Earlier this month, one time successful big-box retail store Best Buy posted a $1.7 billion quarterly loss and announced the closure of 50 stores nationwide. Following the news Best Buy’s CEO Brian Dunn resigned due to what the company referred to as “an unspecified personal conduct issue.” This news made many question if Best Buy has a future as a 21st century retailer.
Here are 5 reasons why Best buy is stuck at a crossroad:
1. Changing business environment: Best Buy’s business has stagnated due to changing macro-economic forces, accompanied by a shift in consumer preferences.
2. Not enough choice: Shoppers today can typically find more choices online from Amazon and other online retailers than they can find at Best Buy. Frequently the online retailers have lower prices too.
3. Jack-of-all-trades, master of none: When it comes to tech products Best Buy essentially offers a little of everything. Given this strategy, the store’s sales representatives struggle to gain specialized knowledge on products sold. If you want to buy a cell phone it is likely that you could get your questions answered in more detail from a cell phone provider’s store sales representatives than you could at Best Buy.
4. The rise of mobile technology is transforming comparison-shopping: Years ago shoppers would go from store to store comparing prices. Giving their size the big-box stores typically won. Today people can compare prices far faster and easier online at any time in any place.
5. Failure to adapt fast enough: Best Buy has made changes to react to the environment such as acquiring online music subscription service Napster in 2008 (later sold in 2011) and online movie subscription company Cinema Now in 2010. However, such changes have not been fast or successful enough to guarantee the company’s continued success. As a result Best Buy is still somewhat dependent on products that have since been digitized such as CDs and DVDs.
Another area where Best Buy has failed to adapt is their store layout of checkouts and security guards at the door. Such a layout is outdated and un-customer friendly. By contrast at Apple’s retail stores, customers can check out wherever they are in the store and can test new products if a wait is necessary.
So what do you think? How can Best Buy avoid the fate of other big-box retailers such as Borders, Linens ‘n Things and Circuit City? Share your thoughts in the comments section below.
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This week’s edition (February 20th – 26th) of Bloomberg Business Week contained an article titled (in the print edition) ‘Would You Like Fries With that Title Policy?’ The article reported on the purchase of O’Charley’s casual dining chain by Fidelity National. On February 6, 2012 the title company agreed to purchase O’Charley’s 340 restaurants for approximately $221 million in cash.
Diversification into unrelated markets is not a new business concept, however it is unusual in the current economic environment. Given the economy in recent years many U.S. businesses have been very cautious with growth strategies even in related markets. While growth in general is risky, to attempt to grow through diversifying into unrelated markets has even more risks attached.
The purchase will provide Fidelity National access to three new restaurant brands: O’Charley’s, Stoney River and Ninety-Nine. The later two of the three brands are thriving, however the O’Charley’s brand has struggled in recent years to differentiate itself from other casual dining establishments. Thus the biggest challenge Fidelity National will face is how to turn around O’Charley’s. As Bob Goldin, executive vice president at Technomic, a food industry research and consulting company acknowledges:
“O’Charley’s has been a leaky bucket for years, I don’t know if there’s a miracle worker who could turn this thing around.”
Strategy expert Richard Lynch in his Strategy textbook says that when an organization moves into unrelated markets, it faces the risk of operating in areas where its knowledge of key success factors is extremely limited. However, in the case of Fidelity National its knowledge of the restaurant industry is not as limited as you would initially suspect. The company actually entered the restaurant industry in 2009 forming American Blue Ribbon Holdings in order to invest in two restaurant chains: Baker’s Square and Village Inn. In 2010, Fidelity National bought Ohio-based casual dining chain Max & Erma’s out of bankruptcy; adding it to American Blue Ribbon Holdings.
Fidelity National justifies such expansion as a way to grow and spread their risk across different markets. The company has a dominant share of the title market and little leverage to further expand in this market due to antitrust regulations. The restaurant market by contrast is very scalable with an indefinable amount of growth potential. Adding O’Charley’s to American Blue Ribbon Holdings has substantial cost benefits for the company, particularly in regards to economies of scale on the supply side. As Fidelity National’s Chairman William Foley explains:
“We have been seeking an investment in a larger, scalable, strategic restaurant operating company to complement our successful investment in American Blue Ribbons.”
Richard Lynch acknowledges that organizations can be successful through unrelated diversification if the holding company managing the venture uses strict but clear financial controls. Time will tell if Fidelity National’s purchase of O’Charley’s was a smart move and if they can turn the brand into a success that they could possibly sell for profit. Since the company also holds minority stakes in HR/Payroll system Ceridian and automobile alternator and starter maker Remy International. One thing is almost certain: Fidelity is unlikely to stop investing outside their core business any time soon.
What do you think? Please share your thoughts in the comment section below.
Photo Credit: Wikimedia Commons user: Cloudbound
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Growing up in England, I remember being 13 years old and using the earnings from my newspaper delivery route to go shopping for the latest top 40 CD at Woolworth’s. At the time, Woolworth’s was one of the UK’s best-known retailers, having opened its first store in 1909. The company’s product categories included entertainment, home goods, children’s toys and clothing, and confectionary. The company had over 800 stores in the UK and a Woolworth’s store could be found in almost every British town. I am no longer living in the UK and unfortunately, I’m not the only one. In January 2009, just short of its 100th birthday Woolworth’s closed its doors in one of the biggest company collapses in British business history.
There were many different reasons cited for Woolworth’s UK collapse, which collectively demonstrate a business that had failed to adapt their business model to the changed 21st century environment. Woolworth’s made a classic mistake that many other organizations make. They were complacent and assumed their past successes would continue into the future.
A Harvard Business Review Article (from July – August 2011) ‘Adaptability: The New Competitive Advantage,’ by Martin Reeves and Mike Deimler addresses how today’s complex changing business world requires organizations to adapt in order to survive and thrive. Reeves and Deimler assert that traditional business approaches assume a relatively stable and predictable world, which is clearly no longer the case. The 21st century business needs to be good at scanning the environment, learning new things and trying out these new ideas not just in terms of product and service innovation, but also in regards to their business model, processes and strategies (Reeves and Deimler).
The purpose for my blog is to explore forward thinking and innovative business approaches, to encourage business leaders to reconsider traditional business practices and to consider incorporating new creative approaches to leadership and the work environment. Business is continually changing and as Woolworth’s, Borders, Circuit City and many others have demonstrated, there is no guarantee that approaches that have been successful in the past will continue to be effective in the future.
Photo Credit: Staffordshire Newsletter
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