Bloomberg have mentioned it twice now. They say Best Buy suffers from the “showroom effect” or they may have called it the “smartphone effect”, whatever the case may be they say Best Buy is losing sales to Amazon because people are going into Best Buy stores to hold and touch the product to see if they like it and then ordering it online through Amazon to save money.
Bloomberg, on the two occasions I have seen them mention the Best Buy “showroom effect”, have portrayed it as a negative thing for BestBuy’s business.
But this is not the case, the “showroom effect” present a massive opportunity for Best Buy and it shines the light on a business strategy that could see it crush Amazon in online sales.
This is what Best Buy needs to do and it is quite simple.
Best Buy needs to offer 2 levels of pricing, one for customers who buy in store and one for customers who order online. Both prices need to be shown at the physical Best Buy locations.
It is just that simple
If customers are using Best Buy as a showroom to get a feel for products before they buy, then Best Buy can capitalise on this behaviour.
Best Buy is reported to be opening up small Best Buy Mobile box stores. This direction would be ideally suited to this strategy.
The smaller box stores should offer a full range of products the difference being that people can only order products, in other words the box stores do not have to keep any stock, saving space, saving logistics costs, saving staffing costs etc etc. Customers can either order at the store and have the product delivered to them or they can go home and order online.
Realistically, this is the only way Best Buy is going to be able to compete with Amazon.
If Best Buy think they can complete on price with Amazon while stocking million of dollars of products in stores throughout the country they are making a huge mistake.
They need to treat their retail operation as two independent entities and price the products according to each entities overhead costs.
On the one hand you have Best Buy’s traditional retail model of having large stores with large stocks of products. Customers have to pay extra to purchase in store because of the extra inventory, personnel and logistics costs.
On the other hand you have the online retail side of the business, this does not require stocks in stores so massively reducing the amount of inventory the company has to have. People can order at the traditional, physical store locations but they will have their products delivered from the Best Buy’s main warehouse wherever that may be.
Ultimately though the small box store model will the more suited to exploiting the showroom effect. Small stores, small staff levels, minimal inventory, huge range, low prices.
Customers can get the full shopping experience without the hassle of having to transport their products back to their homes. And more importantly, this small store model has huge scope for expansion whether it be through Best Buy owned shops or through a franchise network.
The currency big box stores may be too expensive to attract franchisees, the small store model will make the Best Buy brand much more accessible.
It is much easier for Best Buy to adopt the online strategy than it is for Amazon to build up a network of physical stores which is why Best Buy can exploit the “showroom effect” to crush Amazon. Best Buy’s mission is simply easier.
Some sources:
http://www.forbes.com/sites/lauraheller/2012/05/08/yes-amazon-can-be-stopped/
http://www.iqmetrix.com/article/2012/04/daily-dose-iq-how-amazon-has-stolen-best-buys-business
As a side note, one issue that I have heard about, is that the shopping experience in Best Buy can be extremely annoying. If this is the case then maybe the “showroom effect” is not the biggest of Best Buy’s problems.
Some examples
http://consumerist.com/2011/10/best-buy-loyalty-rewarded-with-deeply-annoying-retail-experience.html
http://www.die.net/musings/bestbuy/
Compared to online , physical shops are paying overheads. One of there main assets that they are paing rent and buisiness rates for is the shop window. The shop window at the physical point of sale and advertising directly to customers is what they are paying for. But suprisingly many small shops do not use the shop window well at all, sometimes with no products on display.