No-one's Amazon-proof, but Best Buy is doing its best with a Smart Home focus

Stuart Lauchlan Profile picture for user slauchlan August 29, 2017
Smart Home focus and in-home advisors to help - a savvy deployment of resources to help Best Buy fend off the online challenge from Amazon.

The best sales growth in more than seven years, strong omni-channel growth and an increase in forecast revenues, but not enough to prevent the shadow of Amazon depressing Wall Street’s mood.

That’s a description that could apply to many retailers of course, but yesterday it was the turn of Best Buy, which reported same-store sales increases of 5.4% year-on-year. while online sales rose 31% to $1.1 billion. CEO Hubert Joly noted:

Online sales were more than $1 billion for the second consecutive time in a non-holiday quarter and were 13.2% of domestic revenue, up from 10.6% last year. We are on pace to generate well over $5 billion in domestic online sales this fiscal year.

He added:

Online continues to be an area of growth. It’s been a key area of focus for us since we first launched Renew Blue. Much of the customer experience has been starting online. What we’re seeing today is a continued effect of the cumulative investments we’ve made in simplifying and streamlining the customer experience. There is a lot of details that you do to tweak and eliminate the frictions in logging and checkout every step in the journey.

The drive times also have been pretty strong for us in the months of July. We have Black Friday in July event that was quite strong. The Prime Day was also quite strong for us, as well as our teams mobilized around these drive times.We’re working to continue to drive these results, knowing that our online strategy is not just about the online channel. There are the synergies between the two channels [online and in-store] where we’re uniquely positioned to help the customers in a unique way.

All of this caused the firm to bump up its full-year revenue growth projections to 4%, up from 2.5%, with Joly stating:

The strong top-line results were not isolated to a specific category or launch. We saw higher-than-expected comparable sales growth across the majority of our categories. This higher-than-expected growth was driven by stronger consumer demand with technology products and by the strong execution of our strategy.

New Blue

That strategy is built around the Best Buy Building The New Blue initiative and begins with:

maximizing the multi-channel retail business and providing services and solutions that solve real customer needs and help us build deeper customer relationships.

One way of strengthening those relationships is via Best Buy’s Home Advisor program. After testing the program in several cities over 18 months, it’s now being rolled out nationally, with the idea being that by the end of September, free in-home consultations will be on offer across all major US cities. Joly explained:

Our in-home advisors are professional sales consultants with broad product knowledge. They provide free consultations and serve as a single point of contact covering all technology needs across all vendors. In other words, they can help you design including place a great entertainment system, help you pick out your appliance for a kitchen model or help you steam music and content across your home without annoying buffering issues.

To date, this scheme has been promoted on a relatively low-key basis, but that’s about to change:

The way that people have learned about this service…has been through the in-store experience. Typically, what will happen is that as the customer goes into the stores and, having a conversation with an associate, the associate says or feels, given what you are trying to accomplish, it might be easier if we send somebody to your home to have a better conversation about what you’re trying to accomplish and then what’s possible. Then, there is a referral to the in-home associate or advisor that then goes to the home.

As we run this up, we will ramp up the awareness building activities. So, customers will be made aware of this on our own vehicles, the sites and emails and any other vehicle we choose to use. We expect also that word of mouth is going to work very nicely. In the Orlando markets, one of the in-home advisors, Jessica, has built a reputation for ourselves in one of the communities there, and neighbors talk about her and are queuing up to get her service. So, word of mouth is a great example. Then as the recurring lifelong relationships you build, this is a situation where supply creates demands and over time you are going to build this. So, we’re going pace our way into this, but that’s where we are today.

These advisors are a significant investment for BestBuy, he added:

We’re adding people, we’re training these people…and then we’re equipping them with tools. For example, one of the great tools that they are actually very excited about is a new CRM system that we’ve invested in and that we’ll continue to invest in.

It’s also investment that doesn’t deliver immediate tangible revenues, of course, a fact Joly acknowledged:

From a revenue standpoint, we’re going to continue to see the vast majority of our revenues coming from products. In some cases, the service approach we offer actually produces no immediate service revenue. If I take the In-Home Advisor program, which you could say is a kind of service. It’s a consultative service, that’s a free value proposition that does not therefore generate immediate service revenue, that generates product revenue and then service revenue in the form of installation and then support.

But bear in mind that the vast majority of our revenue is going to continue to be products. Where we play really with these approaches is when there is complexity. So, we tend to do really well when we’re dealing with complex systems, large cube, high touch solutions where, if you need to design a Smart Home solution, if you need to design a music streaming solution throughout your home, that tends to be a forte, either because of our in-home channel, particularly well positioned to do this or in the stores, the great place for discovery, support and service and advice.

Smart Home

One reason for this investment is the importance Best Buy is placing on the Smart Home market, a retail iteration of the AI vogue. Joly said:

We will continue to enhance this category across our stores and website this year. For example, to demonstrate we’re responsible with voice technology, we’re bringing new Alexa and Google Assistant experiences to 700 stores nationwide in collaboration with Amazon and Google. These enhanced experiences are unique to Best Buy and show how you can completely use voice technology. Specially-trained Blue Shirts are on hand to provide advice and, of course, our Geek Squad agents can help install, set up and support the products.

Such initiatives are intended to meet the needs of Best Buy’s customer base, which Joly positions as tech-savvy to a degree already:

The Best Buy customer, our target customer, we call them the high touch tech fans. These are people who are passionate about technology and need a bit of help with us and that includes many of us. Many of them are Millennials. In fact, half of that target customer segment is Millennials and we tend to do well with Millennials. Our penetration of Millennials is actually higher than some of the other demographics.

So, the typical customer for the Smart Home, I don’t think varies significantly from the rest of the store. One of the things we’re excited about from the trend standpoint is the fact that the Millennials are finally leaving their parents’ home and investing in their new home. And of course because they are more digitally savvy, they tend to spend more. So that’s one of the positive trends and opportunities that we can think about.

My take

Best Buy is cleverly using its physical stores and schemes such as the Home Advisor service to create an Amazon-differentiator that eludes some other retailers. It’s a pitch that’s dependent on the tech-savvy customer not becoming so tech-savvy as to not need third party guidance and support, but in mainstream retail terms, that’s a way off yet.

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