Best Buy caused a stir when it announced that it would close 50 of its stores and focus its efforts more on mobile technology. Then, the retailer dropped another bomb when its CEO Brian Dunn declared he was resigning. A seismic executive shift and a reconsideration for what it sells is worrying behavior to say the least, but will these events actually impact the bottom line for consumers? Absolutely, if you're someone who likes to try out electronics in-store before buying online. In fact, it's that exact practice of using retailers as mere "showrooms" that has Best Buy currently in a tizzy.
To be clear, Best Buy isn't going out of business, although there's been much speculation as to the eventuality of that event. Dunn's departure indicates that its far from business as usual, and Best Buy likely won't be taking mere baby steps toward reinventing itself in the burgeoning era of online retail anymore. When the company said that it would be closing 50 of its larger stores and resetting some in two markets (San Antonio and the Twin Cities) to test expanded mobile electronics departments, the move was presented to the financial community as a way to reduce costs. But there are some real implications for shoppers.
Mobile Technology Offers Greater Opportunity for Profits
Best Buy wants — no, needs — to increase its participation and sales in the more profitable mobile electronics categories. Notebooks, tablets, and smartphones are all selling in high numbers with some healthy profit margins, since they haven’t quite become commodities yet. Speaking of which, the word "commodity" gets thrown around quite a bit when it comes to electronics like TVs and desktop computers. But the later two are now everyday items for shoppers, who are more likely to buy these goods based on price rather than features. And for savvy shoppers, like dealnews readers, it’s pretty easy to find a good, well-reviewed piece of technology at a great price online, with free shipping and white glove service thrown in.
It's especially difficult to be a consumer electronics retailer these days. And if, like Best Buy, there are staff and physical stores to maintain, it's darn near impossible to turn a profit. TVs, cameras, Blu-ray players, and computers have slim to nonexistent profit margins. Pre-recorded movies and music are "loser" categories and getting worse by the minute. And while appliances are big ticket, they too don’t carry a big profit margin. (Nor has Best Buy managed to win over shoppers in that category anyway.)
Best Buy Wishes You'd Buy In-Store More
dealnews readers know how to score top electronics at great prices, and how to use physical stores to help in the process — and that's exactly what frightens these brick and mortar businesses. Retailers like Best Buy (and to a lesser extent stores like Target, Walmart, and Sears) are suffering from the "showroom effect:" when shoppers go into a store, test out a product, pry some information from a sales associate, and then find it for less online. Target went so far as to send a note to its suppliers last fall demanding help in mitigating this problem.
The showroom effect is particularly dire for electronics retailers, where a 5% to 10% price difference can be a significant amount. But for the consumer, it just doesn’t make much sense to pay for the in-store experience when there are not real measurable benefits. There is, however, one big downside: reduced competition in the retail channel can be bad for bargain hunters.
Back when there were several national electronics chains and more than a few mom and pop shops, consumers could pit one against the other and negotiate better prices, free installation or delivery, and extended warrantees. Then came big box discount stores and eventually online-only retailers that offered products for less than the electronics chains. Circuit City went away, Ultimate Electronics and CompUSA disappeared, and a good many smaller chains and specialty stores closed up shop. Best Buy remains the only one with some bargaining power; it can secure good prices from vendors and offer shoppers a way to test a product and take it home the same day. Thus, a Best Buy in trouble is bad for shoppers who value those options.
So How Will This Effect the Deals We See?
In the short run, look for overall increased promotions in the electronics category. Apple is testing small departments in some Target stores, and online retailers are eager to get rid of the competition; Amazon becomes more powerful with every season. And even discount stores like Walmart are doing a better job every day of stocking the same feature-rich products as their competitors.
Best Buy is trying to bulk up its online sales capabilities (it has fallen behind in creating a comprehensive Internet retail program), so there will be an increase in deals as the competition heats up online. But will Best Buy's efforts suffice to thwart in-store price comparing and thereby showrooming? We want to know if you, savvy dealnews readers, feel guilty about heading in-store to learn about an item before setting out to buy it online at a lower price.