Sunday, July 1, 2012

Best Buy, Ask Why

Best Buy has been in the news lately.  Its founder has resigned his position, at least partly because business has been steadily declining over the last few years and a solution has not been found.  It survived the collapse of two big rivals - Circuit City and CompUSA - and the street thought it would benefit greatly as the sole big electronics store.

Apparently, that may not be the case.  The Internet has hurt, and comparisons are made to software vendors, bookstores, magazines and newspapers.  The reach, speed and low costs of Internet distribution spares nobody.  How about jewelry retailers?

The most common reaction we hear is that consumers want to "feel it, and try it on."  Sounds sensible.  But it is too narrow a view.  Here are some angles to consider.

Actually, what happens in electronics may the the exact opposite of what happens in jewelry.  In electronics, a consumer goes into a Best Buy to look over a piece of equipment closely.  They will see what the TV reception looks like; or try out the "feel" of the keyboard on a laptop (there is that word "feel" again); or hear what a boom box can do.  Too often, though, the consumer then goes home and sees what can be found on the Internet at a better price.  And maybe not have to lug a big, clumsy box home.  (Best Buy and other retailers call this activity by consumers "showrooming", something they now vow to end.  By doing what?  They do not say.)

In jewelry, the opposite may be happening.  A consumer first searches on the net for appealing jewelry, and then goes to a store, armed with information and a price, to "feel it, and try it on."  And, perhaps, buy it.  That is, if the piece can even be found in a store.  That is not the problem Best Buy usually has.  On brands, I would bet that most jewelers will price match.  (Now, sales people at Best Buy are authorized to do that - I have experienced that myself.)  And is this why I hear of so many jewelers dropping brands?  Or why we hear of jewelers being terribly put out to hear that a key supplier, say Hearts on Fire, will be opening 75 stores.  

This is an old complaint made by jewelers, and a bad one.  Branding, especially in fashion jewelry, can be an important boost to sales for exactly the reason that it appears on broadly available media. Moreover, as more traditional retailers join the fray on the net, it will become impossible to find product that cannot be found on the net by the consumer from some jeweler somewhere.

In some ways, the comparison with Best Buy in instructive.  Best Buy has lost important traffic items. Fewer and fewer people buy music, movies, supplies, and commodity electronics in stores.  I know I don't.  There is no need to.  But, as a big box retailer, they wanted to provide the services that people need - an audio room, a repair and installation service, advice on picking out the right computer.  Unfortunately, while all that is a plus for the consumer, it is not enough to maintain Best Buy profits.  They need the traffic and the day in, day out sales that those lost categories brought.

Jewelers no longer sell gold chain like the old days.  And fewer people bother wearing a watch, especially the Millennials, who see no need at all for a watch.  Many jewelers have shifted to silver, steel and bronze products for opening prices.  Never mind buying gold and diamonds off the street as a life-saving way to make money.  

Worse yet, many jewelers are sitting on cash and not buying new goods and updated styling.  Retailers are compounding the effect by dropping brands because of the competition brought via Internet access.  There may be good economic reasons to be conservative, as these are uncertain times.  But the consumer is in effect being taught that if they want variety of fashion, buy on the net.  The result?  Last year sales at traditional stores rose in low single figures; Internet sales rose in the 15% range. 

When it comes to the high end purchase - $50,000 for a diamond ring or a theater-in-the-home - the specialized retailers take over.  Best Buy cannot handle that well, as they concentrate on volume items, but the top-of-the-line electronics store can.  That could include consultants and Internet retailers selling premium electronics.  Same for the best jewelers.  Best Buy may not be able to make that transition and could continue to falter.  Many jewelers will not be able to make that transition because not everyone is in the perfect location.  (Much more on this in the next blog.)

All retailers have to face a reality.  The game is not over in many jewelry categories, but we are in the late innings.  There is no escaping the fact that the Internet has to play a key role in survival.  Don't fight it.  Get into it.

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