If I Were CEO: Best Buy

By Chad Sandstedt of Value Investing Lab

This morning I decided that 2012 is the year the Sandstedt family goes paperless. After some research it looks like the Fujitsu SnapScan S1500 is the right solution. As a loyal Best Buy shareholder I searched their web site only to find an older model available online but not in their stores. A Google search identified several online retailers where I can purchase the S1500. Since none of the options have local retail presence in San Diego I will be purchasing on price alone.

This purchase illustrates a missed opportunity for Best Buy and I can only imagine how many other opportunoties they’ve missed out on this black Friday. Best Buy has a great opportunity to leverage their retail network with a real web presence with real inventory.

Amazon has Best Buy’s number right now for three reasons. First, they have the sales tax advantage. Next, their product selection is superior as my search for a scanner this morning highlights. Third, the quality of the Best Buy web site is lacking for 2011, although it probably worked well in 1999 which I’m guessing is when it was last overhauled.

If I were CEO I would re-invest some of the company’s cash flow into a web site that can compete with Amazon in terms of usability and searchability. Offer free shipping on purchases over $25 and put kiosks all over the Best Buy store. Best Buy did recently announce that they are expanding their online product inventory which is a great start but I would take it a step further integrate the effort with their retail presence. That is Best Buy’s trump card in this fight against Amazon. They can offer customers the ability to return items in their local store as well as up-sell the profitable warranties and service contracts that Amazon cannot offer. I would not try to compete with Amazon outside of the electronics space. That will be a futile effort. But there is an opportunity to leverage the retail network to differentiate from Amazon.

Part of this strategy would be to convert some of the existing floor space that is currently dedicated to dying categories such as CDs and DVDs into really large vending machine to more efficiently utilize the space. These distributed fulfillment centers would allow customers to walk into a store and have access to items that Best Buy does not currently stock. Since these mini fulfillment centers would also ship to the online customers they would also reduce the shipping times compared to Amazon. Amazon has done a great job of located its fulfillment centers to minimize shipping times but it would be hard to compete with having next day free shipping from the Best Buy down the road.

Today’s sales tax landscape presents a near-term challenge but the sales tax issue is going to take care of itself which is likely to occur in 2012 (see Cyber Monday Sales Tax Free for Many – But For How Long?). This will create a big opportunity for Best Buy by leveling the playing field with Amazon and other online retailers. Combined with level taxation, Best Buy has an opportunity to leverage its local presence to take back the title of the “go to” retailer of electronics.

Disclosure: I am long Best Buy.

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