E-commerce is killing traditional retail, right? Well, not quite — the reality is much more complex than that.
It’s true that e-commerce powerhouses, most notably Amazon, have drastically changed the retail landscape, threatening traditional retailers left and right. But those traditional retailers are learning a few tricks of their own, going through digital transformations that leverage their infrastructure of physical retail stores.
One of these companies is electronics retailer Best Buy, which seemed on the verge of collapse just five years ago before undergoing a transformation under CEO Hubert Joly. But now, as the Wall Street Journal says, “The next time a retailer looks poised to cave to Amazon, it should heed the story of how Best Buy came back from the (presumed) dead.”
On this episode of the GeekWire Podcast, we sit down with Bala Subramanian, Best Buy chief digital officer, to hear the story of how the company managed to turn things around.
A big piece of its strategy is nearby: Best Buy has been investing heavily in digital and e-commerce assets, with work on its apps taking place at its Seattle engineering center, now numbering nearly 100 people, within walking distance of Amazon’s headquarters.
Apart from building up the team, Subramanian said one key to Best Buy’s transformation was changing the way the company thought about e-commerce and embracing multi-channel retail.
“Rather than try to think about e-commerce and looking at stores as two separate things — which we as consumers don’t anymore — how do we actually start to use digital as tying those two together, so you can truly look at multi-channel retail? That’s one thing we are focused on,” he said.
And Best Buy has a secret weapon of sorts, something Amazon is working frantically to build: a massive distribution network in the form of its retail stores. Seventy percent of the U.S. population is within 15 minutes of a Best Buy store, Subramanian said, so when customers shop online they have several options to get what they need.
“So you can go and buy the product right away, maybe 15 minutes if you need it right away. You can get it shipped to you [from the nearest store], maybe in one or two days. Or you can get it a week from now,” he said.
Combining that physical infrastructure with digital innovation hasn’t been easy, but Subramanian said he and the rest of the Best Buy team are confident that their “multi-channel” approach will hold out against the changing tides of retail.
Listen to our full interview with Subramanian above or download it as an MP3, and keep reading for an edited transcript of our conversation. Don’t forget to subscribe to the GeekWire Podcast for more interviews, news and analysis, available wherever you listen to podcasts.
Todd Bishop: What’s the experience like today when you walk into a Best Buy store? And especially when you use some of the Best Buy apps to enhance that experience? How does that reflect the transformation that you’ve undergone?
Bala Subramanian: I’ll talk about what we’ve actually done in terms of the last four years. The goal of multi-channel retailers — what we are trying to come to, bring it to reality — is: How do you make sure the customers’ experience when they go to the store is extended by the use of digital tools? And similarly, when you go online, how can you bring the best of the stores online? So that’s the whole idea of multi-channel retail for us and what we’re working on.
If you go to the Best Buy store today and if you have your app, we have a capability of actually making it in “local store” mode… and you can go and use the app in the local store — identify products which are actually in the store. When you browse something online, it will actually tell you that this product is available in the store. So we’re trying to make sure that we can bridge the experience between what’s happening online and in the store in a seamless manner using the app.
The second one we do is, when you go online and browse, we will tell you which product is available on display in a particular store. So let’s say that you are in Seattle and you want this TV. You can actually go see the TV on display in Bellevue, versus in Northgate. So our idea is, instead of trying to say everything has to move to one channel or the other, give the customers the tools so that their experience gets better in the particular channel they are in.
So that’s what we’ve been able to do, and that’s what you’ll see both online and in the store.
Bishop: Some folks may not know this out there, but Best Buy has actually succeeded in a turnaround over the last few years, under your CEO. Now the idea is, where do you go from here? That’s really the position you’re at. Domestic online revenue grew 21% in your last fiscal year to $4.85 billion, which is a big chunk of the company’s overall revenues. How do you describe what’s happened at Best Buy in the digital realm over the last few years?
Subramanian: So four years back I joined the company and our CEO also came on board. One of the things he set into motion is what’s called Renew Blue. And he jokes about this: He says his goal was simply not to die.
At the time when he came on board, Best Buy was going through some very tough times. And what he focused on was: What are the things that we need to do, first of all, to drive the top line and the bottom line and actually be relevant in the customers’ minds. And our focus was very clear at the time: What do you need to do to make sure that when customers come to the store they buy the product? Be competitive online and make sure that we have the products and selections which people need, and that’s kind of what we’ve been able to do on a consistent basis.
Bishop: The other thing that it seems you’ve been able to do is use the physical retail assets of Best Buy as an asset online, using them as a distribution hub in some ways. And in that way, you’re already where people like Amazon are trying to go. How has that changed, how you’re using the stores as a distribution hub, and how does it work for the average consumer?
Subramanian: Part of the work we did in Renew Blue is — as customers are expecting things pretty quickly — we had an asset, which is our 1,000-plus stores. And one of the things we said is: If we are able to allow the customer to see what products is available in the store, you give them a complete choice. You can get the product shipped to you, maybe a week from then. You can also go pick it up in the store. You can ship from the store so that we can get the products [to the customer] faster.
So the fulfillment online, as you probably are well aware, is very important. We give the customer the choice to get it 15 minutes from now — because every Best Buy store is 15 minutes from a customer, 70% of the population is 15 minutes. So you can go and buy the product right away, maybe 15 minutes if you need it right away. You can get it shipped to you maybe in one or two days. Or you can get it a week from now.
So what stores offer us is a great opportunity to build that distribution very close to where customers are. And, as I said before, because we are very close to the customers with our presence, this actually gave us a very strong competitive advantage as we thought about providing customers fulfillment in a much faster way. So that’s one of the things we were able to do.
Bishop: It’s interesting because other traditional retailers — I would put Starbucks even in this category — they have gone through similar digital innovations and initiatives. Starbucks does their mobile order and pay. and it’s to the point where Howard Schultz has actually said that they’re actually going to have to reconfigure their stores because people are going straight to the pick up versus actually ordering at the cash register. Has Best Buy started to reconfigure its stores to reflect traffic coming in from online buyers?
Subramanian: Yeah. If you go to a Best Buy store you will actually see, right next to the checkout lane, there is a place where you can go and pick up products. So we’ve already configured our stores so customers can go pick it up. I’m sure you’re a technical person, and we’re all kind of geeks when we go to the Best Buy store. There is this allure of this store to see all the gadgets you have. So we see most people coming to buy a product or pick it up in store, and they take a detour and look at all the things which are there, and then come back.
So I believe there is a value in the stores and the retail. That’s the true multi-channel. Provide the customer the ability to shop where they want to shop, when they want to shop. I think that’s kind of the focus. But also give them the opportunity — if you just want to come in get it and get out, there’s a very clear way you can go pick up the products and leave. We’re trying to make the experience simple and easy for the customers, too.
Bishop: In some ways that means that the retail store can serve as a showroom. And I know that’s sort of a dirty word in the retail world, but if it’s a showroom for your own online experience and for BestBuy.com versus another dot com, then it’s a good thing for you. How do you make sure that it’s actually a showroom for your own experience and keep people in that channel, in your own channel?
Subramanian: This is interesting, because I think when you buy a TV you’re not buying it because it’s a black object on the wall as an artwork. You’re buying it because you want an experience. Perhaps you want to watch Netflix, you want to watch the latest show which is coming online or which is coming on TV. So when we think about it, when we look at the stores — could we display the solutions that people want, not just products? When we go to the store, we buy a product. And I think what people buy products for is that they want to actually have an experience.
So if you want to go buy a product, what are the five things that should connect to make an experience become meaningful and true — so that when you go home, you’re happy with the purchase you have? We believe that’s one of the things we are trying to do. If you look at our concept of a store within a store, and what you do when you go to Best Buy — we have some phenomenally experienced blue shirts and agents who can tell you about this product you’re trying to buy and how other things can create a solution together. And that’s what we’re actually trying to do.
Bishop: When you talk about a store within a store, that’s other big brands that have their own — it’s almost like a mini store when you walk into Best Buy.
Subramanian: Right. Apple, Samsung. And the idea again is… If you are a Samsung fan, you can actually understand how all the Samsung products work together. So I think the notion of creating experiences and creating solutions is important as we start to move forward, and as the millennials are actually starting to come to be a power. So that’s one of the things were looking at.
Bishop: Your engineering office is here [in Seattle]. Many of the things that we were talking about in the first segment — in terms of the digital innovations, the apps that are made for Best Buy — come out of Seattle. This office was established a couple of years ago now. Tell us about it — what’s going on there?
Subramanian: It’s exciting. We have two developments centers in the country. One is in Minneapolis, and then the Seattle development center we established about two years back. We have very good talent in Minneapolis, but Seattle has some incredible talent from e-commerce perspective. So we said: How do we actually establish a route in Seattle so we can actually accelerate the development of our digital products and services? So we established our office in Seattle, right above the Seattle Times, two years back. And primarily we’ve been focused on three things.
One is we’re actually doing all our app development — for bestbuy.com, Best Buy Mexico and also Canada — in the Seattle office. We also do all our digital media and digital ads. We’re also doing our internal cloud, we call the private cloud, and that cloud development and engineering is based in Seattle. And the fourth one, which we just launched, is digital subscriptions. How do you actually build digital subscriptions? That capability is also from Seattle.
We have close to 100 people right now. We’ve been able to grow the team — I think one of the cool things about it is the talent here is abundant. And we are trying to make sure we are building complementary talent to what we already have in Minneapolis, so that we can build both of them. And this is not something where they’re working on R&D. This is a team which is focused a lot more on executing and providing customers technology and products and services used by them on a daily basis. When I look at it, I look at the Seattle center and the Minneapolis center as almost two clear centers, where we will build the right products and right services based on the talent we have.
Bishop: Very interesting. As you mentioned, you’re in the Seattle Times complex. That’s poaching distance — it’s walking distance and poaching distance — from South Lake Union and other Amazon places. How many of your folks have come from Amazon?
Subramanian: We’ve had a lot of talent come from all over the place. Amazon — we have a few. And from other places, we’ve actually recruited, too. I’m looking at it from a culture perspective. We look for people who are passionate about multi-channel retail, who understand technology, and who really want to be able to drive this culture we’re trying to create that is really focused on the customer — making sure that it fits into how we want to actually run it. So we find the right talent and some of the do come from Amazon, but we have a lot of people come from other places too.
Bishop: How big do you envision that office getting? You’re up to nearly 100 right now: What are your growth plans and your needs?
Subramanian: We focus on our growth plans not in terms of not how many people we hire but what talent and what products we can actually build. So when I started the office, our first focus was build a talent which is focused on app development. Then we added digital media. Then we added digital entertainment. And I’m thinking about engineering talent to come in. So it really depends on what type of talent I get. I don’t have a set number. Our focus is: Did we bring the right talent? Whether it’s in Minneapolis or in Seattle, we’ll find the right place and actually bring the right people in. I’m not being evasive, it’s just really focused on what kind of talent we can bring, and then saying: What opportunities do we have? We’ll go from there.
Bishop: As I mentioned at the beginning, the popular perception may be that traditional retail is getting killed by online. What’s your pitch to prospective recruits, to engineering folks, to try and dispel them of that notion?
Subramanian: It’s funny, I was pitching yesterday to somebody, too, during dinner. You go to a store to shop. So there is a component of shopping which is actually physical, and there is convenience which comes from online. What I pitch is saying: How do you actually bring the best that digital has to offer and the best that retail has to offer to something which is going to be a multi-channel experience? Instead of trying to look at everything as one against the other, is there a way to make it easier for the customer to have the best experience? And if you’re willing to join me to do that, this is the place to work. That’s my pitch.
I do see that there are things where digital actually provides capabilities. But if you want to buy a $2,000 TV and find out how that actually works with 10 different products, going to a store and really experiencing this — I think all of us do that on a daily basis or a regular basis. There’s something to be said with that. And how do you actually fulfill it? Once you see the product, whether you buy it online or not — that’s a much different story. And shopping inherently is a social aspect. There is some aspect of social need, which we all have to go engage with the product and talk to people. And I think: How do we bring that online? How do we actually continue to enhance it by using digital tools? That’s the approach we are actually thinking about and that’s what we want people to work with us on.
Bishop: One thing that we’ve seen with some e-commerce folks — Amazon specifically — as they get into physical retail is they try to automate the physical aspect of it as much as possible, too. How do you see that going in Best Buy? In other words, I’m going to check out. Do I still go to a traditional checker or could I just sort of have an RFID chip in my Best Buy card that knows who I am and tracks me as I walk out with my $700 TV and knows that I’m actually good for it?
Subramanian: How we approach it, and I approach it in a slightly different way, is to think about what’s relevant to the customer. Maybe there is a cable you want to buy and you want to actually move forward, how do we make it simple for them? But we have some phenomenally talented blue shirts who actually understand what the customer needs are. If you go to the store — and you can observe them when you go to Best Buy — a lot of people will engage a blue shirt. They will talk to them, they want ideas, they want to actually have reassurance of the work they’ve already done online to come in, because there’s an enormous amount of data online.
So the blue shirt is the person you bounce that off and say, “Hey I’m thinking about this TV. This is what I want to do. Is it that the right thing?” And the blue shirt says, “You know what — I’ve looked at all these things, here’s what do you have to do.” There is value there.
So I think it really depends on if you are a customer who just wants to shop and come out. In my mind, as retailers, what we’re trying to answer is: what does the customer need? And if the customer needs interaction, we have a person who’s knowledgeable to talk to you. If a customer needs reassurance about the ideas they have, we have somebody who can help you with that. If you just want to grab and go, we have that opportunity.
So we’ll continue to explore those things. But instead of thinking about what we want to do for the customer, I think let’s put the customer in the middle, and figure out what they want and how we can configure and contour our organization and our approach. I think that’s the point I would like to look at.
Bishop: So in researching this, I ran across something that was really interesting that I didn’t know about. First off, Best Buy did a price match guarantee a while back with online sales. So there’s a guarantee that if you find it for cheaper online, the price is matched. But also there’s this thing called “open box.” Tell me about that, because that got my head spinning in terms of possibilities.
Subramanian: So open box is when somebody comes and returns [something] to the store and we actually mark the price down. And we have different levels of it. We have something called excellent condition. And then our Geek Squad — because we have services, this is another great value which Best Buy brings to the customers — we verify and actually certify the product is 100% working using our Geek Squad, because we have resources to do that. So we have something called Geek Squad Certified Open Box, which is as good as new. So when you go to the store this is almost like finding these new good deals for the customer. And what we’ve done is we’ve also exposed it online.
So when you go online you will see that you have your price and we actually say, “you can buy something for a cheaper price and it’s an open box,” and we’ll say where it’s available in the store. You can also get it shipped to you. We have built that capability also from the store. So the idea is: How do you start looking at these open box products? And if customers are okay with something being opened but it’s in good working condition, and we can sell it to them for cheaper — it’s for people who are actually looking at that too. We have a lot of people especially coming to the store. Sometimes even I actually go and look for a couple open boxes, too. It’s quite interesting.
Bishop: That’s a good tip. That might change my buying behavior actually. What’s more important to the typical shopper: Convenience or price?
Subramanian: It’s always this very tough question. I think it depends on the customer’s needs state. Sometimes when you are in a rush, convenience is always going to be important. But price is almost this basic one. You have to have the value — I think most people want to shop for value. So I think I would move the price into more of a “value,” and as long as you’re able to show that there’s value in a particular product, convenience is actually becoming more of an expectation on top of providing value.
So as you think of our price match guarantee, we had to do it because it was the right approach. We have to make sure the customers feel like you’re not getting gouged because you’re coming into a store. Once you actually have that and take the price out of the equation — the value is all the same — the convenience is about: Can I go to the store and pick it up within 15 minutes so I can actually have it right away? That actually becomes the convenience factor. So I think both of them are important, but price is almost becoming table stakes. You have to make sure the customer sees the perception of value in the products you sell.
Bishop: The Wall Street Journal, in a story in their Heard on the Street column, said, “The next time a retailer looks poised to cave to Amazon, it should head the story of how Best Buy came back from the (presumed) dead.” What lessons have you learned — business lessons — in being part of this turnaround at Best Buy?
Subramanian: I’m lucky enough because I actually went in 2012 — I joined it for the turnaround. And one of the things I learned is, this is teamwork. You have to work with a fantastic set of people, not just within your peers but the interior organization, which is now 125,000 people strong. It takes the focus of the company, and really focused from the people perspective. That’s the first thing, you need focused people: talented resources working together to bring the company back.
And the second one is about focus, not making this too complicated. I think when Hubert came, his message to us was very simple: There are two problems we need to go solve. We have to increase the top line and we have to increase the bottom line. And that kind of very clear focus is also important when you’re in a turnaround, because you won’t have a lot of opportunities to try 25 different things, fail in 24 and then pick one. So his clarity of message. So giving them a clear message — all the way from the top from the CEO, to the person in the store, and the person in the distribution warehouse, the person working online on the e-commerce side — we all had the clear message. We had two problems to solve. Let’s actually go get that done.
So focus on the employees, make sure that they understand what we are trying to do. Make sure that they are part of the journey. Don’t talk down to them. So that’s just a really good experience and exposure that I got. The second thing is clarity of message, especially when you’re in a turnaround, so that everybody can actually understand what we’re doing. Because the power is in the fabric of what we do, not in terms of one person’s vision. Third one, which I just alluded to be very, very clear about execution. Make sure that everything is focused on execution.
Bishop: What does execution mean in the context of Best Buy’s strategy?
Subramanian: When we talk about a price match guarantee, making sure that the price match guarantee is understood well by every single interaction. Because if you think about it, we have more than millions of interactions every day done by those blue shirts that are actually there. So how do we make sure that they actually understand what a price match guarantee means? How do you do price match guarantee? How do you actually talk about customer experience? All those things matter.
So that is the execution I’m talking about: Taking this broad statement and really making it actionable daily in the stores. What we do on the site. Are we actually managing those things? We talk about customer experience, are we obsessing about what happens with user experience on a particular website? What happens when customers come to the global home page? What do they actually see? So that’s the execution I’m talking about. It is taking those broad concepts and making sure it’s actionable in every moment of interaction with the customer. So that’s what we obsessed over the last four years. And the results are there to see.
Bishop: So that’s the turnaround. Just as we wrap up here, what’s next? What’s on your agenda for the next few years, to whatever extent you can share it?
Subramanian: Hubert publicly talked about New Blue 2020. That’s our goal strategy. So when I think about transformations, there’s two aspects of it. One, you turn around the company effectively. You stop the negative slide and you turn around you’re actually poised for growth. And the second thing is actually growing it. So Hubert, our CEO, said the Renew Blue, which is our turnaround story, has ended. Now we are in the next phase, which is actually the growth strategy, which is called New Blue 2020. And for that one, what we are looking at is expanding on what we have done, but really focusing on: What does the customer experience and employee experience have to be in this multi-channel retail? Rather than try to think about e-commerce and looking at stores as two separate things — which we as consumers don’t anymore — how do we actually start to use digital as tying those two together so you can truly look at multi-channel retail? That’s one thing we are focused on.
Second thing is, we want to be obsessed about the customer and the customer experience and making sure the technology works for them. So what kind of services could we actually bring to bear, along with the products, so that we are providing solutions to customers and we’re making the technology work for them? That is also the focus. So we are looking at several growth opportunities. Clearly, proving the products for our customers and being a very good place for customers to experience products is important. But on top of it, how do you create these environments and build solutions and and services?
Third one is — most of us don’t live our lives in work or stores. We actually have a home we go to, whether it’s an apartment or a home. And we want to be able to figure out: How do we actually help the customers in the homes where they live? All this technology is increasing, and then there’s so many devices coming in. Now we are looking at internet of things starting to come in with sensor technology. How do we make sense of all of those things for the customer and make the technology work for them rather than actually make the customer work to get that technology working? So we are trying to figure our what other things we can do in the house, such that the technologies can create a much better living experience for them. So that’s the next part we’re looking in.
Bishop: Does that mean you’re developing hardware?
Subramanian: We already develop hardware. So we have a brand called Insignia, we actually develop it. One of the best things is we have a very strong vendor community who works with us. So we will look at leveraging the vendor and the merchant communities we have to provide the right solutions for the customers. And if we have to provide some hardware we have to develop, we are more than happy to do that, too.
Editor’s Note: The spelling of Best Buy CEO Hubert Joly’s name has been corrected since the original post.