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2017-09-18 21:05:02
The Shift: Best Buy’s Secrets for Thriving in the Amazon Age

While running errands the other day, I ducked into a local Best Buy to pick up a pair of new headphones. What I saw inside was shocking.

Happy-looking people were huddled around tables filled with the latest gadgets from Microsoft and Apple. The video game aisle was bustling. Blue-shirted employees were helping a customer pick from a glowing wall of flat-screen TVs. There was a line — a line! — at the checkout counter.

Many people, myself included, assumed that the entire big-box retail sector would eventually fall under Amazon’s steamroller. I knew Best Buy had spent the past several years playing defense against Amazon, finding some initial success by cutting costs and reducing prices to match its online rivals.

But Best Buy’s rebound has been surprisingly durable. Revenue figures have beaten Wall Street’s expectations in six of the last seven quarters. The company’s stock price has risen more than 50 percent in the past year. Workers are happy. And judging from several other visits I paid to Best Buy stores, the chain appears to have avoided the bleak fate of other big-box retailers.

How do they do it?

To find out, I called Hubert Joly, Best Buy’s chief executive.

An upbeat Frenchman who spent more than a decade at the consulting firm McKinsey & Company, Mr. Joly, 58, explained that Best Buy’s turnaround was years in the making, and that it involved reshaping nearly every piece of the business. It’s a fascinating playbook for companies hoping to survive in the Amazon age.

Here are the keys to Best Buy’s turnaround, according to Mr. Joly:

When Mr. Joly took over in 2012, Best Buy was bleeding out. A former chief had resigned after admitting to an improper romantic relationship with an employee. The company’s systems were outdated and many stores were losing money. Many of the products that drew customers to stores, such as new CD and DVD releases, were becoming obsolete.

The most worrisome trend in big-box retail was “showrooming” — customers were testing new products in stores before buying them for less money online from another retailer. To combat showrooming and persuade customers to complete their purchases at Best Buy, Mr. Joly announced a price-matching guarantee.

“Until I match Amazon’s prices, the customers are ours to lose,” Mr. Joly said.

Price-matching costs Best Buy real money, but it also gives customers a reason to stay in the store, and avoids handing business to competitors.

Mr. Joly also realized that if Best Buy was going to compete with Amazon, which has spent billions building a speedy delivery system and plans to use drones to become even more efficient, it needed to get better at things that robots can’t do well — namely, customer service.

In his first months on the job, Mr. Joly visited Best Buy stores near the company’s Minnesota headquarters to ask rank-and-file employees about the struggles they encountered. (Among their gripes: an internal search engine that was returning bad data about which items were in stock.)

Best Buy fixed the search engine. It also restored a much-loved employee discount that had been suspended and embarked on an ambitious program to retrain its employees so they could answer questions about entirely new categories of electronics, such as virtual reality headsets and smart home appliances.

“The associates in our stores are much more engaged now, much more proficient,” Mr. Joly said.

Customers had always loved Best Buy’s Geek Squad, its army of specially trained tech support experts who could be hired to mount TVs and install other appliances at a customer’s home. But sometimes, people needed help before they bought big and expensive gadgets. So it started an adviser program that allows customers to get free in-home consultations about what product they should buy, and how it should be installed. The service started as a pilot program last year and is now being rolled out nationwide.

Best Buy has “really come through the valley by making investments around the customer experience,” said Peter Keith, a retail analyst with Piper Jaffray.

When Mr. Joly arrived at Best Buy, the company’s online ordering system was completely divorced from its stores. If a customer placed an order on the website, it would ship from a central warehouse. If that warehouse didn’t have the item in stock, the customer was out of luck.

Mr. Joly realized that with some minor changes, each of Best Buy’s 1,000-plus big-box stores could ship packages to customers, serving as a mini warehouse for its surrounding area. Now, when a customer orders a product on Best Buy’s website, the item is sent from the location that can deliver it the fastest — a store down the street, perhaps, or a warehouse five states away. It was a small, subtle change, but it allowed Best Buy to improve its shipping times, and made immediate gratification possible for customers. Now, roughly 40 percent of Best Buy’s online orders are either shipped or picked up from a store.

Best Buy also struck deals with large electronics companies like Samsung, Apple and Microsoft to feature their products in branded areas within the store. Now, rather than jamming these companies’ products next to one another on shelves, Best Buy allows them to set up their own dedicated kiosks. (Apple’s area inside a Best Buy, for example, has the same sleek wooden tables and minimalist design as an Apple Store.) It’s a concept borrowed from department stores, and it’s created a lucrative new revenue stream. Even Amazon has set up kiosks in Best Buy stores to show off its voice-activated Alexa gadgets.

Granted, Best Buy has a last-man-standing advantage in these partnership deals. Many of its big-box rivals (Circuit City, Radio Shack, HH Gregg) have gone bankrupt or shut down completely. Which means that if Samsung wants to show off its newest line of tablets in a big-box electronics store, it has basically one choice.

Almost every business turnaround plan includes cutting costs. Under Mr. Joly, Best Buy has used the scalpel as quietly as possible, gradually letting leases expire for unprofitable stores and consolidating its overseas divisions. He trimmed a layer of middle managers in 2014, and reassigned roughly 400 Geek Squad employees within the company. But he has never announced a huge, public round of layoffs, which can crater employee morale and create a sinking-ship vibe.

“Taking people out is the last resort,” Mr. Joly said in 2015. “Because you need to capture the hearts and minds of the employees.”

Best Buy has also found more creative penny-pinching methods. Once, the company noticed that an unusually high number of flat-screen TVs were being dropped in its warehouses. It revamped the handling process, reducing the number of times TVs were picked up by a clamp lift and adding new carts to prevent TV boxes from falling over. The changes resulted in less broken inventory and bigger profits.

Mr. Joly didn’t explicitly tell me this, but it is obvious: Best Buy has benefited from some serious good fortune.

It’s lucky that the products it specializes in selling, like big-screen TVs and high-end audio equipment, are big-ticket items that many customers still feel uncomfortable buying sight unseen from a website. It’s lucky that several large competitors have gone out of business, shrinking its list of rivals. And it’s lucky that the vendors who make the products it sells, like Apple and Samsung, have kept churning out expensive blockbuster gadgets.

“They’re at the mercy of the product cycles,” said Stephen Baker, a tech industry analyst at NPD Group. “If people stop buying PCs or they don’t care about big-screen TVs anymore, they have a challenge.”

Mr. Joly knows that despite Best Buy’s recent momentum, it’s not out of the woods yet. To succeed over the long term, it will need to do more than cut costs and match prices. Walmart, another big-box behemoth, is investing billions of dollars in a digital expansion with the acquisition of e-commerce companies like Jet and Bonobos, and could prove to be a fierce rival. Amazon has been expanding into brick-and-mortar retail with its acquisition of Whole Foods, and is moving into Best Buy’s home installation and services market.

Mr. Joly is optimistic about Best Buy’s chances against these Goliaths, but he’s not ready to celebrate yet.

“Once you’ve had a near-death experience,” he said, “arrogance, if you had it in your bones, has disappeared forever.”