Best Buy Is Your Best Strategy To Gain Retail Leverage

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.