Leapfrogging the competition: How Best Buy is making the right bet on technology

By Steve Rowen

Here at RSR Research, one of our foundational principles is that Retail Winners (those whose sales are outpacing the competition) think and do things differently than the competition. While a company might get lucky and hit on a unique, desirable product that drives great sales for a period of time, history has shown us that in and of itself a special product or category just isn't enough to drive sustainable results.

In other words, in the short term, customers will put up with almost anything to get the "next big thing." The operative phrase here is: "short term."

They'll wait in long lines at stores, tolerate slow or unstable websites, and wait weeks or months for delivery. Whatever it takes to get the next Beanie Baby (okay, I'm dating myself here, but I think you get my point). Niche products have a shelf life and their value can plummet overnight. Put another way, today's $9,000 curved screen TV is tomorrow's $1,500 deal. Today's hot product is tomorrow's commodity, or worse.

Suddenly yesterday's hot retailer is today's laggard—with sales falling below the Mendoza line of inflation rates.

This begs the question: What do you do when the rocket ship you were tied to flames out, and you're suddenly desperately in need of fuel?

Our research shows that generally, laggards hunker down. They stop spending money on technology because they don't have a lot of money to spend. Instead they put money into marketing, hoping that a really clever ad will bring customers back into their grasp. They cut payroll, they maintain old systems, and search desperately for the next big thing. They look around at their competitors, trying to figure out their secret sauce. And most of the time, they fail. They may remain in business for months, years or even decades—limping along on prior glories—doing things a particular way because "that's the way we've always done it."

The issue, of course, is that just because "that's the way we've always done it" doesn't mean we were ever doing it right. It's very hard to separate the necessary from the idiosyncratic, and in my career I've found that retail savants are singularly unable to point at the specific things, products or operations that gave them their original success.

Sometimes these companies get lucky. They bring in a leader who understands the tenets of successful retailing. And the decisions the leader makes seem surprising. Let's take a look at one turnaround story in the making: Best Buy.

Many were preparing to give Best Buy last rites for a litany of reasons. But the board of directors brought in Hubert Joly as CEO, who started doing some interesting things.

He added payroll back into the stores. This wasn't surprising, everyone knew that part needed to be done.
He arranged for a new website. This was surprising, at least to me. I thought the company's website was "good enough."

He guaranteed price matching against Amazon and any other retailer selling the same stuff on the Web. Thus, he took price right off the table.

I'm sure lots of other internal initiatives were undertaken, but for the purpose of this article I'm most fascinated by the website replacement. As it turns out, our recent research tells us that 50 percent of laggards (those underperforming retailers) are using homegrown or customized solutions vs. only 29 percent of Retail Winners. Winners are more likely to use either on premise or cloud-based packaged solutions.

These same Winners are more likely to extend their e-commerce platforms into their stores for customers, employees and even as a POS device.

Obviously, I'm not saying that simply replacing a home-grown e-commerce system with a packaged one is the key to retailing success. I am saying it's a marker—an indicator that a company is willing to change, and look at all aspects of its business in the quest towards satisfying customers.

In the same study I just mentioned, we recommend laggards work to fill out their e-commerce portfolios. We found that many valued components were just missing. We also talked about the implementation of new metrics to help measure incremental success.

The goal is lofty—leapfrog the competition. A sound technology infrastructure in all selling channels is one piece of that puzzle, but it turns out to be larger than we might have presumed. For one, Best Buy is proving the truth of that hypothesis.