Best Buy thrives on Internet of Things complexity

SUMMARY:

Apple Watches and the Internet of Things have combined to help drive up Best Buy’s chances of competing long term with the likes of Amazon.

Soaring
Soaring

For US electronics retailer Best Buy, there are two great drivers for success at present – the Apple Watch and the Internet of Things (IoT).

The combination of those helped fuel consumer demand and resulted in the firm posting expectation-busting numbers yesterday and sending the share price soaring by 14%.

Net income for the second quarter rose to $164 million from $146 million year-on-year, while revenues were essentially flat on $8.53 billion, ahead of Wall Street consensus predictions. Online sales were up 17% year-on-year.

The Internet of Things is fuelling growth by making life more complicated for consumers, argues CEO Hubert Joly:

Overall consumer demand for technology products and services including appliances and mobile phones is growing. This growth is driven by technology and product innovation and by micro factors such as population growth, the housing recovery and healthy living trends that are driving momentum in our appliance, home theater, connected homes and health and wearables business, which, we believe, will remain a positive catalyst in quarters to come.

The increasing complexity and interoperability of technology products and the advent of the Internet of Things are making Best Buy’s operating model increasingly relevant as customers want and need more help selecting, installing, connecting, integrating, using, maintaining and taking full advantage of their products.

With consumers looking for more assistance and support, Joly claims that Best Buy is well-placed to address this opportunity with an omni-channel approach:

[Our] first competitive advantage is our ability to serve our customers online, in-store, and in their home. What does this mean? We now offer a leading-edge digital shopping experience to our customers online and in our new mobile app. We also have stores within 15 minutes of 70% of the U.S population that not only provide advice, service and convenience to our in-store customers, but also operate as local distribution centers to provide online customers with greater inventory availability and faster delivery. And for Geek Squad, we’re able to provide an array of services to our customers remotely in our stores and in their home.

Joly suggests that another advantage is the demographic of Best Buy customers as early adopters of new tech, with Windows 10 currently identified as a particular case in point:

We believe we are optimally positioned to help customers transition to the new Windows 10 operating system that was introduced at the end of July. We have a very large selection of laptops with Windows 10 already installed and a compelling in-store experience with Windows store-within-a-store. Today, we have over 600 of these in the U.S. and expect to have over 800 by holiday season.

Apples and CX

But it’s Apple that’s delivered a jewel in the crown in the shape of the Watch, which went on sale online and in-store at 100 outlets at Best Buy in August. This is set to ramp -up significantly next month:

Demand for Apple Watch has been so strong in these stores and online, we are excited to share that beginning September 4 we will be carrying Apple Watch in more than 900 of our big-box stores. Apple Watch will be available in all 1,050 of our big-box stores and in approximately 30 of our Best Buy Mobile Stores by the end of September.

On show
On show

The firm has also drilled down on its online experience for customers, in order to:

leverage our ship-from-store, digital marketing and enhanced website functionality to drive a 17% increase in domestic comparable online sales.

This growth was driven, number one, by a significantly increased number of our online customers, who received and took advantage of our free two-day shipping promise, enabled by enhancements through our ship-from-store capability and supply-chain investments that are driving improved speed, convenience and reliability, [and]  number two, increased visibility of open-box and clearance inventory and number three, by the expansion of online-only flash sales.

We also launched several customer-facing site improvements, including expanded payment options for our customers through partnering with American Express to offer Pay With Points, the ability to search and shop by brand, and a significantly more relevant recommendation engine.

He adds that customer-facing communication has also been an area of focus:

We’ve had a very material transformation of our marketing efforts in the last three years, with the headline being, of course, more personalized. We went from analog and mass communication to much more targeted, relevant, personalized and digital communications.

Getting the online-offline balance right is also essential, says Joly:

We believe that online and mobile are a much bigger part of the business than just the online sales, because it’s really front door to the store. This is where we all notice. This is where the customers start the research.

Now the customers may start the journey online, they often go to the stores.

We’ve always believed that as a result of these trends in consumer behavior, the store experience need to be so much better, right? Because when the customer gets to the store, she has done a lot of research and she’s much more educated than maybe a few years ago. It’s maybe that in some cases we see fewer trips to the store, because so much time has been spent before the store. So the focus in the store is on the customer experience.

We’ve invested significantly in the physical experience in the stores, and candidly, it is so helpful. You cannot use your senses online to see the difference in picture quality of the TV or the sound quality of a headphone. You really have to go to the store.

My take

The Watch enthusiasm was interesting, but online growth of 17% is the figure that catches the eye. If the likes of Best Buy want to compete long term against Amazon, those are the kind of growth numbers that need to be on show.