The news that US home electronics retailer Best Buy is closing all eleven of its UK stores is no surprise, given its recent woes. But the gap between its bullish rhetoric at launch and its failure to attract customers is worth pondering. How can a retailer that is so successful in its home market fail so dismally when it tries to expand into a new market? Especially when that market is so poorly served?
Some retail analysts have argued that Best Buy’s failure to gain traction in the UK was due to the successful strategy from its rival Currys/PC World. Really? I don’t buy that. What is striking is how poor most retailers of consumer electronics in the UK are. The exceptions – John Lewis, Apple and Richer Sounds – only serve to remind us what a grim experience the others provide. In most cases we buy expensive devices such as TVs and PCs despite the retailer, not because of it.
It’s a mystery, then, how Best Buy could have messed up in a market ripe for new competition. Why did Best Buy’s UK rollout fail, and what does this mean for the future of the home device market?
Three factors underpin its failure:
• Brand awareness. Best Buy means nothing to most consumers, and tells them little about what to expect. What does it sell? What is its USP? Why should I go there? Despite some extensive press ads, Best Buy failed to give potential customers the answers to these questions. And while its staff may have been experts, too few potential customers ever found their way into the stores to find out.
• Local knowledge. It would appear that Best Buy tried to extend its US model into the UK market, and expected the same results. That’s not smart, especially when it could have drawn on the local expertise of Carphone Warehouse (which it part owns). A failure to leverage those corporate relationships by, say, offering discounts to Carphone Warehouse or TalkTalk customers, seems very remiss.
• Pricing. If you open big out-of-town barns, most consumers expect you to be ultra-competitive on price. But Best Buy’s offers never seemed truly compelling, especially in comparison to the deals on TVs and PCs readily available from supermarkets and online retailers.
The failure of Best Buy is not just a retail story, it’s one that affects the wider market for in-home electronic devices. Customers need to be educated as well as enticed, but how long can manufacturers rely on a weak retailing sector to do that job for them? TV product lines are refreshed every nine months, with more capabilities – such as 3D and a network connection – added in each iteration, but consumers are still replacing them only after five years. (In the meantime we update our mobile phone every 18 months.)
There is a finite amount of room in our homes for re-housing old TVs. At some point a new model for TV ownership is needed, if the promise of a connected future is to be realized.
If the traditional retailers can’t deliver that, then manufacturers will surely look to direct relationships with customers, or perhaps offer TVs through operator partners as part of a future-proof home entertainment bundle. £20 (€23.34) a month for a high-end TV that is replaced every two years, as an addition to the existing service provider bill? Why not?
Big box retailers could learn a lot from mobile retailers about how to serve customers who want the latest technology. If Best Buy had spent more time talking to Carphone Warehouse, for example, it might still be trading.
Nick Thomas is a principal analyst with Informa Telecoms & Media, with a key focus on global TV and digital media markets.