Welcome to the Resilient Business Series. In this series, we examine businesses and organisations that have gone through events like recessions, pandemics and world wars, who not only survived, but thrived. We find out how they did it and the lessons you can apply to your business.
While not commonly known in Australia, Best Buy is the JB Hi-Fi of American consumer electronic stores. With 1 in 10 of all electronic devices being purchased at the store and a healthy outlook, Best Buy is the physical store king of consumer electronics.
It wasn’t always this way. By the end of 2012, the company had lost $US1.7 billion in a single quarter and had announced plans to close 50 of its stores. The CEO resigned after an improper relationship with an employee and staff turnover hovered around 50%.
To top it off, most customers were visiting the store to test drive products and then purchasing them online (usually at Amazon).
They needed a turnaround and they needed it fast.
Enter Hubert Joly, an ex-McKinsey employee with a background in the hotel and leisure industries.
Joly started the turn-around with a listening tour of Best Buy stores and their staff. He even went as far as working for a week on the sales floor.
He soon found that Best Buy’s logistic software and processes were hopelessly out of date. It’s hard to compete with a behemoth like Amazon when it took Best Buy a week to ship a package. He updated software across the business and allowed stores to act as mini-warehouses.
“You won’t get me to say a bad word about Amazon,” Joly said. “It’s not a zero-sum game.”
“There is a lot of room for both of us.”
If a central warehouse didn’t have the product in stock, it could be taken from a Best Buy retail store and shipped direct to the customer. Alongside better warehousing, he also introduced one-day delivery to 50 more locations.
Joly solved the test-driving problem by inviting big brands to essentially rent space in Best Buy stores. The store within a store became a win-win with retailers like Apple effectively opening a store in new location without all the overheads.
Customer’s now had direct access to brands and Best Buy received rent revenue and increased footfall. With a new policy of matching online prices, consumers would test-drive products in-store and then could buy on the spot knowing they had the best deal.
Joly realised the real money was in becoming a ‘service’ business, rather than a ‘product’ business – Joly figured it’s hard to compete on price and easier to compete on service.
He allowed staff to carry tablets where they could instantly look up prices online and price-match for the customer. He expanded the ‘Geek Squad’ and include home visits, even if they weren’t Best Buy customers. Joly encouraged the ‘Geek Squad’ to build relationships and stopped paying them based on sales and instead introduced an annual wage.
As part of the service approach, Best Buy bought multiple medical alert/monitoring companies and begun a shift into health services.
To help drive the turn-around, Joly focused heavily on staff development and reduced the turn-over rate to 30%. He reinstated employee discounts (which had been cut by a predecessor) and now enjoys a 92% employee approval rating on Glass Door.
Through Joly’s efforts, Best Buy’s share price has risen by 270% in the last six years and they have plans to double sales in the next 10 years, regardless of online competition.
Takeaways from Joly:
– Take the time to really listen. Joly went to the front lines and didn’t depend on 3rd party reports.
– Use a competitor’s greatest strength against them. Online is cheap, but service is poor. Joly matched cheap and won on service.
– Sometimes the boring stuff like logistics and software has the biggest impact.