The last decade has been brutal for the retail industry. The industry has always been competitive and prone to turnover but it intensified with the boom in online shopping which has resulted in decreased foot traffic to stores. And then, the coronavirus and ensuing shutdowns took a bad situation and made it downright bleak.
There have been several high-profile bankruptcies and more on the horizon. A number of these situations have been profiled in past articles. So, it's also worth noting an actual success story - Best Buy (NYSE: BBY).
Best Buy's Success
Best Buy is remarkable because about seven years ago, it looked like it was not going to be able to survive as sales were being cannibalized by Amazon (Nasdaq: AMZN), wholesale outlets like Costco (NYSE: COST) or BJs (NYSE: BJ), and big-box retailers like Walmart (NYSE: WMT) or Target (NYSE: TGT).
In 2012, Best Buy lost $1.7 billion, while the entire company had a $4.8 billion market cap. Currently, the company has a $28 billion market cap, earned $1.2 billion in the last 12 months, and has successfully boosted margins. The stock price has climbed from a low of $16 in late 2012 to $106 for a 562% gain, while the S&P 500 is up 177% over the same period.
Lessons From the Turnaround
The immediate takeaway is that there's considerable upside in retailers who can fix the problems that are ailing them. They still have considerable assets in terms of physical stores, brand name, and existing infrastructure that can be worth so much more with the right decisions.
One of the catalysts for Best Buy was the appointment of a new CEO - Hubert Joly. Joly reversed many of the previous management's decisions which made sense from a financial perspective but undermined the company's long-term effectiveness.
The most notable example is that Joly increased pay, boosted benefits, and gave more autonomy to retail-floor workers which he identified as the company's heart and blood. He also increased their ability to give feedback to management and re-instituted the employee discount program. This was a sharp departure from previous management who looked to cut costs by eliminating workers, cutting benefits, and getting rid of the employee discount program.
This made employees more enthusiastic and engaged which translated into better sales. One challenge for Best Buy was that people would use the store to test out different items but then end up buying online. Best Buy fixed this issue by agreeing to match any online price.
Another key decision was that Best Buy aggressively invested and marketed its online sales channel. It has its marketplace, where third-party sellers list their products, and Best Buy handles the fulfillment and logistics, using its stores as pickup locations. Many retailers like Walmart and Target are following an identical playbook.
Closing Thoughts
Best Buy's story is great because it shows that retailers don't have to accept their fate. Best Buy empowered its employees which improved the in-store experience. That in combination with price-matching online prices and building its own marketplace platform made it so that Best Buy could thrive in an era of retail failure.