How to Fight Amazon.com, Best Buy Style

ENLARGE

A Best Buy store in New York’s Union Square. Photo: Zuma Press

Best Buy has accomplished what many on Wall Street once considered impossible: It successfully fought off an attack from Amazon.com.

The electronics retailer’s operating margins have rebounded and same-store sales are up. That is a dramatic improvement from January 2013, when Best Buy’s shares were trading at roughly one-quarter of their current value as fears of “showrooming”—shoppers’ practice of researching products in bricks-and-mortar stores and then buying them from online competitors—swirled around the company.

Against all odds, Chief Executive Hubert Joly, who joined in September 2012, managed to turn Best Buy around. As Amazon moves more deeply into new areas such as apparel and food, fellow retailers would be well served to note its example.

The first step was aimed at preventing showroomers from buying elsewhere. The company committed to matching competitors’ prices and brought its prices in line with Amazon’s. At the same time, Best Buy improved its website and mobile app.

Best Buy also began to use its stores to improve its e-commerce operations. Prior to Mr. Joly’s arrival, if a product wasn’t in one of the company’s six warehouses, it would be listed as out of stock, even if the item was in stores. Now Best Buy’s stores do double duty as e-commerce warehouses. Best Buy says half of online orders are now picked up in store or shipped from a store, and 70% of Americans live within 15 minutes of a store. That has helped Best Buy speed up shipping times so that most online purchases arrive in two days, matching Amazon Prime’s speeds without the annual fee.

Indeed, Best Buy didn’t just become more like Amazon. It also focused on the area where it could set itself apart from the e-commerce giant: its stores. The retailer knew its suppliers wanted it to thrive, particularly as a showroom for their higher-end products. The company asked vendors, including Samsung, LG, Sony, Microsoft, AT&T and Verizon Communications to set up their own branded shops. The suppliers footed the bill for most of this, and many began paying for specially trained staffers to work in them.

Best Buy also improved training for its other workers and added high-end kitchen and bath offerings from Pacific Kitchen & Home and high-end home theater equipment from Magnolia. Best Buy got more than 88% of its $36.3 billion in U.S. sales in its stores in the fiscal year ended January.

The company hasn’t closed many stores under Mr. Joly, despite significant growth in online sales. That could make it vulnerable to the woes of other retailers, which have become weighed down by bricks and mortar. But that would be tricky since they have become integral to its e-commerce strategy.

The next time a retailer looks poised to cave to Amazon, it should heed the story of how Best Buy came back from the (presumed) dead.

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