Four Key Steps Best Buy Has Taken This Far In 2015

Best Buy had earlier initiated a ship-from-store concept, which enables all its distribution centers, and not just the ones previously allocated to e-commerce, to handle online orders. The company claimed that 2% to 4% of its online traffic does not result in a purchase because it does not have the inventory in its distribution centers.  But around 80% of the time, the stock is available in one or more of its retail centers. Later, it rolled out service to over 1,400 of its stores.

To further reduce the barriers to making a purchase, Best Buy recently tied up with Curbside, a mobile shopping app which lets users shop from their phones and then pick up their purchases at a local retailer without getting out of their cars. Initially, this service will be available at several Best Buy locations in San Jose, San Francisco and elsewhere in the Bay Area. Curbside already piloted this service with other retailers (including  Target) and early data indicates that the service is resonating with consumers. According to TechCrunch ^[1], over 55% of those who have shopped on Curbside have made a repeat purchase, and the company is now handling hundreds of orders daily. This step is likely to take Best Buy a step ahead, as many companies, including Amazon, have been focused on speeding up local deliveries.

Inked A New Partnership With Time Warner Cable

The brick-and-mortar stores business is a very capital intensive one. While online retailers benefit from lower costs due to the absence of physical retail presence, retailers such as Best Buy have the advantage of providing customers a great shopping experience using the same real estate, through its “store-within-a-store” concept. Best Buy rents out spaces within its stores to popular brands, similar to brands occupying separate stores in malls. They have large product displays, dedicated checkout areas and trained employees of respective companies to guide customers. This has played a key role in reshaping Best Buy’s image in the minds of customers.

Last week, Best Buy added Time Warner Cable to its existing list of partners such as Samsung and Microsoft. As the housing market recovers, Best Buy’s push into this category comes at a good time and is a good opportunity to target new home buyers or consumers who want to remodel their homes. Not only does the rent paid by the partner act as an additional source of revenue for the company, but it also offers the possibility of driving traffic through the rest of the store. Product categories such as consumer electronics (which accounts for ~65% of Best Buy’s domestic revenue)  ((Best Buy’s Q3 2015 Results – Earnings Call Transcript, Seeking Alpha, November 20, 2014))  and large appliances are likely to benefit from this move.

Opened Wedding Registry to Generate New Online Sales

Another area that Best Buy has been focusing on to enhance customer experience is through its website. It  continued to leverage ship-from-store, digital marketing and enhanced web-site functionality to achieve a 22% increase in domestic comparable online sales. As a part of its efforts to expand its online  presence, Best Buy recently added a wedding gift registry to its website to capitalize on the sizable newlywed market. It offers access to nearly Best Buy’s entire inventory, including brands such as Apple, GoPro, Beats, Sony and Samsung.

More than 1.5 million couples register for wedding gifts each year, according to The Knot’s 2014 bridal registry study ^[2]. The study also says that most couples choose from just three retailers, one of them being Target, which offers a selection of consumer electronics. Another study estimates the total amount spent buying presents at wedding gift registries at $19 billion ^[3]. “Electronics and small appliances are as important to today’s newlyweds as silverware and towels,” said Wendy Fritz, Best Buy’s head of gifting strategy. Considering that Best Buy is one of the very few retailers that offer consumer electronics via gift registry, it has relatively less competition in this market.

Continues to Invest In Developing Technology

As Best Buy adds more and more features to its website (such as the wedding registry), it will need a robust technology infrastructure to be able to handle high online traffic. After the recent breakdown of its website on Black Friday, the company seems to have taken this on as a priority. For some perspective on the scale of online activity, Best Buy was the third most visited website in the U.S. ^[4]. It clocked $10.1 billion in domestic sales during the 9-week holiday period, with $1.5 billion of that occurring online ^[5].

To strengthen their IT backbone, Best Buy plans to open a new technology development center in Seattle which will focus on cloud engineering, mobile development and the omnichannel customer experience. Best Buy’s CTO Bala Subramanian said that most of Best Buy’s online operation was outsourced to technology consultants when he arrived at Best Buy two years ago. But, that e-commerce is a priority now and that the company has made significant strides in the past two years, investing heavily in developing its own cloud infrastructure and mobile applications.