What Happened to Best Buy? A Look at the Retailer's Response to the COVID-19 Pandemic
What Happened to Best Buy?
By: Michael F.
??Earlier this week, my friend Frances texted me and asked, "Have you been to a Best Buy store lately?"
??I let Frances know that yes, I have been to a Best Buy store lately. As a matter of fact, I was just in a store nearby looking at microwaves. We proceeded to have a conversation about how the company has implemented many peculiar changes since pivoting its traditional operations to provide service both during and after the onset of the COVID-19 pandemic. It seems there have been fewer staff members around to assist, a vast difference in inventory levels with some products practically overflowing from shelves and other products with little to no inventory available for same-day pickup spanning all the way from appliances to video game consoles, and after trying to call another store to check their inventory for a Sony PlayStation 5, realized that it’s extremely difficult to call stores directly anymore as most calls are automatically re-routed to a national 1-800 number instead of the individual store itself. The approach Best Buy is currently utilizing for its phone system is in stark contrast to the white glove service approach that the organization has come to be known for because it creates a lack of direct communication with store-specific team members which ultimately results in a drawn-out and typically terrible customer experience.
??However, it isn’t only the phone systems that have changed at Best Buy. It's the people (or lack thereof). In the land of the free and home of the brave, it is my opinion that Best Buy is the perfect example of a company that has lost sight of the values of not only its customers but, everyday citizens in its primary country of operation, the United States of America. I think that this is a consequence of its massive organizational bloat which has taken the company so far off track from its original business plan, that it has forgotten three important and fundamental concepts. These concepts are known in short as the 3 W’s which are who, as in, who Best Buy employees are such as their lifestyles and economic needs as individuals, as well as who Best Buy clients are as individuals such as their product availability expectations. There is also what, as in, what Best Buy is, has been, and is looking to be. Lastly, there is why, as in, why founders Richard and James started the company as well as why Best Buy is still a cultural icon to this day. Before digging into the 3 W’s or history, one must understand where Best Buy is at in a financial sense as of late.
??"Shares of the company are down 17% year-to-date, and that's ahead of their earnings report. That's coming on August 30…Now, we also heard some of that similar commentary at Target. So you're putting the pieces together here. And I went back to just engage with Best Buy's warning, profit and sales warning that they dropped on the markets ahead in late July, calling for a 13% same-store sales decline for the second quarter, also warned for profits on the back half of the year. So like a Target, like a Walmart, they got the bad news out there… Best Buy ended the second quarter with inventory levels just simply too high. And I think investors need to be prepared for ugly. And then secondarily, does that outlook get lowered again?” (Sozzi, 2022).
??In addition to the previously aforementioned financial situations, the company has recently also been dealing with a labor crisis as shown in the following discussion between Best Buy’s Chief Executive Officer, Corie Barry, and Federal Reserve Bank of Minneapolis President, Neel Kashkari.?
“Best Buy is getting fewer job applications than in the past, especially at the store level, Barry said. But the Richfield-based consumer electronics company mitigated that by raising its corporate minimum wage to $15 early in the pandemic and streamlining the job interview process with video interviews, she said.” (Keith, 2022).
??The labor crisis is amplified for Best Buy largely due to the notion that Best Buy has not increased the base wage of its entry-level workers beyond $15 an hour unlike its partners at Apple or its competitors Costco and Target, with each organization having increased their base wage for employees to more than 10% of Best Buy’s entry-level base wage as shown in the following excerpts.?
“Target says it will raise its minimum wage as high as $24 per hour this year, depending on the local market. Companies have been raising pay and benefits in an effort to keep and attract workers.” (Torchinsky, 2022).
“…Costco Wholesale Corp. plans to raise its starting hourly wage for store workers to $17.50 in March.” (Nassauer, 2021).
“…Apple will also raise the starting wage for its retail employees in the U.S. to $22 an hour, up from $20.” (Leswing, 2022).?
??Lately, it appears as though that Best Buy itself has largely forgotten who its customer and employee base is,?what the Best Buy brand represents, and why Best Buy became successful in the first place. With a varying degree of issues to fix from employee dissatisfaction to supply chain shortages, I think Best Buy may soon suffer a similar fate as its former competitors such as Circuit City, H. H. Gregg, and Radio Shack with the irony being the past failure of those companies at one point helped to boost Best Buy’s profits as a result of an increase in market share due to the demise of companies like Circuit City, H. H. Gregg, and Radio Shack. However, unlike its aformentioned competitors, I do not believe that it is too late for Best Buy to save itself from disaster. Before discussing how it can be saved, understanding the organization’s background and history is helpful.
??“*Best Buy was originally founded as Sound of Music, Inc. by Richard Schulze and James Wheeler in 1966. It operated as a single home and car audio specialty store in St. Paul, Minnesota. In 1971, Richard bought out his partner and began to expand the chain. By the early 1980s, Schulze broadened the product line to include appliances and VCRs to target older and more affluent customers. Schulze would continue to expand the product line to suit the needs of his customers.” (Kwok, Dornbach-Bendera, Lange, 2009).
“Best Buy founder Richard Schulze called his company Sound of Music after a tornado whipped through Roseville on June 14, 1981, destroying the store and littering the area with merchandise. Employees recovered the scattered inventory and stacked it on tables in the store’s parking lot. Sound of Music slashed prices and advertised a “Tornado Sale.” The sale also was promoted as a “Best Buy,” and people stood in long lines to buy the discounted goods.” (Stych, 2011).
??"After almost 20 years of operations, Sound of Music, Inc. officially changed its name to Best Buy, Inc. and launched its first superstore in 1983. Best Buy grew rapidly between 1984 and 1987; it expanded from eight stores to 24 and its sales jumped from $29 million to $240 million. In 1985, the company successfully raised $8 million in an IPO on NASDAQ and in 1987 debuted on the NYSE.
??To set Best Buy apart from its competitors, Schulze introduced the warehouse-like store format in 1989 and took sales staff off commission. The number of employees per store was reduced by about a third, resulting in significant cost savings. This concept was crucial to Best Buy’s ascent to become the second largest consumer electronics retailer in the U.S. by 1993. " (Kwok, Dornbach-Bendera, Lange, 2009).
" In 2000,?Fortune Magazine named Best Buy one of the top 10 performing stocks since 1990 and Best Buy entered the online retailing business by launching www.bestbuy.com. Then, in 2001, the company acquired Magnolia Hi-Fi, Inc. for $87 million while also entering the international marketplace by acquiring Canada-based Future Shop, Inc. for $377 million. In 2003, the company launched a dual-branding strategy in Canada by opening Best Buy stores, additionally, Best Buy also acquired Geek Squad, Inc. for $3 million this same year. In 2004, Forbes Magazine named Best Buy “Company of the Year” and Best Buy began testing the customer-centricity operating model in over 50 stores, with this model being adopted by all stores within the next few years. In 2005, Best Buy acquired Audiovisions, Incorporated for $7 million as well as opened its first Magnolia Home Theatre store-in-store concept with the company later adopting this strategy for Geek Squad. In 2006, Best Buy acquired Pacific Sales, Inc. for $410 million.” (Kwok, Dornbach-Bendera, Lange, 2009).
??Recently, it was not a tornado that required a large-scale change in how the company operates, but a pandemic. Best Buy was one of many organizations that needed to adapt and adopt new strategies to approach the “new normal” of an environment in which retailers had to operate during a time of mass travel restrictions, mask mandates, and having to implement social distancing policies. Best Buy leveraged its curbside abilities heavily during the COVID-19 pandemic to help stop the spread of the virus while still encouraging shoppers to continue purchasing with the organization.?However, an unfortunate byproduct of this transition is a lack of Best Buy’s signature “legendary service”. What has come to replace the “legendary service” the organization was once known for is far from an ideal situation. It’s a retailer that appears to be severely understaffing its stores while focusing on what many would consider oddities (at least for a consumer electronics company like Best Buy) such as expansionism into off-brand product categories like outdoor patio furniture through its Yardbird brand (an acquisition that Best Buy spent $85,000,000 on) and exercise equipment. (Kaplan, 2021). Who is currently in charge at Best Buy? That would be Corie Barry, the former Chief Financial Officer at Best Buy and currently the top executive leader at the company having replaced Hubert Joly as Chief Executive Officer in June of 2019.?
??Since Corie has taken the helm in 2019, Best Buy appears to focus more on the “what” aspect in regards to what the company does rather than focusing on the “who” aspect, with the who being both those that are involved in performing the services or receiving the services. Best Buy modified its compensation structure and set a new minimum wage of $15 an hour on August 2nd, 2020. The most recent compensation restructure is a great first step in helping Best Buy maintain the best talent and focusing on the “who” aspect. However, as previously mentioned, the company has not increased the base wage of its entry-level workers beyond $15 an hour unlike its partners at Apple or its competitors Costco and Target, with each of the previously mentioned organizations having increased their base wage for employees to a minimum of 10% or more than that of Best Buy's $15 an hour minimum wage. Therefore, increasing its base wage for employees by a minimum of 10% or more, ideally, to a rate above or between one of the aforementioned competitors is one way Best Buy can improve its recruitment abilities. Rather than spending large amounts of capital on acquisitions such as the $85 million the company spent on Yardbird, an outdoor furniture company, a more strategically sound decision for the organization would have been to spend that capital on wages instead of acquisitions, to increase the necessary recruitment and talent acquisition capabilities needed to run the business which will additionally help refocus the company on the “what” aspect. (Kaplan, 2021). What does Best Buy want to be? The best!
??Another positive change implemented under the helm of Corie’s leadership is that the company has expanded its flexible work options, improved its backup child care to provide $100 monthly reimbursements for tutors for children between the ages of 5 and 18, while also expanding its paid leave program, giving workers up to six weeks of paid leave, its caregiver pay benefit, which provides employees with four weeks of full pay to care for family members, was expanded to include siblings, in-laws, grandchildren, grandparents and children 18 and older. The benefit had previously only included a spouse or domestic partner, parent and children under the age of 18. (El-Bawab, 2021). Again, this shows that Corie knows the importance of focusing not only on the “who” of today but also has the future vision to care for “what” the company needs tomorrow as well through expanding an already equally unique as it is a clever benefit which is not typically offered by other retailers.?
??Currently, Best Buy is one of the largest consumer electronics retailers in the United States of America. (Bailey, 2015). The company needs to take action in order to remain successful and keep in mind the “why” aspect of how it got to be where it is today, which is through competitive sale prices, dedicated employees, and an electrifying brand personality. If Best Buy can reevaluate its capital allocation towards compensation restructuring instead of acquisitions, this will allow the retailer to add more staff, retain existing staff, and ultimately, put the necessary individuals in power to further the success of Best Buy.
References
Bailey, S. (2015, January 19).?
??Best Buy: The largest consumer electronics retailer.?
El-Bawab, N. (2021, July 9).
??Employers offer stipends for babysitting and tutoring to sweeten child-care benefits and win over workers.
Friedman, G. (2020, June 23).?
??Best Buy to join retailers paying a $15 minimum wage.
??https://www.nytimes.com/2020/07/22/business/best-buy-to-join-retailers-paying-a-15-minimum-wage.html
Kaplan, A. (2021, November 23).
??Best Buy Acquires Yardbird Outdoor Furniture Brand. Twin Cities Business.
Keith, T. (2022, January 14).?
??Best Buy CEO sees high worker turnover in US economy lasting 12-24 months.?
Kwok, I., Dornbach-Bender, R., & Lange, R. (2009, April 20).
???Strategic Report for BEST BUY CO., INC.?
??*Date corrected for the year that Best Buy was founded as in the original strategic report it is listed as “1969” while most other sources list it as “1966”, such sources include the following: https://corporate.bestbuy.com/wp-content/uploads/downloads/BBY_TimeLine.pdf, and https://www.forbes.com/sites/abrambrown/2012/08/06/best-buy-founder-reportedly-makes-official-offer-to-buy-company/?sh=799535f04307
I also changed the phrasing of “another partner” as was written in the original strategic report to “James Wheeler” to be more precise.?
Leswing, K. (2022, May 25).?
??Apple says it will raise pay for corporate and retail employees in tight labor market.?
Nassauer, S. (2022, March 1).?
??Retailers Wage Increases to Attract Workers Arent Yet Denting Profits.?
Sozzi, Brian. (2022, August 17).?
??Yahoo Finance: Sozzi’s Take [Video].?
Stych, E. (2011, June 14).?
??Anniversary of "Tornado Sale" that changed Best Buy forever.
Torchinsky, R. (2022, March 1).?
??Target is raising its minimum wage to as much as $24 an hour.
Principal Consultant, ITIL, TOGAF, COBIT, AGILE, ITSM/ITAM/ITOM Architect, Change Management, PMP, CSM
1 年NOTHING has improved with BestBuy Customer service! As a matter of fact it has gotten worse and time marches on!