Photo: By Ron Dauphin on flickr
KeyBanc released a report this morning on Best Buy and its current status in the consumer electronics retail industry.The industry has completely changed since the brand’s glory days, and the meteoric rise of both Amazon and Apple have fundamentally altered the landscape.
The analysts say that there’s no silver bullet for Best Buy, but made several recommendations about what needs to be done going forward.
Here’s what they came up with:
Use a turnaround and expense control mindset
“We believe expense reduction will need to be a cornerstone of the new [Best Buy] management team,” states the report. Best Buy has traditionally had a growth mindset, but this has to change.
Best Buy has higher occupancy cost (and other store-related expenses) than most of its brick-and-mortar competitors because of the size of its big box stores. When competing with internet retailers like Amazon who have massive cost structure advantages, Best Buy can’t afford to leave its structure as it is now.
Store closures are necessary
Right now, Best Buy may actually lose profits from its most recent store closures because the company is profitable.
However, in the long-term, the move appears necessary because the consumer electronics market will likely continue to shift online. “Ultimately, we believe [Best Buy] will need to reduce its store base, but don’t see it as a reason for optimism,” says the report.
Acquisitions could buy more time
There are a bunch of retail competitors ripe for the picking, like hhgregg, GameStop and RadioShack. An acquisition of one of those companies would serve three purposes: reduce competitive pressures, create value for the consumer and create more scale for Best Buy.
However, in doing this, Best Buy runs the risk of adding too much real estate. It hasn’t exactly had a perfect track record of acquisitions in the past either. GeekSquad worked, but Napster and Musicland failed.
Return to a price leadership strategy
Best Buy currently offers to match a lower price offered by any other physical retailer or BestBuy.com, but it won’t match Amazon.
The report argues that a universal price matching promise could “improve perception and sales.” Amazon, on average, is priced 6 per cent lower than BestBuy.com. “While in the near term this would be painful, we believe it could stem the competitive pressures from online retailers and benefit sales longer term,” says the report.
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