By Ben Smith

ORIGINAL ARTICLE:

So the rumor is out there – Radio Shack could be on the market, and Best Buy’s name has been tossed out as a suitor – we wanted to share our perspective on what it could mean.  Best Buy and other retailers are known to be taking learnings from European Retail and applying them in the US.  Best Buy’s own acquisition of Carphone Warehouse in the UK in 2008 could serve as a model for a potential acquisition of Radio Shack.

If Best Buy buys Radio Shack, they could convert Radio Shack stores to “Best Buy Mobile”.  While there are approximately 61 Best Buy Mobile stand alone stores in the US today, there are over 6,000 Radio Shack locations when you combine company owned stores, franchies, and wireless kiosks.

Per TWICE 3/26/2010: RadioShack could be seen as an attractive asset thanks to aggressive cost-cutting measures by CEO Julian Day, solid cash flow, and its strong position in the growing wireless market. Its more than 4,000 small-format stores would also play into Best Buy’s mobile strategy of rolling out freestanding, mall-based wireless shops.

We live in a connected world, and Best Buy’s key differentiator is all of the value add they provide their customers – from educating them on new technology, providing advice on products, to being able to configure / install / fix the products they purchase.  While Walmart and Amazon can match or beat them on price, Best Buy can win on service.  Radio Shack locations can extend the reach in a more manageable, focused format.

Per Financial Times 3/26/2010: Best Buy said it was testing labour models and store design concepts aimed at demonstrating the “invisible” services in the centre of its stores, and that its first Best Buy stores in the UK, opening this Spring, would influence its remodelling efforts in the US … As part of the strategy, it is also continuing to roll out smaller Best Buy Mobile stores to malls and shopping plazas, and CPW’s Wireless World format, which sells computers alongside mobile phones.

RETAIL LEVERAGE TAKEAWAYS:

Frankly I’m just trying to wrap my head around this at the moment, and am sharing this as a service / food for thought for our readers.  At a high level, retail consolidation puts more power in the remaining players, and Best Buy goes from leading the mobile phone market to OWNING it.  With the kind of reach that thousands of additional locations provides, long long term you start to question the viability of stand alone brand cell phone stores (ie AT&T store).  However you look at it, Best Buy would get larger increasing their own leverage versus the competition, but also with their vendors.

It is hard to say what impact there would be beyond the mobile phone + accessories category, as well as the brands/categories that are in Radio Shack today.  The average Radio Shack store is 2,500 square feet, whereas the average Best Buy store is in the 40,000 square foot range.  I’m not sure about the size of the typical Best Buy mobile section inside their US stores, but it is pretty small.  The carphone warehouse stores they bought in the UK average 800 square feet.  Just as their is additional computer / technology related merchandise in Radio Shack’s today, I’d assume there will be more than just mobile phones + accessories in a Best Buy Mobile store.

I’ll keep my eye out for additional thought / speculation floating out there from people we trust on this potential retail shake-up, and I’ll share – primarily via our twitter feed @retailleverage , which I highly encourage you to follow!

UPDATE #1: Note – shortly after hitting submit on my article, Brian Barrett of Gizmodo wrote a great article that blows out lots of the topics I discuss below. Check it out.

UPDATE #2: Tom Ryan at Retailwire started a discussion on the topic of “Best Buy Reportedly Exploring RadioShack Merger.” They currently have 20 comments from various retail industry contributors.  One note – Retailwire contributors tend to come from the retailer perspective often.  We hope to add more brand marketer perspective to the conversation in the future.

UPDATE #3: An article in the Minneapolis St. Paul Business Journal highlighted a nugget from a Best Buy job posting – that they plan on opening 50 Best Buy Mobile stores this year – in enclosed shopping malls.  Obviously a great deal of Radio Shack stores are in shopping malls – buying Radio Shack would put this plan on steroids.

Additional Reading / Sources:

• Fort Worth Star Telegram article: RadioShack shares up on report of takeover or merger
• average Radio Shack store is 2,500 square feet
• average Best Buy store is in the 40,000 square foot range.
• average carphone warehouse is 800 square feet.

By Ben Smith

Last week we asked “How Can Retail Leverage Help Garmin?” We didn’t pretend to have the answer, but we did share lots of background on their current situation.  We asked our readers to share any ideas/thoughts they had regarding Garmin’s dilemma and we were ecstatic with the response.  Combine that with some “new” news from Garmin in the last couple of weeks, and it begs an update.

READER FEEDBACK:

1) @retailxpert, our favorite “Retail Expert”, aptly handled on twitter ,had this suggestion regarding Garmin’s nuvifones:

“Garmin should license out core technology & pursue licensees to expand their line-up.”  She also noted that they are probably already doing this.

2) @susanschaffer A marketing consultant with 15+ years of experience in the digital camera industry, @slschaeffer , sees parallels to Garmin’s PND’s and mobile phones to another industry near and dear to our hearts:

“Reminiscent of what camera companies are going through re. mobile phones!”

3) @drtvguru, the founder & CEO of a DRTV agency, and is an expert on innovative uses of DRTV to build brand and drive sales, sees a positioning opportunity for the entire brand/portfolio, but with words of caution:

You can see his full comments on the original post, but I’m summarizing here: Embrace the single purpose nature, with an “anti-tech” positioning.  Garmin has already carved out very nice target markets, in part due to their single purpose nature (outdoor, fitness, marine, aviation) embrace the single purpose.  Caution – tech press tends to crucify anti-tech because they’re not “sexy” enough.  It would require a very clear understanding of what the target consumer needs and how to find those people. And, it probably requires a very aggressive campaign to get the tech press to grudgingly accept that anti-tech provides important solutions to human problems.

4) @rdsolimeno, the President of a consulting firm, says that “Open Innovation” could be the answer.

“I see the challenge before Garmin and their nuviphone line and think there is opportunity in giving end users more choice than iPhone or blackberry.  There is both risk and reward available for those companies willing to dip their toes into “open innovation.” By opening part of the product architecture up to innovators around the world with challenges to develop both ideas for new features and to develop them – goes in a direction that neither Apple nor RIM dare to go. They key word is “daring.” The innovation comes from the market itself.”

RETAIL LEVERAGE WEIGHS IN: With the luxury of seeing these great ideas roll in from our community, @retailleverage has the benefit and privilege of building on the ideas that were shared.

Licensing: the genie isn’t going back in the bottle regarding smart phones and GPS, so licensing is a way to exploit it.  I agree with @retailxpert that they are probably already doing it.  It could be an advantage for a vendor, multiple vendors, or mobile network(s) that their GPS is powered by Garmin.  On a related front, I have heard lots about Tom Tom’s app for the iPhone, but haven’t heard a peep about Garmin doing this.  I think they should have their own GPS app for smart phones, without worrying about the impact of their yet to gain traction nuvifone line.

What you can learn from mobile phones integrating cameras: yet another genie that got out of the bottle, yet the digital camera market has still sold approx. 70 million units in the last 2 years.  The camera functionality in phones is one of convenience, and IS becoming increasingly useful, when paired with a smart phone where the photos can easily be shared.  Camera phones are taking an increasingly larger share of casual snapshots.  In turn, the digital camera market is moving towards specialization and advanced features.  Camera phones will not replace DSLR’s, but the picture is blurring when it comes to point and shoots.  The manufacturers that win in point & shoot will have to offer convenience and specialized functionality that smart phones will not be able to provide.

Embrace single purpose positioning: What a great segue from the previous parallel with digital cameras/mobile phones.  For their traditional PND business to remain viable, they should look to their outdoor/fitness, marine and aviation businesses.  These are highly profitable, dominant in their categories that have succeeded with a relentless focus on the end user’s need.  I don’t think (or hope) that there are pilots or boaters out there navigating their vessels with an i-phone.  If so, get me a life-preserver.  I also believe that their mainstream success was driven by PND’s as an alternative to the more expensive in-dash screen in autos.  There has to be a combination of consumer cost/benefit and learning curve to where in-dash screens in autos are standard in every car.  Garmin has the technology to license to ensure that it can power a majority of these manufacturers vehicles.

Open Innovation: News flash – location-based services are going to be huge  Garmin has the technology and a trusted name that could provide the tools/kits to application developers to build countless valuable apps to leverage location data.  There could be multiple viable iPhone applications based on Garmin technology & know-how, but Garmin would have to be willing to let this occur while they are growing their own smart phone lines.  Whether on their own, or in the hands of others, Garmin could be the company that puts the “mobile” into smart phones.

KEY TAKEAWAYS: Just as we had the opportunity to listen to the ideas our readers shared, Garmin has the luxury and opportunity to listen to its customers.  Millions of people count on Garmin products every day, and with the exception of Michael Scott in the office, rarely are they pointed in the wrong direction.  I believe Garmin can find its own right direction by listening to its customers.  I’m sure they are already doing it at a consumer engagement level via social media.  Whether those ideas have an impact in the board room or lab is anybody’s guess.  With that in mind, I’m going to send a link to our articles to @jakesjournal , the most visible member of Garmin’s corporate blog team, to share what our community has to say and hopefully we’ll help in a meaningful, non-billable way.

As for our own businesses, this experiment has only reinforced the importance of listening to consumers.  Reviews, social media, surveys, focus groups – the challenge is finding ways to harness the power of the information you gather, or that is shared freely for you to take or leave.

UPDATED NEWS/RESOURCES ON GARMIN / PND MARKET:

• Garmin 2009 Q4 & Full Year Earnings Release (PND down big, outdoor/fitness growing, 1st gen nuvifones disappointed, but 2 new ones launching this year, aviation & marine down but margins still strong).
• This review by cnet gives hope that one of the new nuvifone models can succeed.
• From the CE Outlook blog, Tom Tom admitting that industry-wide U.S.  sales could start to decline by mid-2011.
• Nokia’s Free GPS Is Already Shaking Up PND Market
• See for yourself about Nokia’s Free Forever GPS for their customers

By Vincent Young

For more background on Walmart sku reductions and the insight from a valuable community of retail contributors, read the Retail Wire article “Brands Hit By Wal-Mart’s SKU Reductions”. Here is Retail Leverage’s take:

It is extremely rare to find a national brand that actually has leverage at retail. The vast majority are in fact challenger brands and marketers of challenger brands often times fail to realize that FINANCIAL GROWTH POTENTIAL is the great equalizer between the all-powerful retailer and lesser yoked vendors.

In order to effectively compete, challenger brands must learn to package innovative product offerings together with marketing programs designed to represent at least one of the following four forms of retailer financial growth:

FOUR WAYS TO OFFER RETAILERS FINANCIAL GROWTH:

1. Increase overall category demand - Retailers are measured based on year-over-year growth, excluding new store openings. A challenger brand with a plan to increase consumer demand for a good will always have greater leverage than one who simply offers a more robust feature set than the market leader.
2. Increase the attach-rate of high-value complimentary items – Developing a product line and promotional strategy that has the ability to uniquely grow the market basket is sure to maximize the support that challenger brands receive from retailers.
3. Motivate a “trade-up” within the category – What is it about your brand or product line that is sure to entice consumers to give the retailer more of their money? If your answer is “very little,” then remember that retailer margin dollars also serve as trade-up motivation to the retailer when making category assortment decisions!
4. Help a given retailer win the war against another retailer – Successful challenger brands understand the importance of winning with key retailers. Anchoring a new product launch with a sub-set of exclusive products and/or industry-leading, retailer-specific promotions can generate an over-indexing share of category for the challenger brand.

The most difficult thing for brands like Glad and Hefty is viewing themselves as challenger brands when their histories have been more reflective of the rare “power” brand.

FURTHER READING / RESOURCES:

• Carol Spieckerman, of New Market Builders, with an article on “Art of Retail” with an interesting parallel to Glad’s situation (she’s a Retail expert)
• Follow Carol Spieckerman on Twitter, @retailxpert
• Chris Durham’s website, My Private Brand (he’s a Private Label expert).
• Follow Chris Durham on Twitter, @MYprivatebrand
• The ad age article that was sparked all these discussions and was fully discussed on Retail Wire.

By Ben Smith

I recently posted an article that shared data on how Best Buy has performed since Circuit City closed.  The key point was that Circuit City’s market share was up for grabs, and every retailer that sells CE products had their own designs on capturing as much of that share as possible.  I didn’t spend much time in the previous article on the “why” of Circuit City’s demise, but now I can close up that loose end.

GREAT RESOURCE + PERSPECTIVE FROM A RIVAL INSIDER:

I found a great resource that fills in the blanks on Circuit City’s demise from a person I follow on twitter, @DonEames .  He is a former Senior VP of Best Buy, and now has his own management consulting company.  Even though he was not inside of Circuit City, instead inside of their key rival, I believe he had front row seats to the analyze the demise.  The analysis and candor he provides would be politically tough to get from a Circuit City insider, especially since it has only been a year since the stores closed.

Check it out – it is called “CIRCUIT CITY SIX: Six Fatal Mistakes of a Once “Good to Great” Company”. It is a quick and to the point read.  I found it to provide valuable insight to both retailers and brands alike, and for that matter, consumers who used to shop there (or avoid it).

VISUAL SUMMARY:

I started to summarize it but realized it is so succinct and to the point I wouldn’t do it any justice.  It is a summary in itself.  However I will tantalize you with images that represent the “6 Fatal Mistakes” that Don Eames discusses, so hopefully you’ll be intrigued to go ahead and click on through to the site.

RELEVANCE TO RETAIL LEVERAGE:

When we find valuable nuggets like this, we feel it is our duty to share with our readers, in case you haven’t seen it on your own.  Why is it important?  Circuit City’s departure from the retail market had huge implications for other retailers, but also the brands/vendors who sold their products there, and the consumers who shopped there.  From a brand perspective, in Circuit City’s final years, some brands had achieved great success in growing their business (at least in sales) by being willing to take a risk and bet big on Circuit City.

Some of those brands became very dependent on Circuit City’s business, and I am sure it was painful when Circuit City closed (and also didn’t fully fulfill their financial obligations).  Some brands went from having Retail Leverage with Circuit City and a broader base of sales, to being even more dependent on the remaining CE retailers, primarily Best Buy and Walmart.  The ripples from Circuit City closing changed the equation of leverage at retail, and retailers, brands and consumers all continue to be impacted.

RELATED READING / RESOURCES:

• My previous article on Best Buy’s market share gains after Circuit City’s demise
• Follow Don Eames on Twitter

By Ben Smith

It’s hard to have a conversation about consumer electronics without making the discussion relative to Best Buy.  While I assume most people know that Best Buy is the market leader, I don’t know if they understand their magnitude in the marketplace.  With their longtime rival Circuit City closing in 2009 this provided a slight “reset” for the market and it is worth taking a look at how things shook out.  I know that all the customers we met with had their own take / plans on how they were going after Circuit City’s market share.   The general market consensus was that Best Buy would gain the most, but that Walmart and Amazon.com would also benefit.

Well the dust has settled and results from the Q4 holiday season are in.  I realize that some of our readers are in the CE community and have ready access to retailer share.  Note that I’m not quoting anything from NPD that I have access to for my job.  I’m linking to a couple of public sources to point out that you can get a good idea of what is going on with a little digging (or you can get it from us)!  The data I’m sharing is from consumer surveys conducted by 2 different firms,  so take it with a grain of salt – it isn’t cash register data, but provides valuable perspective on where consumers look to purchase their electronics.

1) AD AGE ARTICLE SHOWS BEST BUY GAINING GROUND (WITH 33% SHARE)

Ad Age featured an article appropriately titled “Former Foes Gain Share From Shuttered Circuit City”.

Summary: Best Buy gained share last year and is up to approx. 33% consumer preference share.  Walmart gained also, and is up to approx. 20% consumer preference share.  They have further breakdowns in the article by customer’s income.  Those under $50K/year, Best Buy and Walmart are neck and neck.  But for those $50K & over, Best Buy is the overwhelming leader, over 40% share.

Store       Dec. 2008   Dec. 2009   +/-

• Best Buy    29.8%       33.1%       3.3
• Walmart     17.0%       20.6%       3.7
• Amazon      2.3%        3.6%        1.4
• Target      2.1%        2.8%        0.6
• Sears       1.6%        2.0%        0.4

Their data source: (data from BIG RESEARCH)

Notes: Of course they didn’t include Circuit City’s share in 2008, but I estimate it was between 8-10%.  I estimate that brick & mortar Best Buy and Walmart probably split Circuit City’s share pretty evenly, with Walmart gaining a little more due to a larger number of store locations.  Amazon.com gain’s were likely from Circuitcity.com’s absence, as Circuitcity was a strong dot com player (stronger than their retail presence in comparison).

2) RETREVO PULSE ARTICLE SAYS BEST BUY LOSING GROUND (BUT WITH 40% SHARE)

Retrevo Pulse featured an article titled “Best Buy Competitors Gained Ground This Year”.

Summary: Take it with a grain of salt that Best Buy lost ground in this survey, as they actually have an even larger share of preference in this one, at 40%.  I’m not disputing the source, but as you’ll see in my notes, I think you can explain away some of the differences.

About Retrevo & their data source: The Retrevo Pulse is a data source from a CE shopping website that conducts its own surveys and publishes them. What I like about Retrevo is the simplicity of their reports.

Notes: This article shows Best Buy with a even larger share of preference than the Ad Age article, at 40% – but that it slipped over the last year.  The article also makes it look like Amazon gained at Best Buy’s expense.  Perhaps it boiled the results down too much, and again, we don’t see what Circuit City’s 2008 numbers were to gauge how much there was for competitors to take.  They also show Walmart much smaller than the Ad Age survey.  And conversely, Amazon looks huge here.  Given that the survey was conducted online by Retrevo, a online shopping/comparison site, you can imagine that their population is probably more comfortable with relying on Amazon.com for their CE purchases.

TAKEAWAY: CONSUMER ELECTRONICS STILL REVOLVES AROUND BEST BUY

Best Buy is the dominant player in Consumer Electronics, a king maker that has influence with consumers beyond whatever its share actually is (33% – 40%).  Even as Walmart and Amazon grow share in the CE space, it is ultimately because people get more comfortable NOT making their purchase at Best Buy.  If you are a CE manufacturer, not having your products at Best Buy robs you of credibility with consumers and key influencers.  If you are an agency with clients who sell products at Best Buy, you need to know as much about Best Buy as your clients because it is your best route to success.  If the products you sell can’t succeed at Best Buy, you will have little leverage wherever else you go to peddle your wares.  Conversely, succeeding at Best Buy paves the way for success in other channels.   Best Buy does the heavy lifting for other retailers that sell consumer electronics.  They just have to look at what Best Buy assorts as a baseline and start from there.  So get it right in the first place and base your plans on success at Best Buy.  Retail leverage will flow from there.

BONUS: NAME TO KEEP AN EYE ON IN CONSUMER ELECTRONICS:

If you don’t live in the midwest or south, you probably haven’t heard of HH Gregg.  In the coming decade you will.  They are a regional consumer electronics chain that has national ambition.   Imagine the things that people liked about Circuit City (more experienced sales associates, ability to deal), but without the legacy burden’s that held Circuit City back.   This article in the WSJ lays out HH Gregg’s ambitious expansion plans. While HH Gregg has a small footprint and is only roughly 10% of the size of Best Buy (127 stores), in many ways this is an advantage to them.  They are ramping up expansion in a market where retail real estate has been decimated, including many former Circuit City locations that can easily be re-purposed.

By Vincent Young

There are many recent trends that have increased the need to create a forum that highlights and shares the best practices of challenger brands at retail. Among them, the four that marketing executives seem to mention most often are:

1. Improper Training - Today’s Business schools offer many courses and seminars designed to expose undergraduates and MBA candidates to the traditional strategies and approaches associated with the “brand management” discipline. These “classically-trained” marketers are taught the analytical rigors of statistics and market research, the product development “stage gate” process, how to interpret a media plan, and how to build a standard financial pro forma. From internships with traditional, category-leading brands, they learn the nuances of test markets, loyalty programs, and new segment evaluation. Unfortunately, they are rarely exposed to the necessity of engaging key retailers early on in the product development process, how and when to create a derivative product for a retailer, how marketers must manage channel conflict or how to make the trade-off decision between funds to pay a slotting fee to a retailer versus advertising the brand.
2. Retail Industry Consolidation – Across nearly all classes of trade, the pace of retailer consolidation has increased recently. Some retailers have been permanently impacted by the recent economic downturn which has resulted in a lower level of consumer spending; some have been driven out by the lower –cost “scale-model” of the national big-box mass merchandisers. Regardless of the reason, the reality that most national challenger brands are facing is that a smaller set of retailers will represent a larger percentage of market access, thus giving even more power to the retailer to set the rules of engagement for the category. As a result, brand marketers are no longer asking the question, “How should I position my brand against my target audience?” Rather, they are now asking “How do I successfully position my brand within the landscape of Retailer X?”
3. Private Label – National challenger brands have largely become wedged in the middle at retail. Nearly every category features a well-funded category leader (typically occupying the premium price position) as well as a private label which occupies the “value” position.  According to Mintel, almost 1,800 new private label foods have hit store shelves in 2009 alone. This comprises 27 percent of all new food products that have been introduced this year. Striking the balance in the middle between investing in features that distinguish from private label without reaping the price premium of the market leader is a tricky proposition to sustain over time without creative marketing and sales programming.
4. Fewer Advertising Funds – The current economic climate has put more pressure on companies to achieve more and spend less. Nowhere is this more evident than in the demands we place on marketers to maximize ROI and minimize the breakeven period on advertising investments. As a result, advertising funds have come under tremendous scrutiny and marketers are now forced to rely a lot more on the assets owned and managed by retailers (websites, circular ads, loyalty programs, etc) to launch and sustain products in market.

Let’s face it, challenger brands today have to be more creative and resourceful than ever in order to survive in the world of retail. There are many examples of marketing strategies and programs that challenger brands can deploy in order to maximize their leverage in the retail space – and that’s what this blog is all about!  We are committed to sharing with you the case studies, interviews, articles, and other perspectives that are sure to help create a greater balance of power between you – the challenger brand – and the retail class of trade.