Best Buy Closings: How Apple, Wal-Mart and Amazon Are Killing The Electronics Retail Giant

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A Best Buy store in Westminster, Colo.
A Best Buy store in Westminster, Colo.

Best Buy has fallen on hard times in a sluggish economy, suffering a dismal drop in sales and an overall $1.2 billion loss over the last fiscal year. The electronics giant announced Thursday that it will close 50 stores and cut 400 jobs at its Richfield, Minn., corporate headquarters, hoping to save $800 million over the next three years in order to stay afloat.

While the company performs damage control, it faces an uphill climb with steep competition from low-cost retail juggernauts -- physical and online -- like Wal-Mart and Amazon and high-end brand outlets like Apple Stores.

An integral part of its strategy will be assessing the strengths of its competitors and figuring out how to leverage its own to return to profitability.

The aforementioned companies present three challenges -- neither exclusively in any single one -- to its share of consumers: price, convenience, and quality (both in products and customer service). Best Buy's recent drop in sales has demonstrated that its being outdone on all three fronts, and now it's trying to rally its remaining resources, which requires how to best balance the three factors.

Low-Cost Models And Convenience

Wal-Mart, without question, beats out its competitors when it comes to low prices. The company is able to do this by providing cheaply imported goods manufactured at low-cost in countries like China. Its electronic goods are cheap, but limited, which is where Best Buy, as an electronics-centered business, has the upper hand. Customers who want a little more selection can go to Best Buy, which plays into the convenience factor of being able to go to a single place where you can find what you're looking for.

The problem for Best Buy is that Amazon presents a convenient alternative to the low-cost model. Amazon is able to deliver products at competitively low prices using the Internet rather than physical stores, which suck up a significant amount of revenue to maintain. Here again, Best Buy is beat on affordable prices, and for some customers, the convenience of making purchases online is a plus. Selection is wide and they can search for they want without having to deal with crowds or checkout lines. But the value of physically seeing a product, testing it, and taking it home the same day cannot be underestimated, which Best Buy can leverage against its online rival.

Quality: Better Customer Service, Selection And Products

What Best Buy holds over both Wal-Mart and Amazon is higher-quality customer service. As an exclusive electronics retailer, its staff are more knowledgeable about its products and can help customers find what they are looking for. It would be unreasonable to expect any single Wal-Mart employee, making minimum wage, to know about the store's electronics in addition to its thousands of other products. With Amazon, of course, there is no one with a name tag to tap on the shoulder -- you're on your own.

As previously mentioned, Best Buy beats out Wal-Mart on selection, able to provide higher-end goods alongside the cheaper ones. While Amazon does the same, Best Buy can leverage its customer service.

One of Best Buy's signature customer service features is its Geek Squad tech service team. Customers know where they can get help if something they buy isn't working properly, which Wal-Mart and Amazon can't profess to offer. Apple Stores, on the other hand, have their Genius Bars of tech gurus to back them up.

Not Just Better Products, But The Right Products

Apple Stores represent the opposite end of the spectrum of low-cost, high-volume models like Wal-Mart, which threaten Best Buy's claim to superior customer service and high-end product selection.

Apple Stores do not have the wide electronics selection of Best Buy outlets as they exclusively sell Apple products, but they are unmatched in providing service for these products. Customers go to an Apple Store because they want an Apple product and they know they will find someone who can help them. For this, they are willing to pay higher prices.

The problem for Best Buy is not only that Apple Stores out-compete them in service and customer experience for a limited selection of high-end products, it's also that those products are what customers are buying the most of these days. Apple has dominated the tech gadget market with iPads, iPhones and iPods, which makes it harder for Best Buy to sell similar products. Sure, people won't be able to find an HD flat-screen TV at an Apple Store, but more people are buying gadgets these days than there are buying TVs.

This has been the Best Buy's greatest weakness, and the company knows it, which is why it intends to focus on its smaller mobile-only stories, focused on gadgets rather than large electronics. It's the right strategy, so long as the gadget trend continues.

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