Best Buy Punches Back at Amazon
A new book tells the tale of how the rise of Amazon and e-commerce threatened the success of Big Box stores—until they learned to get in on the new game.
Whether it’s publishing, clothing, journalism, or tech—one of the biggest business stories in the past 20 years is how many storied companies missed the boat when it came to the power of the Internet.
Publishing houses like Hachette now squabble with Amazon, e-retailers like Mr. Porter and Net-a-Porter challenge Barneys and Saks, the Washington Post and The New York Times are dependent on Facebook’s algorithm. Companies who couldn’t sell and manage their product in as clean a manner as Apple, with its website and Genius Bar, lost market share.
The follow-up story is how those who survived both the competitive onslaught, as well as the recession, have adapted.
In Rebuilding Empires, tech columnist and former business reporter Thomas Lee tells the story of two of the most celebrated—and recently, maligned—large retailers, Best Buy and Target, and how they’ve adapted to a new age of retail in the digital era.
The book is divided into two parts. The first, while entertaining, is the less revelatory of the two. It tells the history of the two companies. They were both started in the Minneapolis area, and took off in the ‘70s, ‘80s, and ‘90s.
In Best Buy’s case, it coincided with the rise of consumer technology—TV’s, radios, CD players, and so on. It’s founder, Dick Schulze, created the company as it’s known today in 1983, just two years after a tornado struck one of his chain of electronics stores called Sound of Music. His junk sale of storage items to try to make ends meet inspired him to create a retailer of electronics that mixed large quantities of merchandise with a strategy focused on getting hordes of customers through the doors. Lee details the chain’s evolution from a macho legion of salesmen hawking goods and warranties to up their commissions, to a global conglomerate that dictates a significant amount of what hardware companies build.
Target was established in 1962 by the Dayton brothers as a discount offshoot of their eponymous Twin Cities department store. It found success, in Lee’s eyes, due to its fashion sense derived from its department store roots (the idea of cheap chic), a cult-like following, and, like Best Buy, a public relations machine that could stir up mania for the latest exclusive collection.
Both chains stumbled when Amazon’s rise and the Great Recession simultaneously occurred. How this happened, and each company’s response, makes up the latter half of the book.
Lee, who covered the two retailers when he worked for the Minneapolis Star Tribune, shares some pretty gobsmacking details about just how wrong these companies were when it came to the Internet.
For instance, Best Buy has over 40 million members in its customer loyalty program, Reward Zone. That is one of the highest numbers in the industry. Unfortunately, Lee reports, it was kept “on a separate online platform from bestbuy.com” and the two sites “did not share the same customer database.” Before a website redesign, users of the company’s website rated it just a 77 out of 100, largely due to the fact that its search engine would give customers items they were not looking for.
Facing internal turf wars and lack of support from the CEO Bob Ulrich (Lee reports he called the website “middling”), Target outsourced its website operation to Amazon. In 2011, it brought it back in house. A mere two weeks after launching the site, Target was set to kick off its latest design partnership with the Italian fashion house Missoni. It was an unmitigated disaster, and Lee compares it to the healthcare.gov rollout. Items that were sold out were charged to customers’ cards, shipments were delayed, and customers could not find their items on UPS. Apparently, the company “failed to properly test its systems.” The company’s merchandising and marketing teams, the ones who had called the shots for decades, were running the show, not the tech folks.
Yet, despite the missteps, despite the recession, and despite—particularly for Best Buy—the chorus in the media declaring an imminent bankruptcy, the two have survived.
Lee is a big fan of Best Buy’s new CEO Hubert Joly, who took the reins full-time after Brian Dunn resigned amidst an alleged sex scandal. Joly, unlike certain tech CEO’s tasked with turnarounds, doesn’t want to be Steve Jobs. His success in turning around Best Buy’s stock price and sales has largely been a case of doing the unsexy stuff well.
He’s turned Geek Squad into a two-pronged weapon. On the one hand, it acts as Best Buy’s version of Apple’s Genius Bar (a decision Lee points out should have been made long before). On the other, it has provided a resource for dealing with returns or faulty items (which cost Best Buy $400 million a year) by offering to certify the items.
Target, meanwhile, appears to have learned its lesson, and its mobile app, Cartwheel, has won plaudits for its overall performance with its customers.
Lee explains the success of its store-within-a-store strategy, particularly as regarding Samsung. The two Big-Box retailers are also challenging Amazon in the shipping game, turning what used to be seen as a weakness (all those giant stores) into a strength (distribution centers).
Lee also misses a couple of stories. He doesn’t address, for instance, the ways in which the two companies are working to address a growing demand for urban locations. Anybody who lives near a Target in a city, for instance, near the Barclays Center in Brooklyn or in Columbia Heights in Washington, D.C., can attest to its overwhelming popularity. How these stores deal with consumers who lack cars and prefer to live in dense cities will be as much a part of their future as search engine capabilities.
There are still headwinds for these American icons of consumerism. Target’s image as a trendy discount store is running headlong into the reality that a lot of its customers seem to care more about prices than trends, and are interested more in its household supplies. Best Buy is caught up in the breakneck world of technological innovation.
Still, the book does a superb job of showing that despite the conventional wisdom that big box retailers have gone the way of the suburban mall, they are in fact thriving, innovating, and here for the long haul.