Best Buy: Gasping and Drowning, Retailers Still Matter to Tech Buyers

Photo credit: Wendi Wiriwan

When you’re drowning, the fact that the head of the lifeguard patrol is resigning isn’t top of mind. Best Buy is in trouble and the fact that its CEO is leaving due to a personal probe of his affairs has nothing to do with anything.

That’s why news that Best Buy CEO Brian Dunn on Tuesday beat a hasty retreat and resigned his post at the struggling big box retailer — he cited a probe into his personal conduct issues — is triviata. It’s a bad time for bad publicity for Best Buy, sure. But publicity or the lack thereof isn’t what Best Buy needs to worry about.

For tech buyers who rely on it, the demise of Best Buy is bad news. Recall it was Best Buy that kicked off the firesale of Hewlett-Packard’s discontinued TouchPad tablet by selling off dirt cheap inventory last August. Sometimes you need a real store — as Apple demonstrates so well with its stores. You need a human.

Here’s a shot our Gina Smith took of people waiting in line before the store opened in San Francisco August 20 to get one of those tablets. Those of us who tried to nab a $199 TouchPad after our local stores ran out had a much harder time.

Best Buy is in a struggle for its life. It posted a loss for 4Q 2011 and it says it is planning to close 50 big box stores next year. If you are a biz geek — it’s good to know what kind of geek you are — check out the firm’s most recent 10Q here. What’s really important to us, though, is how this affects you.

Will Best Buy go the way of Circuit City? Tech buyers can’t live on online purchases alone, particularly not in a pinch, as the HP Touchpad frenzy showed last year.  The fundamental challenge to Best Buy’s continued growth as a low-cost retailer is that in order to reach more customers, it has to build more stores — not close them — and come up with a financial model handling all the fixed costs that go with it.  But component prices falling on most consumer technology result in smaller margins. So the company is at a crossroads and so are the rest of us.

It’s true tech buyers are finding deals at online-only retailers. But how are they finding them?

The real problem for Best Buy is that consumers are coming in the door but they’re doing it not to buy — but to check out gear before they buy online.

This is a bit of karmic payback for Best Buy, interestingly. Its rise in the 1990s was spurred in part by undercutting the sales floor prices of then-traditional retailers such as Sears Brand Central.

So What’s Next for Best Buy?

Best Buy is talking about changing its  focus from high-cost big box locations for smaller, more-intimate stores in an effort to become more nimble. This sounds like it makes a lot of sense.  In order to stay both relevant and competitive, Best Buy needs to establish and re-establish itself as an electronics destination which provides great value. Not just the lowest value. And it needs to do this quickly.

The biggest obstacle to this transformation will be how Best Buy improves margins by reducing fixed costs  — that means inventory and staff — while maintaining their primary advantage over online purchasing: instant gratification.  Most likely this mean not just building smaller, more intimate and buyer-friendly stores. It means less inventory on-hand. And it especially means a larger push to its so-called value added services — ie, support. Apple figured this out with the Genius Bar a long time ago. But Best Buy has been showing it is loathe to learn such new tricks.

In the end, Best Buy is still a huge company — if execs are smart, it will take its opportunity to operate quickly, startup style, and engage in some innovative and risky behavior to save itself. The loss of Best Buy and companies serving tech buyers will be a big one. Someone needs to step up.