Thread: The death of retail (bestbuy)

John Backus: Retail Reinvented, Again

The 2011 holiday shopping season saw a 15 percent increase in online sales, up to $35.3 billion, according to Comscore, but consumer electronics retail bellweather Best Buy reported a one percent decline in holiday sales. What is going on? Pretty simple -- we are in the middle of another battle between brick and mortar and e-commerce and it will continue to drive our venture capital spending strategy.

The opening decade of the new millennium brought us the death of retail: version 1.0 - when virtual goods sold online replaced physical goods sold in brick and mortar stores.

Digital music replaced CDs. Remember Tower Records and the Virgin Megastore? They were part of an endless parade of high-profile retail music casualties. Amazon streamlined the process of buying physical books online, and then brought us the Kindle and pioneered digital books. Brick and mortar book retailers such as Borders and its affiliate Walden Books crumbled, with Barnes and Noble not far behind, likely leaving its Nook spinoff as its surviving legacy. Netflix helped Blockbuster close thousands of stores and enter Chapter 11 to be bought by Dish Network. Digital cameras crushed 4,000 Fotomat stores and brought Kodak to the edge of Chapter 11. All the while Amazon and Apple became the new digital mega-stores for music, movies, TV shows, books, magazines and newspapers. For Christmas, our stockings had gift cards and our family bought most of our gifts at the last minute, online, instead of at the mall like we did ten years ago.

This decade will usher in the second chapter, when a veritable parade of consumer electronics gear disappears off the shelves of retailers, resulting in the collapse of specialty stores including Best Buy, Fry's, hhgregg, Comp USA, Microcenter, Radio Shack, Ritz Camera and dozens of other similar companies. Staples and Office Depot will not be far behind.

The death of retail version 2.0 is a result of three trends - substitution, unbundling, and integration - that have been building steam for years, but that are now intersecting with a deadly multiplier effect.

1. Substitution: We are now substituting digital goods for physical goods - music, movies, books, newspapers and magazines. Substitution has peaked, reshaping retail forever. This is why the growth of digital media and mobile devices is so important and why we were early investors in companies like AppTap, SnappCloud, Stitcher and Tap 'n Tap.

2. Unbundling: Why buy the album when you only want the song? Music is now unbundled. Why buy the movie when you can stream it? An increasing catalog is available for streaming at a flat monthly fee. Later releases are available to rent. Why subscribe to a cable bundle when you only watch a few shows? Most television shows are now available a-la-carte, and cable will soon be unbundled as I predicted earlier on Huffington Post.

3. Integration: Digital cameras, camcorders, car GPS systems, car DVD players, satellite radios, stand-alone stereo systems, DVD players, scanners, e-book readers, television screens (smaller sizes), digital picture frames and video game consoles are all dying product categories. The core functionality of each of these once-upon- a-time standalone devices has been integrated into new smartphones and tablets. As an example, we long ago replaced our home stereo system with iPods, and have music streaming to most of our common areas via iTunes and Pandora.

So what about Best Buy? Why did their sales drop this holiday season? This still $8B market value company is dying for serious and not-fixable reasons. Best Buy CEO Brian Dunn misses the point in his most recent blog. This company is the poster child of this second chapter of retail so let's take a closer look.

For Black Friday 2011, Gannett prepared a map of a Best Buy store and it gives us a great starting point. What do you see?



Let me tell you what I see. I see a store that is dying from the core out. The core of a Best Buy store, the inner part of the store, is comprised of DVDs, CDs, digital cameras, digital camcorders, MP3 players, mobile phones and accessories, and gadgets. Of these items, most have gone digital-downloadable, or been built into smart phones. And is Best Buy really the place you want to go to buy your next phone?

But the outer ring of Best Buy is dying as well. Lets take a clockwise tour. Appliances are here to stay, but are not a frequent purchase. Video games are moving into the cloud. Home theatre is stagnant. Television has been redefined from the television set, to the content that used to be only available on the television set. We may continue to upgrade our main television screen at home every 3-5 years, but more and more we will consume movies and television on our desktops, tablets, and phones. So sales of second and third TVs are dying quickly. In-car electronics, standalone GPS, satellite radio, seatback DVD players and HD radio will quickly disappear, replaced only by the smartphone powering a dumb screen on the dashboard. And then there is computing. Tablets are quickly replacing netbooks, and tablets are eating in to desktop computers as well. I can see the day in the near future where I no longer buy a desktop computer for my home. We may need one printer at home, and the smart phone camera is quickly becoming a great scanner.

Yes, Best Buy is dying, from the core of the store out. But it is not alone. Welcome to the new world of retailing, the death of retail 2.0. Look for this to repeat across the country over the next three years.

Who will pick up the pieces? Integrated online merchants like Apple and Amazon, specialty merchants serving well-defined niche markets, delivery services like UPS and FedEx and broad spectrum retailers like Target and Walmart will be the pillars of the new retail ecosystem. Entrepreneurs that build businesses within this new construct will ride this next wave.

I understand that some things like appliances and TV's are not bought regularly and other products will die out, but dont people still want to see, hold and test the toys they use before they buy it?

Is the future of business going to reduce to nothing more than a warehouse and a website? This is the vibe I'm getting from the article.

Is it just me or have businesses come full circle? We started many years ago with niche specialty stores, then came the big-box stores that offered everything, and now we're headed back to stores that will focus on certain products...

The author is dead on with this. Everything Best Buy (and a lot of other stores) sells has been replaced by new technology.
CD's - iTunes
DVD's - iTunes
Software - iTunes, independent program sites
GeekSquad - Remote customer service that can take over your comp (Though I see a future in geeksquad)
Camcorder/ Camera - Phones
GPS - Phones
Video Games - Soon, all video games will be run off a cloud or online network

So what is BB left with? A bunch of shoddy sections that have competitors who can mame them on every level.
Entertainment - Frys, Walmart, Costco
Appliances - HomeDepot, Walmart, Sears
Office - Staples, OfficeDepot, OfficeMax
Audio - Mostly run by local competitors with better stock
Computers - Apple (they are now partnered, but it will not support the decline)
Cell Phones- Sprint, AT&T, Version ect.

Pretty much, BB and all the other big box stores are going to have some rough days ahead. You know your companies future is grim when everything you do can be replaced by a interactive display and a warehouse in back. I look forward to make a killing by shorting BBY.

Good riddance. I'd say Best Buy is dead because of their insistence on marking prices up at ridiculous levels more than anything else. It would still be more convenient to simply drive over and buy a cable or whatever from them if it wasn't $40 cheaper on Amazon.

Originally Posted by Garnik

Good riddance. I'd say Best Buy is dead because of their insistence on marking prices up at ridiculous levels more than anything else. It would still be more convenient to simply drive over and buy a cable or whatever from them if it wasn't $40 cheaper on Amazon.

I agree, I have not shopped at BB in 7 years. The socalled experts have no clue what they are selling. I did walk in just before Christmas only to have the tv "expert" tell me that DLP tv's are no longer made. Hmm. I have one (62 inch ) and really like it. Mistsubishi introduced a 92 inch about 2 months ago. I have no respect for BB anymore.Their prices are way over what other retailers charge.

BB is a fantastic Amazon showroom. Go to BB, see what you want/need, then order from your phone and laugh all the way home at your savings.

Originally Posted by wickedlysane

BB is a fantastic Amazon showroom. Go to BB, see what you want/need, then order from your phone and laugh all the way home at your savings.

I've been using BB as an Amazon showroom for years now. And I'm constantly amazed at how little the BB employees know about their products.

makes sense - when you finally have to go to a store - a quick duck into Target/HEB and you get nearly everything you didn't order on-line..

Originally Posted by wickedlysane

BB is a fantastic Amazon showroom. Go to BB, see what you want/need, then order from your phone and laugh all the way home at your savings.

Lol, I do this at the book stores too!. I'll sit down with a book and read it as long as I want. If I like it enough I go to Amazon, or ask the store manager if they'll match online prices. Usually they don't so I go elsewhere.

Originally Posted by XCELRR8

I've been using BB as an Amazon showroom for years now. And I'm constantly amazed at how little the BB employees know about their products.

They don't give a shit because they don't get paid on commission. They could sell one computer or ten and it wont make a difference on their paychecks.

Great read. Thanks !

Gotta agree on most things the guy said. Though I gotta say, as stated above, that people still like to hold and touch before they buy, so my guess is that there is still room for them in the business as long as the previous generation has a portion of the buying market. (Our parents, or people in the 40+ age range). Most of them aren't exactly computer-savy, so they'll trust the brick & mortar store more than the online retailers. On the flipside, they don't buy as much electronics as the younger generation so, bestbuy is def. heading to the gutter.