Hearne: Best Buy Victim of Times, Sex Scandal, ‘Psychological Marketing’

What goes around comes around…

Last year Jack Poessiger and I were talking to the head of one of Kansas City’s biggest commercial real estate firms about a fancy-schmancy new retail development he was working on. One for which he’d procured Best Buy as an anchor tenant. Isn’t that a little risky, I asked. Nah, he assured me, Best Buy was blue chip. A few days later I sent him a couple links to business stories suggesting otherwise.

Now check out this graph from an Associated Press story earlier this week about an unrelated sex scandal that has cost Best Buy both its CEO and founder.

"The latest revelations are part of a scandal that couldn’t have come at a worse time for the 46-year-old retailer. The company, which has more than 1,400 U.S. locations, is struggling to regain its footing as it faces increased competition from online retailers and discounters. Customers have all but abandoned buying at so-called ‘big box’ stores like Best Buy."

"All but abandoned" Sound familiar? It should.

"What have I been telling you for the past year," says Kiefs Audio Video owner John Kiefer.

Meaning Best Buy’s days are numbered?

"Well, are they over? No, they’re not over, but the truth of it is people don’t get discounts at box stores unless they’re shopping for commodities like toilet paper," Kiefer says. "Electronics are another matter, and anything that has a model number on it could be a stock unit, a B stock unit (refurbished), gray market or counterfeit. We don’t even buy using model numbers anymore – we haven’t for 20 years. We buy by the SKU number."

Speaking of 20 years, two decades back big box stores were all the rage.

Remember CompUSA? Technically the company’s still around, but try finding one within 500 miles. Or how about Circuit City, Tweeter, Sound Advice, Ultimate Electronics – or Silo, for crying out loud.

"Big box stores are a dime a dozen," Kiefer muses.

Could Best Buy be the next Circuit City?

"I think it’s very possible," Kiefer says. "Because for 20 years they’ve never given discounts on anything good – anything of true value."

Not to mention the days of CDs and DVDs as loss leaders to build traffic are mostly in the rearview mirror.

Here’s the deal.

"They advertise big discounts but, but basically what they’re doing is ‘psychological discounting,’ " Kiefer says. "I talked to Sam Walton years ago and he told me, ‘I will never discount more than one percent of the items in my store.’ So out of 60,000 items, he would only discount 600 items. I asked him how he could get away with so little discounting and he said, ‘If you discount the items people shop for every day and move ’em around the store, you train people to think they’re in a discount store.’ You train people to think they’re gonna outsmart the store. Isn’t that why people go to Las Vegas? Because they think they’re going to win?"

All of that said, how long can Best Buy keep the game going?

"I think they’re on their demise right now," Kiefer says. "But there are an awful lot of people that still think, ‘Well, I got a good deal on a TV five years ago."

Columnist insert: I’ll still drop by the odd Best Buy when traveling to maybe see if it has a certain CD I want to listen to on the road, or to pick up the odd new release or maybe get a phone or computer part. Even just to see what the stores are featuring and/or what kind of people are still shopping there. And what I’ve noticed increasingly in recent years is that I see fewer and fewer customers in the stores.

"You’re right, there are," Kiefer says. "And the reason is, the core of Best Buy’s business was audio and video and today if you look at Best Buy, today it’s really a great big Radio Shack. They’ve got a little of everything, but they have very little audio. They still have a lot of TVs, but they don’t have the really good models."

As for ousting of Best Buy’s founder for not reporting the sex scandal with the CEO, "It’s irrelevant," Kiefer says. "His days are over. He did his thing, he convinced the American public that he was a Walmart when he never was. When the reality was he was just a hustler like me and everybody else. But I’ve always tried to be an honest hustler."

Can Best Buy make it by turning its big box success formula upside down and going with small, boutiques selling cell phones and the like?

"They’re not going to do that," Kiefer says. "That is, once again, ‘psychological marketing.’ The fact is, they’re shrinking and they’re going to open a few of those. Will it work? Who knows? I hope it works."

Kiefer’s bottom line on Best Buy:

"If you’re a stock market investor in Best Buy, my suggestion is to sell your stock. I think they’re going to be very lucky to be alive in 10 years. What do you think of K Mart? They’re still around, but in what condition? Radio Shack is still around. I wish ’em luck, but I looked at my 401K about six months ago and I called my stockbroker and said, ‘Get me out of Best Buy.’ And he said, ‘You don’t want to do that, they’re doing well.’ And I said, ‘That’s why I want to get out.

"Do yourself a favor and remember that word "psychological marketing.’ When you were selling yourself to some girl at some point in your life, what came out of your mouth? All the bullshit you could think of."

Read more here: http://www.kansascity.com/2012/05/14/3609385/best-buy-chairman-steps-down-after.html#storylink=cpy
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7 Responses to Hearne: Best Buy Victim of Times, Sex Scandal, ‘Psychological Marketing’

  1. smartman says:

    Boxing Day
    The manufacturers are as much to blame as the retailers. All sense of scale is lost when you can buy basically the same stuff at a boutique store, a Walmart or online for the same price. With the exception of the above average to luxe gear that Kief’s sells there is little to no product differentiation between most brands. Most people buy on price, size, wattage, etc, with little to no thought about quality, efficiency, sonic / visual accuracy or longevity.

    Kiefer’s honesty and candor are rare in the retail world but he also provides products and services that the big box stores never will. He may not be the last Mohican but he is definitely a well prepared survivor for the future of retail electronics.

  2. Super Dave says:

    I can see what Kiefer is saying and means as well. In the retail business nobody is the giant forever. For instance we older people remember a place called Montgomery Wards. In 1965 who would have ever thought in 36 years they would be just a memory. Sears is no longer what it was. Wal-Mart has even changed the past few years. Best Buy as well is losing grasp with the customer. Kiefer makes it because he offers what I have told people for many years to do if going to open a retail business and that is

  3. the dude says:

    So long Best Buy…
    you won’t be missed that much.

  4. realist says:

    come on stop the b.s.
    Best Buy, if they had the right management team would catch on what the market is looking for. Sure brick and mortar
    stores are declining but best buy has a huge market to draw from. Kiefs has the high end buyer which I’m guessing is
    maybe about 5-8% of the total consumer market. And probably he does a good job with that market. And over the last
    4 years the people who have flourished were the higher income buyers who wanted what kiefs was offering.
    If best buy had the right position they could do well. People still love to go out and shop. Internet shopping can only
    take you so far. The recent bush recession has hurt every business in the retail industry. So best buy is not alone
    by any means. Put in the right team. Scale the product choice to the 92% of the market and see what happens.
    I’ve seen hundreds of businesses. And in 90% of them the reason for failure is owner error.
    If you are going to make it in the market today you have to adjust your business to the external factors.
    You have to make decisions based on a daily changing consumer who wants it NOW! I can remember during the
    holiday season that best buys in overland park was packed. Maybe a new management team with some insight
    into the changing buying habits can turn it around. Let’s hope so.

  5. expat says:

    Cheap is expensive is right. It’s better to pay extra for quality that will last than to buy cheap ‘good enough’ that will be in the garbage in a year. This is actually a kind of stealth inflation where your dollar buys less and less quality but the products are marketed as the ‘same’, in the hope you won’t notice. It happens in food where the package you’re used to has less food in it, it happens in clothes when they switch your jeans from selvage to non-selvage and suddenly they’re falling apart faster, in electronics and tools when metal sturdy things start being made of plastic that breaks. Recently I was looking at getting a record player and found that I needed to go many notches up in price before finding one with the same quality of my dad’s standard 80’s version: most of what was available was cheap Chinese garbage. This is happening in pretty much every aspect of American life — if you want to have nice things, buy LESS but buy BETTER.

  6. balbonis moleskine says:

    After not buying things at Best Buy in a decad, I’ve actually dropped a few thousand dollars on electronics since the beginning of Christmas shopping about 6 months ago.

    Panasonic Viera plasmas were cheapest there (I still do not trust having a flat screen tv mailed to my doorstep). Bought a great high end TDK “life on record” boombox, and a few kindles along with the accessories.

    The only thing shit that I bought there was an el cheapo Blu ray which got returned post christmas.

    You can talk all you want about saving 5% going to Vinnie’s house of shady electronics on Google Shopping but when it really comes down to it you want to be able to touch the thing you are going to buy, especially in the age of tablet computers, plasma tvs, etc.

    The economy will come back and people will buy high end bullshit again. BBY just needs to move away from a business model that relies on selling an extended warranty, unless they are going to seriously overhaul Geek-squad.

  7. Orphan of the Road says:

    New sheriff coming to town
    Manufacturers are going to once again set the prices for the stores. Recent court ruling rolled back decisions from the 70s which allowed retailers to heavily discount the MSRP.

    Retailers who deeply discount are going to be SOL when the manufacturers refuse to sell them product.

    I’d like to hear John’s thoughts when prices are fixed by the manufacturer and discounting will cost business the right to set their own price.

    Keif’s cut its teeth during the days when service was the only difference in the market. Now the circle has come back around and they are more than prepared for the drastic changes to come.

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