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."