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Best Buy, other big retailers fighting back against ‘showrooming’

Best Buy, other big retailers fighting back against ‘showrooming’

10 Jul 2012

Big box retailers such as Best Buy have suffered from “showrooming,” where customers come into a store to find products they want to buy, but then walk out and purchase them for discounted prices at an online retailer, such as Amazon.com.

Now, as part of a new turnaround strategy, Best Buy, the nation’s largest electronics retailer by revenue, is fighting back, and to do so it’s reportedly taking a page out of Apple’s retailing play book.

At a test store near its headquarters in Richfield, Minn., the electronics retailer is offering a Solution Central help desk staffed by its Geek Squad division employees, which is similar to the Genius Bar found at Apple’s retail stores, The Wall Street Journal reported Thursday.

Best Buy is adopting other Apple-like retailing strategies, such as letting customers pay for products in several locations in the store rather than forcing them to line up at checkouts, the Journal said, and the recently-opened store is less concerned with displaying every Best Buy product and more with “connecting customers with employees who can answer questions or help program equipment.”

Best Buy will close 50 of its 1,100 U.S. big-box stores and convert 60 of the rest to the new format, the report said. These stores are about 20 percent smaller than the 58,000 square feet common at traditional Best Buy stores. In the new-format stores, Best Buy devotes less space to big TV sets, which are seeing waning sales, and more space to tablets, e-readers and cell phones, for which Best Buy has seen its market share grow, the paper said.

Best Buy’s new store format is just a first step in dealing with the retailer’s long-standing problems, interim Chief Executive Mike Mikan told the paper. But a strategy change at Best Buy is sorely-needed, retail experts say, as the electronics retailer has struggled in recent years in the face of fierce competition from online retailers such as Amazon.com.

Rob Enderle, an analyst with Enderle Group, said the Best Buy store redesign is a good first step, but the retailer also needs to think about improving the locations of its stores and the products that draw people into those stores.

Opening up the stores will make them friendlier, but the problem is people are going into Best Buy stores right now and they’re choosing to buy the products online instead, he said.

Best Buy should move away from strip-mall locations where many of Best Buy’s stores are currently located. These locations are seeing declining foot traffic, he said.

Also, Best Buy needs to work on improving the products it offers visitors to its stores — they should be unique and appealing, he said.

“This is a step in the right direction, and sometimes it’s all about direction and future [for retailers], but you need all three steps,” he said.

While Best Buy’s revenue has remained flat over the past three years, its profit fell sharply in the past year, ended March 3, 2012, with many asking if the electronics retailer can take the steps needed to prevent it going the same way as the likes of now-bankrupt electronics retailers such as Circuit City.

Adding to Best Buy’s troubles is news that founder and former board chairman Richard Schulze is exploring a takeover of the company. Schulze resigned as chairman earlier this month amid a scandal involving former CEO Brian Dunn. The board criticized Schulze for not reporting Dunn’s inappropriate conduct with a subordinate.

Especially challenging to Best Buy is overhauling its brick-and-mortar structure. Similar to other big-box retailers, Best Buy suffers from a disadvantage over its rivals because of the cost of maintaining stores. It spends $6 billion on brick-and-mortar locations on a $50 billion sales base, putting the company at a 10 percent price disadvantage to all online competition. The challenge for Best Buy is to reduce that disadvantage.

Other big retailers are fighting back against showrooming, the New York Times reported Thursday, which has cost traditional retailers millions in sales.

Wal-Mart, Macy’s, Sears, the Container Store and Best Buy are turning their stores into extensions of their own online operations, the paper reports. These retailers are stepping up efforts to add online return centers, pickup locations, free shipping outlets, payment booths and even drive-through customer service centers for online sales to their brick-and-mortar buildings, the Times report said.

The news comes as retailers report tepid sales numbers, particularly at big-box retailers. A report Thursday showed shoppers reduced spending in June in the face of a deteriorating economy. Results from the likes of Costco, Target and Macy’s missed estimates.

Since hitting a recent high in late 2010, shares of Best Buy have lost 50 percent of their value.

Best Buy was not immediately available to comment.

By Roland Jones