Competition on the high street.

APRIL 26, 2010
For an informed view on connected entertainment in the UK & Ireland, visit Cue Entertainment

It’s always good to see a new  retail business opening, whether it squeezes in between the 99p and the £1 discounters on the high street or unveils a flagship store in an out-of-town shopping centre. This is particularly true when the newcomer brings with it a successful track record in the supply of home entertainment hardware and software. In these tough times, anything with the potential to boost sales in this sector can only be welcomed.

Only 12 months ago, the launch of the joint UK project between global electronics retailer Best Buy and Carphone Warehouse was suddenly postponed, a victim of “the economic climate,” according to Carphone Warehouse CEO Roger Taylor. So the news that the first Best Buy UK store, in Thurrock, Essex, is to open for business a full day sooner than planned, on the last day of April instead of May Day, could herald a much-needed shot in the arm for everyone involved in digital content delivery.

It has already boosted the fortunes of Wincanton, the supply chain and business outsourcing services provider, which has inked a five-year storage and distribution deal with Best Buy UK. The company has refitted its Daventry distribution centre for Best Buy and integrated IT systems to ensure efficient supply chain monitoring.

Wincanton CEO, Graeme McFaull, described Best Buy as one of the most exciting companies in global consumer electronics retailing. “We’re both equally passionate about customer service — it’s at the core of everything we do,” he said.

The next few months will test the relationship, particularly since economies of scale will be hard to find until more outlets are added to the chain.

The opening of the Thurrock store will kick off a “four-day launch festival” that will see eager customers welcomed by blue-shirted employees from 7am onwards.

In New York, Best Buy customers would be queuing around the block at that hour, just as they did at 200 American Best Buy stores on Thursday, when “Avatar” went on sale at 12:01am.

Whether the Best Buy brand will carry the same weight with Essex shoppers and later, those in Bristol, Croydon, Liverpool, Southampton and the West Midlands remains to be seen.

Best Buy has built a good reputation in the US, where 1,070 outlets account for one in five consumer electronics (CE) purchases made each year by American households. The revenue mix of the US business shows CE products as the biggest cash generator, accounting for 39% of income for the three months to the end of February this year.

In second place is the home office category, at 33%, followed by entertainment software at 18%, which is down 3% on the 2009 figure.

The company is known for its competitive pricing, extensive product range and well-informed staff, who are all graduates of the in-house training scheme — the Blue Shirt Academy. Many of the offers in the US will be familiar to customers of Best Buy’s UK competitors, including price match guarantees, try-before-you-buy, and discounted specials. There are also bundled set-up and installation services from the “Geek Squad” that will provide 24-hour product technical support, a similar operation to the DSGi “Tech Guys” at PC World and Currys.

The fact that the incumbent competition on this side of the Atlantic has had a year’s notice in which to raise its game is a challenge that Best Buy will have to confront, as it heads for its target of 200 UK stores. Comet with 250 stores and DSGi with over 600 are among electrical retailers that will be watching with interest, as will Asda, Sainsbury’s and other supermarkets.

In a “Strategy Update” published in mid-March, DSGi CEO John Browett detailed a number of group operations initiatives around Europe, including an extensive store redesign to provide “a contemporary look and feel” for shoppers. Although the document doesn’t mention the nascent competitor, focusing instead on the run-up to the end-of-year peak, it details the group’s intention to ensure that DSGi operations are match-ready when Best Buy opens its doors on Friday.

The transformation programme has concentrated on megastores and the 2-in-1 combination of Currys and PC World, which consolidates both operations in a single location. So far 141 stores have been updated and a further 150 transformations are planned for the current financial year.

DSGi claims to have identified 100 Currys locations for the 2-in-1 stores, part of a rationalisation from the current 664 outlets to a future total of around 500. With an 18% customer overlap, there are obvious cost savings to be achieved from the dual branding strategy. Perhaps coincidentally, the combined range of products will also mirror the Best Buy UK offer more closely.

Up to 24 million households are in the catchment areas of DSGi stores and 33 million customers are on the corporate database, purchasing power that Best Buy could take time to equal. Some 4,000 employees have been through DSGi’s equivalent of the Blue Shirt training academy and the company has run 250 supplier training workshops over the past year.

Best Buy has been at the forefront of digital content delivery in the US, thanks to its deal with Roxio CinemaNow which includes pre-installation of the necessary software in virtually all the electronic devices the company sells, from internet-connected TVs and Blu-ray players to mobile phones. The company has taken a pro-active approach to marketing digital delivery by ensuring that all employees are familiar with its benefits and able to explain them to customers.

It is not surprising that the company plans a similar approach in the UK and is collaborating with Virgin Media to showcase the advantages of superfast broadband and the connected digital home.

As the result of Best Buy research, which revealed a pent-up consumer demand for a better retail experience when buying games, an in-store area will feature the latest games consoles and a highly specified HD Home Cinema installation with 5.1 sound. To be known as the Ultimate Games Experience room, it will allow customers to sample the latest audio, video and games technology before they buy. The company has yet to explain how they plan to keep the area free from teenagers vying for the highest scores.

Best Buy already has a strong online presence in its existing markets and the most recent financial report stated e-tail revenues of $2 billion, a year-on-year increase of 20%. This represents a mere 4% of current group income but the UK operation will no doubt seek to ramp up web transactions quickly.

For comparison, the Dixons and Pixmania e-tail brands, which benefit from the shared DSGi supply chain, generate £1.4 billion a year between them. Tesco and Amazon are among several other established online CE retailers, in an area where price competition is at is most aggressive, so it will be interesting to see how well the newcomer fares.

The current emphasis appears to concentrate on communicating the physical arrival of Best Buy stores in the community. While the bricks and mortar megastore strategy could help bring credibility to the brand, a strong online presence in the future will enfranchise the large number of potential customers who are not within easy reach of the new stores. However, some of the key brand values, particularly in the area of customer service, might prove difficult to communicate to shoppers seeking the best deal and the fastest delivery.

The chain started with a small retail audio store in St Paul, Minnesota, which was opened by Richard Schulze in 1966. As it grew, the original name, Sound of Music, was changed to Best Buy in 1983 and today the company employs more than 150,000 people in the Americas, Europe and China. The desire to reflect and maintain a close link with the customer is a thread that runs through the history of Best Buy and can be seen in the pre-launch web site, which features green issues, community forums and employee blogs.

The arrival of Best Buy UK will undoubtedly create jobs and enliven the home entertainment landscape at a time of uncertain delivery methods and accelerating technical change. If that change moves in the direction of deeper discounting and a reduction in over-the-counter retail transactions, Best Buy could face an uphill struggle to make an impression in what might already be an oversupplied marketplace.

After the shock of the launch postponement in 2009, no-one wants to see this week’s newcomer become last week’s news.