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Best Buy Shows Signs of Life as Turnaround Strategy Kicks In

Posted by Barry Silverstein on August 21, 2013 03:38 PM

All things considered, turnaround specialist Hubert Joly has something to celebrate on his first anniversary at the helm of Best Buy. The electronics retailer was "all but given up for dead a year ago—when it was fighting against shrinking revenues, bad publicity, and crushing competition from industry rival Amazon..."

But on August 20, Best Buy reported gross margins of 26.5 percent, beating estimates, as its stock price gained 10 percent. Best Buy's profit for the quarter ending August 3 was $266 million compared to $12 million for the same period one year ago. Still, CEO Joly "is simply better managing the decline. Same-store sales fell by 0.6 percent, and overall revenue was down 0.4 percent," comments Bloomberg. 

Nevertheless, Joly can take some satisfaction from his efforts in righting a sinking ship. One move that has surely helped: In March, Best Buy instituted a no holds barred "Low Price Guarantee" to blunt the negative impact of "showrooming"—when consumers visit the chain's stores to look at products, only to then leave and purchase the items online. The Guarantee offers to match a price from any local retail competitor's store, as well as from a designated list of online retailers, which includes Amazon.com, Apple.com, Sears.com, Target.com, and Walmart.com. It's likely that the Guarantee contributed to a 10.5 percent increase in online sales.

The Low Price Guarantee is just one component of a turnaround strategy that is revolutionizing the way Best Buy does business. Joly's machete has cut far and wide, reducing some 400 positions, revamping the chain's logistics, and slashing operating costs; in fact, the company said it has saved $390 million this past year.

Best Buy is also looking for traction from its "store within a store" concept. While it already features Apple products, Samsung announced in April that it would start opening "Samsung Experience Shops" within Best Buy stores. Well-stocked with Samsung goodies, these mini-stores will also have their own checkout counters and offer servicing of Samsung products.

Apple and Samsung are not the only brands to latch on to being showcased in Best Buy. Microsoft announced in June that it would follow suit, opening Windows Stores in over 600 US Best Buy stores. Clearly, technology brands have faith in the brick-and-mortar retail model and want to take advantage of a whole different type of showrooming by engaging customers at Best Buy stores.

Will the turnaround strategy work? "Ultimately," Bloomberg notes, "Joly's job is to keep the company alive while turning it into something else—something with a value proposition that Amazon can't match. Early signs so far are as encouraging as they could be."

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