News today that the CEO of Best Buy has abruptly stepped down. According to the Wall Street Journal he did do apparently because of his “personal conduct.” But the recently announced $1.7 billion quartely loss is still the news that matters most to the future of Best Buy and other “Big Box” retailers. And while the cost of operating brick-and-mortar stores as opposed to selling online is what seems to most as the culprit, I would argue that missing the potential of big data is–or will be–the great undoing of traditional retailers.
The Journal article quotes Craig Johnson of retail consultancy Customer Growth Partners: “Best Buy is a very dated store experience, rooted in the 1990s, and they need someone visionary.” Question is, what exactly is dated about the “dated store experience”? Johnson provides the numbers that most commentators focus on: Best Buy’s operating income per square foot was $18.52 last year (down from $50.61 in 2006). By contrast, “Apple’s retail stores reaped an astronomical $4,700 per square foot last year.”
Indeed, Best Buy finds itself “stuck in the middle,” to use Michael Porter’s terms, between Apple’s product differentiation (both the design of the actual products sold and the design of its stores) and Amazon’s cost leadership. But maybe Porter’s terms are also somewhat dated. Maybe we are witnessing the rise of a completely new big data “generic strategy” which leaves Best Buy and other traditional retailers “stuck outside.” They are left outside of the big data analytics mainstream, stuck on the bank of the river of data that is generated by online sales, watching their online competitors generating not only less-costly sales transactions but also data–on transactions, locations, logistics, customers, potential customers–and knowledge that is used in a virtuous circle to generate more sales and increase customer loyalty. Continue reading →
