Best Buy reported third quarter figures that fell short of what Wall Street was expecting. The electronics superstore was also downgraded by Oppenheimer from “outperform” to “perform,” lowering the stock price outlook from $53 to $39.
So what is going on with Best Buy?
Best Buy’s pat answer is that sluggish TV and laptop sales are to blame. To a certain degree, that’s true. But I think that there is more to the equation than that. Apple is not bemoaning their sluggish laptop sales and, every time I walk into Costco, it has added more space for its stable of TVs. Same for Walmart and Sam’s.
I am not saying there hasn’t been an industry-wide weakness in TV sales. But for Best Buy to blame its problems on TVs and laptops is akin to burying your head in sand. The problem is far deeper than that.
What got me thinking about this was an article from Fortune, which talked about the state of affairs at Best Buy and made the argument that consumers are going online and to specialty stores. The argument is that consumers are getting better deals, better customer service, and better warranties – and that’s what driving folks to online and specialty.
To a fair degree, this is correct. But again, this is only part of the story. In part, because Best Buy has its own online retail site, meaning consumers could go there. So why aren’t they?
It lies in the answer to the question, what does Best Buy mean to consumers? In thinking about the name and logo one would naturally think of “Best Price.” This is clearly not true.
Best Buy’s holiday television ads center around the theme of expertise. However, I looked and here are the qualifications of a sales associate for Best Buy:
– 6 months of retail sales or customer service experience
– This isn’t a desk job! Lifting up to 50 lbs., standing and moving up to 100% of the time
– At least 16 years of age
– High School Diploma or Equivalent
I am no HR expert, but this does not scream out to me as “category expert.”
I put it to you that, if you asked most people, “What comes to mind when you think of Best Buy?” they would say, “Electronics” or “Nothing.”
This is the reason for the slower than expected sales at Best Buy. Consumers are not going to another “store for a better deal, better warranty, or better customer service. They are going away from Best Buy because it has not given them a reason to shop at there.
There is no emotional connection with the target audience at all and, the sad thing for Best Buy, is it’s starting to feel out of date. Looking for a better deal, better warranty, better customer service, and any other reason you can think of are simply rational explanations for the lack of emotional connection.
What this demonstrates is the economic ramifications of not investing in building brand meaning. Best Buy must invest in creating a brand that means something to customers before it got to the point in which Wall Street expectations are not met and the norm is a downgrading stock outlooks.