November 20, 2012, 4:06 PM

Best Buy lays out a 5-point plan to boost web sales

Executives say e-commerce will be a key to the retailer’s success.

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Improving its e-commerce sales is essential to Best Buy's growth, executives say.

Best Buy Co., often pointed to as the prime example of a retail chain that’s been hammered by online competition, is counting heavily on web sales to help rejuvenate the company, the retailer’s executives told analysts during a meeting with stock analysts last week.

It also has plans for combatting showrooming, that is, consumers viewing products in stores and then buying them online.  “Once consumers are in the store, they are ours to lose,” CEO Hubert Joly said.

E-commerce has been one of the few bright spots for the consumer electronics and appliance retailer as it competes against web-only retailers like Amazon.com Inc. and bricks-and-mortar retailers like The Home Depot Inc.

In the third quarter ended Nov. 3, Best Buy, No. 11 in the Internet Retailer Top 500 guide, reported its e-commerce sales grew 10% to $431 million, marking the first time Best Buy supplied this information.

But there is plenty of room for online growth. Among bricks-and-mortar competitors, Best Buy has an 18% market share in its categories, CEO Hubert Joly told analysts, but among e-retailers, Best Buy’s share is only 7%.

“Best Buy has great strengths,” Joly said. “Our performance has fallen short in the last few years. Best Buy must embark, and indeed is embarking, on a journey to address the situation.”

That strategy, dubbed Renew Blue within Best Buy, places a priority on e-commerce, says Stephen Gillett, president of Best Buy digital and global marketing and strategy business services.

“This is key to our strategy,” Gillett says. “There is a huge opportunity for us to earn our share.” He wants to make Best Buy’s online market share at least equal to its market share among bricks-and-mortar stores. “Best Buy has been slow to capture the online opportunity,” he says. Best Buy says its web site generates 1 billion site visits annually.

At the heart of the plan is figuring out ways to increase Best Buy’s conversion rate, which is at 1.3% now, Gillett says. He hopes to do that by addressing the 9% of consumers who say they didn’t make a BestBuy.com purchase but wanted to.

Their top reasons for not purchasing—such as needing more product information, the product wasn’t available or the price was too high—can be opportunities, Gillett says. These reasons indicate Best Buy can improve its shopping tools, product content and recommendations. It also can expand assortment and be more price competitive, he says.

Though Gillett didn’t disclose a goal for the conversion, to get the conversion rate to budge he is focusing on improving Best Buy’s customer satisfaction scores. “When you shop on BestBuy.com and have the intent to buy and leave the store without buying, we see a significant decline in customer satisfaction scores,” Gillett says.  When consumers shop and buy on BestBuy.com, the customer satisfaction scores are high, he notes. Best Buy measures customer satisfaction with internal surveys that track the in-store purchaser, online shopper, and the online and in-store consumers who don’t make purchases.

Gillett says Best Buy has a five-point plan to better satisfy visitors to BestBuy.com, based on a site assessment designed to uncover navigational and other issues that might hinder a consumer’s use of the site. Gillett wants to simplify the number of clicks it takes to place an item in the shopping cart and to pay, all aimed at reducing cart abandonment rates.

Other elements of the plan include building a new e-commerce platform that is scalable and incorporates new levels of personalization. He also wants to ensure BestBuy.com is available wherever the consumer and whenever he is shopping, regardless of the type of device used.

The fifth leg of the plan is to incent the 40 million active members of the Best Buy Reward Zone loyalty program, he says. “We want to use that loyalty as a virtual currency to amplify what Best Buy is doing. It is a very rich source to help understand what consumers want from Best Buy.”

Best Buy also is tackling showrooming, when consumers use their smartphones in stores to compare prices between the retailer they’re visiting and other retailers online.

It’s a consumer behavior Best Buy acknowledges, Gillett says. “As retailers, we have to take advantage of the opportunities when our customers come into our stores,” he says. Best Buy estimates that 15% of consumers who visit one of its stores do so with the intent of making an online purchase, Joly says.

It is testing a variety of store layouts to help turn some of these window shoppers into Best Buy store purchasers. In one store in Richfield, MN, Best Buy widened the aisles, reduced the height of fixtures and built a centralized station to promote the latest products. For August and September, sales increased 10% in that store compared with the same period in 2011 and the customer satisfaction score increased from 83 to 88, Gillett says.

Consumers are going to use their smartphones inside Best Buy stores, he says. “It starts with our showroom. It doesn’t stop there.”

Ultimately, the question Gillett wants to answer is why consumers should shop at Best Buy. “We have to really define what Best Buy stands for in the marketplace,” he says. “Why do we deserve to exist? These are the questions we ask ourselves.”

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