Best Buy to plug into ‘connected’ strategy

When Best Buy Co. Inc. looks to hire sales staff, job applicants go through a 30-minute screening to help the company gauge the prospective employee’s interest, not only in technology, but also in people.

Begun over the summer, the effort by Best Buy, the No. 1 U.S. electronics retailer, seeks an edge against Wal-Mart Stores Inc. and other giant retailers by expanding its notion of customer service beyond just showing shoppers what’s on the store shelves. If a customer has a question, the store’s workers in blue shirts are to help them hunt down answers, including finding products that the stores don’t yet carry.

“My vision is of the blue shirt as a human search engine,” said Robert Stephens, founder of the company’s Geek Squad repair and installation team, who was recently promoted to the newly created position of chief technology officer. “My vision is people will start to see a difference in the interaction they have.”

Faced with an ever more competitive landscape featuring incursions by the likes of Wal-Mart, Target Corp. andAmazon.com Inc., Best Buy Chief Executive Brian Dunn is counting on what he calls a “connected world strategy” to set the Richfield-based company apart.

Its market share amongelectronics retailers reached 30 percent last year, from less than 25 percent in 2004, according to Euromonitor.

PITCH TO CONSUMERS

Alongside its vast arrayof electronic products, Best Buy is selling such services as cable connection and its own branded mobile-broadband packages. Its 180,000 employees, including 20,000on the Geek Squad, are key in helping to thread those dots together and making the company at the top of the minds of consumers, the company said.

“The connected-world strategy is focused on touching a larger profit pool,” said Barclays Capital analyst Michael Lasser, adding there’s a big profit opportunity for the retailer through service offerings. “Best Buy can compete effectively on price. Service and selection are their competitive strengths.”

Best Buy also wants to differentiate itself by experimenting with new product categories, like electric vehicles, heart-rate monitors and a yoga mat with a builtin speaker that can be either connected to a computer, a mobile device or a power cord.

Analysts are giving Best Buy the benefit of the doubt.

“It’s something they’ll have to do to replace space in some of the other categories that are in a cyclical decline,” Barclays’ Lasser said. “They’ve got a good track record ofevolving with the market.”

Best Buy’s sales of flatpanel TVs and notebook computers, among the industry’s two biggest categories, have declined, in line with the industry trends, as the company helps to offset those with sales of mobile phones. It also has taken some shelf space from DVDs and CDs for areas including its digitally connected health and fitness gadgets.

‘FIRST PLAYER’

“They are the ones that have to be in front of the marketplace,” said Stephen Baker, an NPD Group analyst. “They have the most to lose if the market changes and they don’t change with it. They are the first player when people think of consumer electronics.”

Best Buy also has the firstmover advantage on some items. For instance, it will be the first retailer to showcase devices such as Google TV with Internet browsing capability.

At a Best Buy store recently, Stephens, Best Buy’s new chief tech officer, asked a blue-shirted employee about a tripod for an iPhone, without revealing he was an executive. The employee went online inthe store to do some search and found a $14 version on eBay.

“Best Buy didn’t make a dollar,” Stephens said. “But he did something that you can’t find anywhere else.”

Best Buy has also begun to index customers’ questions and its employees’ responses, including the 34,000 answers its employees have given through the company’s “Twelpforce” Twitter account, which it introduced in July to answer customer questions.

That helps other employees answer customers’ questions more quickly. And Best Buy may begin to carry some products that have been requested repeatedly by customers, Stephens said.

FOREIGN EXPANSION

The company has expanded its design and research team and test labs for its own brands including Insignia and Rocketfish to offices in Asia and Europe.

Part of the process involves getting product ideas from employees and developing items that aren’t on the market, such as its Insignia line of TVs with remote control holders. The company may showcase employee contributionson product packages, detailing how an item came to life, said Fernando Silva, vice president of Best Buy exclusive brands.

With its brand suppliers, Best Buy also is reinventing itself.

About three years ago, Best Buy started to work proactively with its vendors such as Toshiba, including accompanying them to factories and contributing design concepts for new products that are indevelopment.

Breaking from the industry model of manufacturers shouldering so-called markdown support, Best Buy helps to pay for the cost if a product doesn’t sell as well as expected, said Jason Bonfig, vice president of merchantcomputing. In an example of this “risk-sharing model,” Best Buy will promote this Christmas season a notebook computer it created with Toshiba,featuring a keyboard that’s easy to wipe clean, in its first such product targeting kids.

“Increasingly, you are going to see Best Buy do more tailoring instead of retailing,” Stephens said. “With retailing, we are at the end of the food chain. Someone else dreamed it up and manufactured it. Increasingly, we are manufacturing the experience. You can’t commoditize an experience.”

Business, Pages 53 on 10/31/2010

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