Sunday, May 26, 2013

Best Buy tries to get back in the game

Another retailer struggles in the new retail environment. Last week, US-based electronics store, Best Buy reported a 9.6% decline in overall quarterly revenue while online sales improved 7.1% to $498m. Cost cutting was heard loud and clear during the recent earnings call. Among its efforts included selling the rest of its stake in Best Buy Europe back to Carphone Warehouse Group PLC. Indeed, many financial analysts applauded this and other cost cutting measures the company is undertaking.  

The supply chain appeared to also be a highlight. Among the many initiatives in this area include reducing its vendor-base as well as reducing and shortening truck trips by consolidating freight and re-allocating inventory so that shipments are sent from the distribution center nearest their destinations.

A pilot is underway in over 50 locations in which stores serve as fulfillment centers for online orders. An interesting statistic was thrown out in which Best Buy fails to close 2% to 4% of online shoppers because the item they want is out of stock on even though it may be available in nearby stores.  This fulfillment by stores concept is occurring in many other retail stores including Macy’s and WalMart. A good use of physical stores, if done correctly, that will increase competitiveness with pure-plays such as Amazon and Ebay.

Finally, reverse logistics was identified as a top priority for Best Buy. According to the company’s Chief Financial Officer (CFO), the handling of returns “received virtually no attention as the company grew” and has resulted in $400m in losses each year. Although the CFO noted outdated returns processes, over the years, the company has undertaken numerous projects in this area surrounding returns, repair, warranty management and recycling.

Indeed, reverse logistics may be the game-changer for brick and mortar retailers competing in the new multichannel retail environment. With the returns rate still hovering in the double-digits for many products, managing this process alone will improve the customer experience. One must remember, the customer is now in the driver’s seat in this multichannel environment and to retain as well as attract customers, the retailer must offer a complete and seamless customer experience across its entire offering. Not only is reverse logistics a plus for improving customer relations but also to minimize costs as well as generate possible new revenue streams.

Best Buy has experienced several bumps and hiccups along its way in establishing a multichannel offering however, it appears the company may finally be heading in the right direction. Will it be successful? The jury is still out. It has underinvested in the online channel and is looking to remedy this. Still, its store-fronts are in prime locations and could be successful if it successfully links these locations with its online presence.