Will Best Buy survive?

Was in Best Buy yesterday.

You may have heard they’re closing 50 stores this year.  I wouldn’t say the stench of death is yet upon the Huntsville store.  It seems to have steady traffic, and the interior doesn’t have that who-cares vibe about it that takes hold.  But there is an empty old Barnes & Noble location on one side, and what appears to be an at least moderately dysfunctional Office Depot on the other.  There’s an empty building that used to be a shoe store in the parking lot, too.  Hmmm.  Maybe it’s closer than I think.

Anyway, in a hyper-connected world, there are clear drawbacks to the big box store model.  Best Buy was hell on wheels in 1996, but this is 2012.  What to do?

The linchpin of Best Buy’s strategy to remain profitable is clearly the much smaller store, with an emphasis on mobile electronics.  I don’t know whether Best Buy resonates enough with the young folks it needs to make that work.  But, if anything’s going to, it seems like that will.

At Best Buy’s big box stores, there appears to be a business model in which:

• Most equipment prices are competitive, if rarely quite the best; and
• The only ancillary necessities like cables that are stocked are house brands like Dynex and Rocketfish, and they’re priced an order of magnitude higher than functionally identical items available elsewhere.

See how this works?  You go in and spend $800 on a new television, and then hey, no problem getting another $50 out of you for the cable you need to run it (and at a much higher margin than the ostensible “main” purchase).  Why, it doesn’t matter a whit that this $50 cable does exactly the same thing as a $4 cable available any number of places online (or even a $10-15 one available at a discount retailer).  See the gold plating on this $50 cable?  See the super-duper woven sheathing?  It’s more better!

The decoration is meant to appeal to those who have convinced themselves such things matter.  Folks, digital cables (like HDMI or optical audio) either work or they don’t.  If there is signal, the signal is the same as it would be with any other cable.

I think mostly, though, this strategy plays to ignorance.  I think there are still enough people for whom it’s an alien world, and they go in for one of them newfangled flat TVs, and if this is what they need, then well, this is what they need.  What’s another 5% on the bill?

And then even someone who might pause and consider whether it’s a reasonable price probably values not making another stop before going home to set it up, right?

You know, car dealerships have had to change too, but they’ve survived.  For the most part, we still want to drive before we buy.  Also, enough folks still buy them “the old way”—from dealer stock, and either the same day or shortly after their first visit.  That logic probably isn’t transferable to electronics, though.

What’s going to happen?  I don’t know, but the answer isn’t nothing.

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