In this edition PLMALive! Christopher Durham presents a look at the reinvigorated and reinvented Best Buy and their private brands.
Best Buy, Best Moves
Let’s talk about an important but oft-ignored segment of private label that typically doesn’t make it into trade shows or headlines.
The category is electronics and appliances, and everything that goes with them. And here, one of the biggest retailers is Best Buy. Founded in 1966 as a simple stereo store, it was called Sound of Music until changing its name in 1983 to Best Buy.
Today, the electronics and appliance retailer generates nearly $40 billion annually through the sale of popular national brands and an impressive portfolio of private brands.
However, just a few years ago, Best Buy looked like it would join Circuit City, Linens & Things and A&P in the retail grave yard. Investors were forecasting their demise and customers simply did not care.
Amazon was attacking, management was in chaos, stores were filled with irrelevant CDs and videotapes, and often felt dingy. Best Buy seemed destined to serve as little more than a showroom for Amazon.
In 2012, Best Buy made an improbable choice for, French-born Hubert Joly, a veteran of Carlson Wagonlit Travel, the parent company of Radisson Hotels and TGIFriday’s. His retail experience was virtually non-existent. Almost five years later, Joly has engineered an impressive recovery.
The retailer’s strong 2016 returns rested on two fantastic earnings reports. Best Buy shares rose 14.5% in August and another 17% in November, propelled by earnings surprises in the second and third quarters. Best Buy is entering the next phase of its successful Renew Blue strategy and Joly has outlined the three priorities for fiscal 2017.
- Build on Best Buy’s strong industry position and multichannel capabilities to drive the existing business.
- Drive cost reduction and efficiencies.
- Advance key initiatives to drive future growth and differentiation.
Joly has elevated the three modern pillars of best-in-class private brand: experience, cost reduction and differentiation. It should be no surprise that private brand plays an integral role in the success of these strategic priorities.
Best Buy owns and manages a portfolio of private brands which they call “exclusive brands,” by partnering with approximately 160 factories, mainly in China, to produce the products and increase margin. The brands Insignia, Dynex, Rocketfish, Platinum and Modal each fill a different business need for the retailer and contribute to the success of their Renew Blue strategy.
In 2016, Insignia led charge on differentiation with the introduction of several innovative new private brand products. For the first time, a Best Buy private brand product, an Insignia full-size refrigerator was named an Energy Star most efficient appliance.
Continuing the energy saving theme, Best Buy also introduced the Insignia Wi-Fi Smart Plug. The new device connects electronic devices to a home Wi-Fi network, giving consumers the power to control your devices from afar, helping to save energy and money.
With the new 4K Ultra HD Insignia Roku private brand TV, Best Buy customers can now have a cutting-edge experience. It’s simple – HDTV has two million pixels, and 4K has eight million. A 4K Ultra HD TV’s picture is sharper, its colors more vibrant.
Whether this is the formula to beat Amazon remains to be seen, but the smart combination of a compelling private brand portfolio, innovation and global sourcing certainly has the potential to win.