When Hubert Joly held his first investor meeting as CEO for Best Buy back on November 13, 2012, he announced a rescue strategy called “Renew Blue.” It focused on five initiatives:
- Reinvigorate and rejuvenate the customer experience.
- Work with vendor partners to innovate and drive value.
- Continue leadership role in positively impacting our world.
- Attract and inspire leaders and employees.
- Increase ROIC for investors.
The strategy was a resounding success. Best Buy’s stock price rose 213% from November 13, 2012 through September 18, 2017. In contrast, the S&P 500 retail index RLX only grew 127% over the same period.
In retrospect, Joly assessed that Best Buy’s five-year success was largely driven by:
- Price-matching: Remove incentive for showrooming or for customers to test products at Best Buy and then buy online from someone else.
- Customer service improvements: More motivated, better informed, and better trained retail staff; more accurate on-hand inventory information; free in-home consulting.
- Faster online order shipping: Include store inventories, not just warehouses, when searching for fastest delivery times for customers.
- Cost cutting: Selective non-renewal of low-profit store leases; middle management reductions; overseas consolidations; reduced inventory damage through improved handling.
New Strategy Announced
Best Buy recently launched a new strategic initiative called “New Blue.” It is rooted in a striking assertion: “We are operating in a strategically attractive market.” While most analysts view today’s retail environment as anything but attractive, Best Buy is promoting a far more optimistic perspective. They point to vibrant consumer technology innovations, high consumer electronics spending growth by millennials, and Best Buy’s strong market position within these trends.
The New Blue strategy was announced to investors on September 18, 2017. Its upbeat message was a hard pill to swallow for stockholders. One day after the meeting, Best Buy’s stock dropped 8%. In contrast, the S&P 500 retail index RLX only dropped .5% over the same period.
For Hubert Joly, this was a case of “déjà vu all over again.” Back when he announced Renew Blue to investors on November 13, 2012, Best Buy’s stock was initially panned, dropping 3.6% after three days of trading. In contrast, RLX was only down .6% over those same three days.
Is Hubert Joly Right?
Given Hubert Joly’s impressive track record, it is surprising the market responded negatively to his new strategy. Over the past five years, Best Buy proved that competitive prices and higher service levels were financially viable. They made multichannel retailing work. And, they learned more about how customers are looking for solutions, which can be tough to find in the world of consumer electronics. These were all daunting challenges, yet they succeeded.
The new Best Buy growth strategy has two pillars: “expand what we sell” and “evolve how we sell.” The “what we sell” pillar includes expanded sales of products and services for mobile phones, major appliances, smart home management, and assured living. The Geek Squad will be expanded to serve the whole product line, with a focus on serving households and their needs rather than merely fixing products.
The “how we sell” pillar expansion provides options for customers to get their product when, where and how they want. They can begin their purchase journey anywhere and carry their research across channels. Customers can choose the most convenient way to self-serve, whether online, via the phone, or in store. And, Best Buy will embed online tools (e.g., reviews and ratings) in stores to augment the in-store experience.
It appears that much of Best Buy’s strategy is rooted in a thorough application of “jobs to be done” research. They identified common pain points in customer journeys for specific products and they plan to enhance the customer experience in these areas. The Geek Squad expansion is a critical component to improving the buyer’s journey: customers need help with installing consumer electronics, they want training on how to use what they bought once it is installed, and they want help in solving problems as their needs change over time.
The New Blue strategy also specifies requisite changes in support technology, supply chain, and human resource management. It even identifies further cost cutting objectives.
Is This the Best Time to Buy Best Buy?
The New Blue strategy seems like a winner. It is ambitious yet thorough. While it seems more complex and difficult to execute than the Renew Blue strategy, that judgment is biased by a rear-view-mirror perspective. Five years ago, the Renew Blue strategy also looked daunting to investors, and Best Buy’s stock fell. With the benefit of hindsight, that would have been a good time to buy Best Buy.
Retailing is also looking much better as an overall industry than the recent “doom and gloom” coverage suggests. The S&P 500 retail index RLX, which excludes Amazon, has outperformed the overall S&P 500 through most of 2017.
In the end, every good strategy hinges on execution. In the case of Best Buy, we have not only a strong strategy but also a proven capability to implement. The combination is a winner. And since the market is negative on Best Buy right now, it could be the best time to buy BBY … and a good time to be in branded brick and mortar retailing.
Mark Blessington is President of Mark Blessington Inc., a sales and marketing consulting firm.