The Apple Of Its Aisles: How Best Buy Lured One Of The Biggest Brands
Best Buy has succeeded in being one of the few major retailers to sell new Apple products in its stores, and has also been carefully nurturing relationships with Microsoft and Samsung. These partnerships can teach retailers much about building vendor partnerships.
Best Buy may not be a one-vendor brand, but when it comes to identifying the best prospects to walk down its aisles, it sure knows how to woo. That Apple is among these partners shouldn’t be surprising, then – but it should be instructive.
From building stores-within-stores to personally meeting with the heads of its suppliers, Best Buy’s leadership has proven it could be a good provider for major brands. It is a strategy the electronics chain has fostered since at least 2013, when it began to carefully nurture relationships with Microsoft, Samsung and other key vendors, in part by building store-within-store concepts.
Best Buy has, for example, added Samsung Experience Shops to more than 1,400 of its stores, an effort that enables Samsung to interact directly with customers through dedicated in-store Samsung sales consultants.
But the benefits of these arrangements flow both ways. While Samsung and Apple, among others, gain more visibility, Best Buy offsets the competition presented by these same suppliers’ own retail stores, some of which are growing in number.
Fruits of Best Buy’s Labors
Enter Best Buy’s courtship of Apple, which has made Best Buy among a few major retailers to sell its Apple Watch as well as the forthcoming Apple TV. In terms of vendor competition, Apple is a major conquest.
Apple, along with Samsung, Hewlett-Packard, Sony and LG Electronics, accounted for about 47 percent of all merchandise Best Buy purchased in fiscal 2015, according to the retailer’s annual report. Its 20 largest suppliers accounted for almost three-quarters of the merchandise it purchased. These figures may be familiar to other retailers, which find more and more eggs are coming from fewer hens.
Not surprising, then, that Best Buy’s William Tell feat with Apple has investors optimistic about future product agreements, both with Apple and others. It also should have other retailers taking notice, for there is much to learn through Best Buy’s efforts to build healthier, more mutually profitable vendor partnerships.
Macy’s, for example, in the fall announced a plan to test Best Buy boutiques within 10 of its department store locations starting in November. The boutiques, to be staffed by Best Buy workers, will sell Samsung devices.
No Long-Term Contracts
For context, it helps to understand just how delicate some of these major supplier agreements are to Best Buy.
The retailer depends on these suppliers to provide compelling product assortments, merchandise allocation and to fund promotional programs, among other things. Yet while just five vendors supply almost half of its merchandise, Best Buy does not generally maintain long-term contracts with them. Further, it is aware that the same benefits its vendors carry into its aisles also can be used to compromise its performance, as noted in its annual report:
“To varying degrees, our vendors may be able to leverage their financial strength, customer popularity or alternative channels (including, in some instances, our vendors’ own retail locations or websites) to … our commercial disadvantage. Such changes could have a material adverse impact on our revenues and profitability.”
Treat Vendors Like Shoppers: Three Guidelines
All of which may be why Best Buy decided years ago to treat its vendors just as a retailer should treat its shoppers: as unique individuals with emerging needs and evolving preferences.
The test to accomplishing this business-to-business success is through implementing the same tactics a retailer would use to foster customer loyalty. Following are three guidelines:
Woo with relevance: Some suppliers, such as Apple, compete with their retail partners not only in size, but also in service. So when partnering with a vendor such as Apple, the retailer should consider ways to match that brand’s customer experience. Employee incentives are a popular and useful tool in striving toward this goal. However, it is essential to keep in mind that building the right customer experience means thinking beyond channel incentives and considering components that add sufficient value, such as product training.
Measure twice, cut once: We’re talking retail, so it is not surprising that merchants should consider a variety of sales metrics when reviewing supplier performance. However, I’d suggest going beyond pure dollars and cents and finding ways to understand how consumers adopt specific products and then gauging their satisfaction with these products. The test of success is not only how products sell, but also how they influence ancillary sales across complementary categories. If the customer has a positive reason to come back, then sales will follow.
Since implementing its store-within-a-store and other strategies in 2013, Best Buy has recorded a $2 billion increase in sales, to $40.3 billion in fiscal 2015 (ended Feb. 1) from $38.3 billion in fiscal 2013. More important, it has recorded a profit in fiscal 2015 of $1.2 billion, versus a loss of $441 million in fiscal 2013.
Despite these gains, the electronics business is susceptible to rough patches, as Best Buy experienced in the third quarter. But there is no question that building deeper relationships with key brands, even if they operate their own successful stores, will yield the kind of overtures that profitable retailers prefer, especially when they are holding an Apple.
This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here.
