Five Reasons Why Best Buy Could End Up Like Circuit City

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Five Reasons Why Best Buy Could End Up Like Circuit City

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If you are a consumer electronics manufacturer or brand and you are in Best Buy or Magnolia - you brag to anyone and everyone who will listen about how great it is. They are the last giant standing in the world of big box retail specific to home theater, AV software and audio with the ability to make one purchase order that can change an AV company forever.

With players ranging from Circuit City to The Good Guys to Ultimate Electronics to Tweeter to regional chains like Myer Emco to AV software players like Tower Records - all are dead meat in this lean and mean new economy. Best Buy has aggressively grown to eat up the remaining specialty AV or big box AV retail market share but now all of a sudden they are on the rocks. Analysts are losing confidence. Revenue and profit reports are being tempered downward in tough economic times. And more than ever the chirps from well known AV industry executives are starting to suggest that if Best Buy doesn't straighten up and fly right, that they too could be added to the list of new economy fallout which would be a game changing outcome in the AV and consumer electronics industry.

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The simple reality is that Best Buy isn't really that good at their core business any more. They do five key things wrong that need to be addressed if they want to survive and thrive.

Problem No. 1: Best Buy Doesn't Have Commissioned Sales People
The number one reason why Circuit City went out of business was some suits and bean counters decided that they could make more quarterly profits if they forced their top producing salespeople to take a puny fixed salary over commissions. For some of their best salespeople - this was a pay cut of over $50,000 per year. Sometimes, it was even higher. For all of their salespeople, this was a demotivating influence that turned their salespeople into the same kind of clerks that Best Buy has in their "blue shirts." Why should a clerk learn all about selling speakers when he/she likely will be selling cell phones, appliances or doing check-out work, all in a week? Theoretically, she makes pretty much the same amount of money if she is fantastic at her job or she just sleepwalks through the workday as many low paid clerks do in retail stores all around the country. If Best Buy wants to convert more of the people who pack their stores on any weekend day - give the salespeople a reason to share in the store's power and success. Reward people who become top salespeople and make $100,000 per year because that is only going to make the stock go higher - a feat that Best Buy hasn't seen recently.

Problem No. 2: Best Buy Should Be Renamed "Worst Value"
In a retail climate driven by warehouse stores that operate on razor-thin profit margins - Best Buy is outright trying to rip their clients off with some of their pricing. Magnolia confusingly prices their speakers "by the speaker" when they actually only sell in pairs. Their HDTVs are listed at retail price when they sell for upwards of thousands less on the Internet. Most importantly, Best Buy's software is an absolute rip off - and consumers know it. Is there value to a point of purchase sale right in your hometown? Absolutely. Every American wants what they want and wants it now but how much of a premium are they willing to pay when unemployment is at nine percent and we are nearly three years into a punishing recession?

For example, yesterday my wife and I were in Best Buy in West Los Angeles. It was packed with consumers in every department. We walked over to the Blu-ray aisle for me to prove a point about value at Best Buy from an earlier lunch conversation. We selected an aisle at random and looked for the biggest movie that jumped out at us, which was The Fighter. The price for the disc said $40 retail but selling for a mere $29.95. What a value, you might think - but then if you use an app on your iPhone or Android to compare prices using the UPC code as my wife did while in the store - you will learn that Amazon is selling the same movie for $19.95. So is Wal-Mart. Ebay has used ones for a little less. The application will allow you to search by your location to find the lowest price closest to you. Everyone has (or will soon have) a phone that can perform these feats using free applications. How much longer can Best Buy try to rip people off on AV software? Movies on Blu-ray are rarely worth $30 - let alone $40. At $19.99 they become much easier to buy as an impulse buy. For catalog movies even in HD - movies should sell on Blu-ray for $9.95 to $13.95 maximum. Blu-ray discs bring in the people who buy higher end HDTVs, speakers, audio and electronics - meaning the people who spend big dollars on profitable items. To push them to the Internet with 33 percent plus savings is a critical mistake by Best Buy. Just because Tower Records isn't around the corner doesn't mean that you don't have to compete with Costco, Target, Wal-Mart and the almighty Internet. Consumers can, will and do go elsewhere to buy their software if they think they are getting screwed on price.

Read about the other things Best Buy is doing wrong on Page 2.


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