As a professional in the retail and consumer space, I‘ve long been fascinated by Best Buy‘s unlikely success story. In an era where brick-and-mortar retailers are struggling to stay relevant, Best Buy has not only survived but thrived. With over 1,000 stores across the United States and Canada and nearly $50 billion in annual revenue, Best Buy is the undisputed king of electronics retail. But what exactly is Best Buy‘s secret sauce? Let‘s dive in.
The Best Buy Backstory
First, some context. Best Buy was founded in 1966 in St. Paul, Minnesota as an audio specialty store called Sound of Music. The company began to expand in the 1980s under the leadership of founder Richard Schulze, who broadened the store‘s assortment to include a wider range of consumer electronics. In 1983, the company rebranded itself as Best Buy and went public in 1985.
Throughout the 1990s and early 2000s, Best Buy experienced explosive growth, becoming the largest electronics retailer in the U.S. Key milestones included the launch of BestBuy.com in 2000 and the acquisition of Geek Squad in 2002. By 2004, Best Buy had surpassed $20 billion in annual revenue and ranked as the 10th largest retailer in the U.S., according to the National Retail Federation.
Scale and Specialty: Best Buy‘s Unique Position
Today, Best Buy operates approximately 1,000 stores in the U.S. and about 160 in Canada. Internationally, the company also has a presence in Mexico and previously operated in China and Europe. Here‘s a snapshot of Best Buy‘s retail footprint over time:
| Year | Total Stores | U.S. Stores | International Stores |
|---|---|---|---|
| 2010 | 1,192 | 1,069 | 123 |
| 2015 | 1,448 | 1,050 | 398 |
| 2020 | 1,009 | 991 | 18 |
As you can see, Best Buy has actually reduced its store count over the past decade, primarily by exiting unprofitable international markets. However, its U.S. store base has remained relatively stable at around 1,000 locations. This is a testament to the resilience of Best Buy‘s domestic business.
So what sets Best Buy apart from other retailers? In my view, it comes down to two key factors: scale and specialty. As mentioned earlier, Best Buy is the largest electronics specialty retailer in North America with an unrivaled store footprint. No other retailer comes close in terms of sheer size and reach within the category.
At the same time, Best Buy is hyper-focused on electronics in a way that general merchandise retailers are not. About 90% of Best Buy‘s domestic revenue comes from just two categories: consumer electronics and appliances. This allows Best Buy to offer unmatched depth and breadth of assortment. A typical Best Buy store stocks over 100,000 different products.
Anecdotally, as a picky shopper myself, I‘ve consistently found that Best Buy carries a wider selection of TVs, laptops, headphones, and other electronics compared to competitors like Walmart or Target. They are more likely to have the exact model I‘m looking for in-stock. And if I need something niche like a specialty cable or adapter, chances are Best Buy will have it.
Competitive Pressures: Amazon and Showrooming
Of course, Best Buy‘s specialty focus also makes it uniquely vulnerable to disruption from e-commerce players like Amazon. In the early 2010s, Best Buy found itself grappling with the problem of "showrooming" – customers coming into stores to see and demo products, only to ultimately buy them online for cheaper.
At its nadir in 2012, Best Buy‘s same-store sales were declining by double digits and its stock price had cratered below $12. Market pundits were predicting Best Buy would go the way of Circuit City and RadioShack. Then-CEO Brian Dunn resigned amid allegations of misconduct and founder Richard Schulze explored taking the company private.
But Best Buy managed to right the ship under new CEO Hubert Joly. His "Renew Blue" turnaround strategy included price-matching Amazon, partnering with major brands on mini-stores within Best Buy locations, and doubling down on customer service and expertise. Initiatives like the in-home advisor program, free consultation services, and an updated Geek Squad offering resonated with shoppers.
By 2017, Best Buy had posted three straight years of comparable sales growth and its stock price had rebounded above $60. While online competition remains fierce, Best Buy has proven that it can coexist and even thrive in an Amazon world by leveraging its physical assets and investing in the customer experience.
The Best Buy Shopper: Demographics and Behavior
So who exactly shops at Best Buy? According to consumer research firm Numerator, Best Buy‘s typical shopper is a high-income, suburban homeowner aged 35 to 54. Over 60% of Best Buy shoppers have a household income above $80,000, compared to 38% of shoppers at Walmart, Target, and Amazon.
Best Buy shoppers are also more likely to be men, more tech-savvy, and more brand conscious than the average consumer. They value Best Buy‘s wide selection, knowledgeable associates, and Geek Squad services. Many are members of Best Buy‘s loyalty programs including My Best Buy (free, basic tier) and Best Buy Totaltech ($199/year for additional benefits).
Interestingly, Best Buy has made a concerted effort in recent years to attract younger, female shoppers through new store concepts and categories. For example, the company has opened several "Best Buy Wellness" stores focused on personal health technology products. This is part of Best Buy‘s broader push into adjacent categories like electric transportation, outdoor living, smart home, and beauty.
Beyond the Box: Best Buy‘s Future Growth Drivers
Looking ahead, Best Buy‘s growth strategy appears to center around four key pillars:
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Health & Wellness: Best Buy sees significant potential in the $4 trillion global health market. The company has made several acquisitions in this space including GreatCall, Critical Signal Technologies, and Current Health. It is aiming to reach $2 billion in annual health revenue by 2025.
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Membership: In 2018, Best Buy launched its Total Tech Support subscription service nationwide. Recently rebranded as Best Buy Totaltech, the $199/year membership includes benefits like unlimited Geek Squad support, extended warranties, free shipping, and early access to hard-to-find products. As of early 2022, Totaltech had around 4.6 million members.
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E-commerce: While Best Buy will always be a brick-and-mortar retailer at heart, it has invested heavily in its e-commerce capabilities as shopping shifts online. In fiscal 2022, online revenue grew 144% and comprised 43% of total Domestic revenue. Best Buy has an industry-leading Net Promoter Score of 44 for its online channel, according to benchmarking firm Bain & Company.
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Services: Best Buy‘s services revenue reached nearly $4 billion last year and is growing at a double-digit pace. Key offerings include consultation, delivery, installation, setup, repair, technical support, and extended warranties. Services not only provide incremental revenue but also drive loyalty and differentiate Best Buy from pure-play e-commerce competitors.
Tying it all together, Best Buy‘s overarching purpose is to "enrich lives through technology." The company aims to be not just a retailer, but a true partner to customers in their technology journey. This includes making the latest and greatest tech products accessible, but also providing the education, support, and services to help customers get the most out of their purchases.
As part of this goal, Best Buy has launched a number of initiatives to bridge the digital divide and promote tech access and equity. Examples include the Teen Tech Centers, which provide free after-school tech education to underserved youth, and the Geek Squad Academy, which offers tech workshops and camps. During the pandemic, Best Buy also provided $44 million in community grants to support remote learning.
Challenges and Opportunities
To be sure, Best Buy faces its share of headwinds. The consumer electronics industry is notoriously cyclical and dependent on the overall health of the economy. Rising inflation, supply chain bottlenecks, and softening consumer demand could all weigh on Best Buy‘s sales and profitability in the near term.
Longer-term, Best Buy will need to continue innovating and evolving to stay ahead of the relentless march of technology. As more and more products become "smart" and connected, the lines between traditional electronics categories are blurring. What happens when your refrigerator needs a software update or your exercise bike requires a monthly subscription?
At the same time, these technology shifts could play to Best Buy‘s advantage. The company‘s nationwide network of stores and Geek Squad agents are well-positioned to serve as local hubs for the Internet of Things. As virtual and augmented reality go mainstream, Best Buy stores could provide valuable hands-on demos and experiences.
Best Buy is also eyeing new frontiers for growth. The company recently launched a test of small-format, digital-first stores to reach younger, urban customers. It is partnering with Yardbird, an outdoor furniture retailer, to sell grills and patio sets. And it is expanding into electric mobility through partnerships with e-bike and scooter brands.
The Takeaway
At the end of the day, Best Buy‘s success boils down to its unwavering focus on the customer. By providing an unmatched assortment of the latest tech products, knowledgeable and unbiased advice, and comprehensive support and services, Best Buy aims to be the go-to destination for all things tech.
No other retailer can match Best Buy‘s combination of scale and specialty within the electronics category. And with multiple growth engines in e-commerce, services, health, and subscriptions, Best Buy is well-diversified for the future.
As a picky shopper myself, I appreciate knowing that I can always find what I need at Best Buy. And as a retail analyst, I have immense respect for how Best Buy has navigated the turbulent waters of the past decade. The company‘s resilience in the face of Amazon and the pandemic is nothing short of remarkable.
While the future is always uncertain, I believe Best Buy is well-positioned to remain a leader in electronics retail for years to come. With a strong brand, loyal customer base, and forward-thinking strategy, the company has all the ingredients for continued success.
As Best Buy likes to say, "Let‘s talk about what‘s possible." I, for one, am excited to see what the future holds for this retail icon.
