itself on is deteriorating significantly. As we can see from the Christmas order cancellation accident, Best Buy let a lot of its customers down. Actually here is one example about how they handled this accident. Here is the quote from one of the affected consumers: “When they cancelled about a week ago on an order I placed Nov. 30, they tried to get me to take the older TV or offered to sell me a comparable TV to the one I ordered, but for at least $50 more -- on top of the fact that it wouldn't arrived until well after Christmas. Even the staff members from Best Buy that I spoke to when I was looking for a comparable replacement expressed their frustration that management was not allowing them to allow equal replacements for equal prices. I suspect that they were trying to get rid of the older product and thought we'd take it off their hands for the same price. I've never seen a company make a mistake and offer absolutely nothing as a concession to customers to help make up for it.” This says pretty much about Best Buy’s poor operation and customer service. If we went to the social media site, similar comments were all over the places.

I would say the biggest problem for Best Buy is its inability to keep up with the rapidly changing world. They are trying to accelerate the pace of transforming themselves from a traditional retailer to digital retailer. But the process is moving too slow. Nowadays mobile devices, tablet devices and app stores have not only changed which products consumers buy, but also how the consumers shop for them, upgrade them and replace them. If Best Buy still could not adapt itself to this new trend, it would be heading for exit in a few years.

The new CEO will be in the hot seat
The former CEO stepped down, and the new CEO has not yet come to the office. Whoever this person is, it’s really not an easy task to turn things around. As I’ve talked previously, the new CEO needs to lead the company to accelerate the change of strategy, continue to enhance the customer services and focus more on online sales. The share holders, stakeholders and employees will all turn to the new CEO for the future. Let’s wait and see who this person will be and how he will take actions to turn Best Buy around.

Yuhui Zhang is a graduate student in the Northwestern Medill IMC program specializing in digital marketing and marketing analytics. Yuhui will be graduating in December 2012. He can be reached on Twitter @Yuhui_Zhang.

1 comment:

  1. Best Buy have a mature operating system,and there is a strong self-examination and correction consciousness.Expect it to go further .