How Best Buy Learned To Love Amazon

In this episode of the Gordon Podcast, we speak to Bruce Winder, Co-founder and Partner at the Retail Advisors Network. Bruce is helping retailers survive and thrive in a fast-changing marketplace. This assistance comes not a minute too soon; many of the geographical barriers to entry in Canada are eroding, and the Canadian retail marketplace will soon be facing the full destructive capabilities of the Amazon.com Death Star.

In this, the second of a two-part interview with Bruce, he discusses some simple fixes that were adopted by Best Buy — including getting cuddly with their arch-rival — which created a straightforward recipe that has won over customers, including the most skinflint, ornery, and selfish buyer of consumer electronics: Me. Bruce also discusses how and why some big retailers are dropping the ball, and the role of private equity in the retail meltdown.

David Zweifler, Gordon Magazine (DZ): So Bruce, when you think about the retail world ten years from now, the people who are retail survivors or, or more than survivors, the people who are succeeding, are they the hardiest of the big retail today? Or do you feel like smaller, more agile firms which have more flexibility to innovate are going to be the ones that we see succeeding – that is, brands that we haven’t heard of yet? Are those going to be the big brands, of five years, a decade from now?

Losers and Winners

Bruce Winder (BW): What we’ve seen in retail over the last several years – big folks, the target and the Walmarts of the world – are fighting for their lives. Amazon has got to critical scale and Target and Walmart have done okay. They have good quarters, bad quarters, they’ve done okay. But boy, oh boy they have had to work hard. So they’ve had to retune their whole online operations, reinvest. In a whole bunch of stuff. So what you’ll probably see is you’ll probably see most of the big names survive. Some of the big names will fall by the wayside though we’ve already seen, Toys R Us has fallen by the wayside. I think personally it’s just a matter of time before Sears falls by the wayside again.

So some of the weaker large names who don’t reinvent themselves quickly and have a sense of urgency will not survive. The ones who embrace change and work incredibly hard will survive, but they probably won’t thrive. They’ll probably try to hold their own.

And then what you’ll see is players, some of the small agile companies like you mentioned, start to gobble up some share and eventually they’ll become big themselves and the next disruptor will be in line to try to disrupt then.

What we’ve seen in retail over the last several years – big folks, the target and the Walmarts of the world – are fighting for their lives.”

So I think it’s a mixed bag. I mean, you look at what Best Buy has done. Best Buy was one of the first casualties. Everyone marked Best Buy for death based on what was going to happen with Amazon and consumer electronics, but to Best Buy’s credit, they had a huge sense of urgency. They retooled the business, they added more services, they changed the in-store experience. They changed their online experience. They made their stores more multipurpose in terms of pickup spots for online. They also developed the offering with Geek Squad and stores within a store. So they really worked hard and they’re doing okay. So you’re going to see big companies either become like a Best Buy and reinvent themselves or fall by the wayside, like a Toys R Us or, a soon-to-be Sears.

DZ: I think they are are a great example. I’m thinking back seven or ten years, and if you had asked, “Who do you pick as the winner between Circuit City or Best Buy,” I would’ve said: “Who cares? Let them both die, they both stink.” (Laughter) I’m a huge fan of Best Buy now. They really seem to have turned around their business. What do you think did it for them? What were the key components? I know what I think but you actually know what you’re talking about.

Best Buy: Learning To Love Amazon

BW: I think they had a sense of urgency. It was change-management 101. They had a new CEO come in. I think it was Hubert Joly. What he did is he created a humongous sense of urgency, and the feeling that they have to change or they’re going to die. So they went to work on it, and they did add more services. I mean, if you go to Best Buy now they have a price-matching guarantee. They recognized that they had a major weakness on price. They addressed that with price matching, but they also differentiated themselves from folks like Amazon. And they said, “we can offer you services you can’t get out of Amazon. We can install it for you. We can fix it for you. We can deliver it for you, we can troubleshoot for you with Geek squad.”

I think that, honestly, (Canda) is a little bit behind in terms of the diffusion of the technology. So we started our online push a few years later than in the US, the US has out there at their mature stage or the growth stage, approaching maturity for online shopping. Canada’s really at their, at their sort of introduction, moving to growth now.

In addition. Hey, we’re happy. We’re not, we’re not fighting online. There’s a lot of retailers who are fighting online. They’re going to online kicking and screaming. They said, no, no, this is the new normal. Let’s embrace it. So they said, “How can we take advantage of a real estate?” We’ve got all these stores, let’s turn lemons into lemonade and make them effective pickup spots. Right? So they made it, they re-tuned the stores, designed them so you can get in and out quickly to pick up your online merchandise. Heck, they even partnered with Amazon on a few products, right? So, instead of fighting change, they embraced it.

They’ve also retooled their business model and I’m sure they’ve become a lot more nimble, and had to make some tough cuts in terms of personnel and real estate. But they pruned down and sort of restarted. And I think it took a few years, but it started to pay dividends a year or two ago.

DZ: I, have definitely gone in there many times with the intention of showrooming and then ordering it online, but between the great extended warranty and the price match, I’ve been making a lot of impulse purchases. I always check for the price match, but when I walked in there the last time to buy something I almost didn’t, because I was so happy with the service, and that really is saying something because I’m extremely cheap.

BW: I think they’ve captivated you to come back to retail, right? If it hadn’t had done all those things, then much like Toys R Us people would have said, ah, why even go there? No, don’t even bother. There’s nothing there for me. You might as well just order it online.

Canada: The Pain Is Coming

DZ: You probably saw that Lightspeed (Research), just released a study showing that Canadians embrace physical retail more than Americans. And I had worked with some consultants to South America based retailers in my last position. And I found that that’s definitely the case south of the border as well. What do you make of those results? Are Americans just less engaged, more cynical, more price-focused? Or are they at the end of a journey that a Canadian and South American consumers are just starting on?

BW: Yeah, that’s a great question. I’m not sure I can speak to South America, but I can speak to Canada. I think that, honestly, we’re just a little bit behind in terms of the diffusion of the technology. So we started our online push a few years later than in the US, the US has out there at their mature stage or the growth stage, approaching maturity for online shopping. Canada’s really at their, at their sort of introduction, moving to growth now. So we definitely I think will embrace it more.

A lot of it is, is generational. I mean, millennials and GenZ — they are very comfortable buying things online, right? So it’s just a matter of time. The market up here is arguably a little less price sensitive than in the US, the US is, is, by far, tone of the most price-sensitive markets on earth, but Canada’s not too far behind. certainly there isn’t a reason I can think of as to why we wouldn’t have online ordering and delivery. Amazon has been adding warehouses up here pretty much every six months or adding a new warehouse and they’re up to about 10 warehouses now that are either built or on the books up. So Amazon obviously has something like 70 to 80 warehouses in theUS so they’re just starting to build it out as well.

“The pain is coming” in Canadian retail, Winder said.

And as Amazon starts to build it out, you’re gonna have even more deliveries available. So Canada’s, I think a little more at the sort of infancy in online shopping. We still love our stores, but, I certainly see that we’re gonna catch up probably to the US in the next several years.

DZ: Well, I guess the question is, are the Canadian retailers, did they use that little bit of breathing space to avoid some of the mistakes of US retailers? Or do you think like the pain is, is coming for Canadian retailers… just a few years after the US.

BW: No, the pain is coming. There were some retailers, like I’ll take one retailer, my Alma Mater, and I love this retailer. It’s Canadian tire. But they only started offering home delivery nationwide from online purchases last fall. And that is very late. And Canadian tires is a $13 to $15 billion retailer in Canada. So you have some folks who sort of been late to the game. I think that as Amazon ramps up, you’re starting to see some of the other folks like Best Buy and Walmart Canada have done a great job as well. We’re even seeing, we’re starting to see the online shopping and delivery of groceries up here which is a few years behind (the US) as well. We had one retailer saying like Loblaw saying a couple of years ago, “oh, I don’t think people would like (online ordering and home delivery). They’re just going to want to go to the store; that was wrong. A year later. They’re partnered with Instacart and they’re doing a whole program where you can now buy groceries from the stores and have it delivered.

DZ: Somebody should set up a hedge fund where whenever a CEO of a brick and mortar establishment says, “I don’t think that etailing is going to pose a serious threat,” they’ll just short the stock and you make a fortune.

BW: Definitely, we’re kind of feeling the wake-up call. Up here they were screaming and yelling not to go (online). But it’s just inevitable. One could argue there could be some structural differences. We have a very different geography than the US our population isn’t nearly as dense. So like the US we have sort of a skewed toward the east, the east coast would call it Toronto sort of area, Toronto, Montreal, and, then, Vancouver, which is sort of like your Los Angeles or Seattle. But we do have some challenges. We’re challenged with less population density, all things equal to the US, so that could change a few things in terms of being able to get the economies of scale for online delivery to work in many cities. But the upside is that you look at Toronto, Toronto, and the Greater Toronto area, has a population of six and a half million. Well, we only have 36 million people in the whole country, right? So in a few key markets the economics work, but there’s gonna be some markets where the economics don’t work.

DZ: Very interesting. Thank you very much, Bruce. It was a pleasure speaking with you.

This was the second of two interviews with Bruce Winder, a multi-decade veteran of big retail and now a leading retail consultant. You’ll definitely want to tune in for part one of this interview if you’ve missed it. Bruce discusses how many brick and mortar retail chains are struggling to move beyond short-termism while e-tail upstarts in the brick and mortar space find yet another way to run humiliating laps around them. Click the link to learn more.

David Zweifler

David is the founder of Gordon Magazine. David's experience spans investment banking, journalism, marketing and technology.

David Zweifler