Only the best electronics retail stores will survive the next 18 months, according to an industry leader. Shown is Pyramid Audio/Video in Anchorage, Alaska.
The way people shop for electronics is changing. No, we’re not referring to how people are increasingly buying electronics products online; we’re saying that the stores themselves are changing.
Consider Best Buy. Its competitive landscape has changed dramatically over the past year. The consumer electronics industry is watching the prolific big-box retailer closely, speculating on how it will react and how the customer in-store experience will change.
Meanwhile, leaders of the specialty electronics industry say big changes are afoot for the smaller stores that often offer better-performing products.
All this leads one to wonder what shopping for electronics will be like a few months from now.
For instance, with Circuit City and Tweeter out of the picture, Best Buy has indicated that it will reposition itself to take on Wal-Mart. Since nobody wants to enter a price battle with Wal-Mart, Best Buy supposedly intends to create differentiation by playing up its product demonstration ability.
As to whether or not that will actually happen, there is evidence to the contrary.
We recently reported that Best Buy intends to reduce hourly wages from $17 to $12.56 for some experienced personnel in its Magnolia Home Theater division. It also closed seven of 13 Magnolia stand-alone locations and shifted executive management of that specialty chain to Best Buy corporate.
Moves like that have a way of encouraging experienced sales people to leave the company, worsening the customers’ store experiences. Just ask Tweeter and Circuit City, both of which tinkered with lowering sales staff salaries before ultimately going out of business.
Best Buy isn’t necessarily cutting back its sales team’s salaries across the board, spokesperson Justin Barber clarified, adding that the changes at Best Buy, as well as its Geek Squad and Magnolia franchises, are “not that cookie cutter.”
The big-box retailer did cut back on advertising last year, a move that could be consistent with shifting focus toward in-store experiences.
It reduced its media buying by 17.7 percent to $298.3 million, according to Minneapolis St. Paul Business Journal. Wal-Mart, meanwhile, increased its media spending by 62.4 percent to $863.9 million, but it sells a heck of a lot more than electronics.
Changes Afoot for Specialty Retailers
For Best Buy, the writing is on the wall, according to Richard Glikes, executive director of Home Theater Specialists of America (HTSA), a buying group of specialty electronics dealers. He doesn’t see Best Buy shifting toward a more consultative or interactive sales model; in fact, he suspects that Magnolia is soon to be shut down.
“I don’t want Magnolia to fail,” Glikes says. “It’s very important for consumers to have a step-up buying opportunity that eventually leads to an HTSA member. It’s also important for vendors to have a company like Magnolia to fill their capacity. [However] when you’re going to offer $12.50 per hour to your sales people, you’re not going to get an educated sale. Quite frankly, the next step will be to shut the whole thing [Magnolia] down.”
Another specialty electronics dealers buying group leader, Jim Ristow of Home Entertainment Source, doesn’t want Magnolia to fail either. He says it would be a good thing for his specialty dealer members if Best Buy does move toward a more consultative, interactive model. Also, he thinks Best Buy has no choice but to shift its approach if it wants to avoid losing a head-to-head price battle with Wal-Mart.
“If Best Buy can step into the mid- to upper-space, that will keep our space viable,” Ristow says. “If it’s just a small sub-section promoting [specialty audio/video], vendors will stop making those sorts of products.”
Regardless of what Best Buy does, Ristow expects the electronics retail landscape to look a lot different a year and a half from now. Given the economy and the cash flow challenges faced by small- to medium-sized companies, he speculates that specialty electronics dealers will experience a Darwin effect over the next 12 to 18 months.
The good news for electronics enthusiasts, if Ristow is correct, is that only the strongest in-store experiences will survive.
Let me give you guys the spin from a Best Buy employee’s point of view. When a Best Buy employee is hired in, they get assigned to a department where they have the most knowledge in and/or have the most enthusiasm for, if there are positions open in that particular department.. Regardless, whichever department you end up in, your training usually consists of taking online courses written by people from corporate, with vendor-fluff sprinkled in, and no real product knowledge beyond what you could gather from any teenager picked out of a crowd at random.
And the really screwed up part of all of it, is the people that actually DO know more than your average Joe are usually the college kids that get stuck working part-time under some jackass that has “leadership experience” and no actual knowledge of the department they are paid to supervise.
Ah, but Best Buy didn’t just cut back on Magnolia Specialists’ wages, they cut all of the senior spots (full time department specialists with benefits) and 90% of all supervisor positions. The people who were being rewarded for being knowledgeable have been stripped of their titles, and taken pay cuts.
So before you start complaining that the person in the blue shirt and nametag in front of you doesn’t know as much as you, ask yourself if you would spend your free time learning everything you could about the products in a department you get paid $8 an hour to stand in. Remember too that with that knowledge you’d still be getting paid the same as the schmuck who just got hired in, and less than the ###-kisser that crawled his/her way up to middle-management.
If Best Buy is going to focus on giving customers a better interaction in the store, there has to be something to inspire their line-level employees to produce those interactions. Promotions, accompanied by better wages and benefits were a great motivator. They’ve effectively squashed the vast majority of opportunities to attain those.
Whether at BB or Magnolia, I always know more than the pimply faced dork trying to sell me the stuff. That is sad, because I am just a consumer and not a pro. That being said, if they can not add to my “knowledge” why would I want to pay $100 more for the same EXACT SAME Denon AVR that I can get at any other Discount B&M;store without haggling or price matching. If I shop online, I can easily save an additional $50 on Tax and discounts. If their “expertise” is so ####-poor now, imagine how abysmal it will be when they cut wages???
The very same cycle occured in the retail automotive business. As the internet became more prevelant and the products beecame homoganized comodities the pay for sales staff fell. There has been a huge drop-off in the quality of salespeople and the customers are expressing lower satisfaction with the experience. But they too will take hours of a good salesperson’s time and than continue to shop price. eventually buying elsewhere for a hundred dollars less. And the salesperson who gets the sale spends minimal time demonstrating the product.
It is a vicous cycle and the customer ends up getting the non-service they deserve. The internet has changed retail sales forever and you will never see quality sales people like you were accustomed to in the past.
Let’s see. Best Buy items usually cost far more than Amazon, and there is also sales tax. I’d predict that those who feel they _must_ shop locally, will go to Walmart, and that Best Buy follows Circuit City down the drain in less than 3 years.
Bricks and Mortar stores selling high ticket items will generally end up either trying to compete with Walmart on price (they’ll lose), or they’ll end up as essentially just ‘showrooms’ for items. People will eyeball the items at the store, then go off and buy them online. The only nuisance with going to a store to actually see a product of interest are the _annoying clueless staff_. At least Walmart staff don’t really pretend to be able to advise you technically on anything.
What Best Buy will end up doing is falling between the two stools of attempting to compete on price and paying staff over minimum wage (on the basis that they’re supposedly ‘knowledgable’). They have no chance.
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Sayonara, set-top box? Or will it just take an energy-saving nap?
It’s hard to imagine life without remote controls, but it’s been a long, strange path to the modern incarnation we know and love today.
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