April 17th, 2012

Best Buy is hardly alone in getting buffeted by choppy waters. The list of defunct big-box superstars of the 1980s and 1990s is long and getting longer. Remember Circuit City, Tweeter, Crazy Eddie—and Borders, which thundered out of business last year?

Even giants such as Wal-Mart (WMT) and Target (TGT) are striving to adapt and are beefing up their online operations while lowering their profile in the physical world. Target’s operating margin has slipped from 8.3 percent in fiscal 2008 to 7.6 percent for fiscal 2012, which ended in January. The company is opening five smaller CityTarget locations to seek growth in municipal areas. Wal-Mart, which also seemed invincible until recently, has offset years of declining sales of general merchandise with increased sales of groceries. Last year it added 21 small-format stores and plans to increase that number by as many as 100 this year. Most of those are Neighborhood Markets, which sell a higher percentage of groceries than the SuperCenters.

“I almost describe this as an Alcoholics Anonymous program,” says Fiona Dias, chief strategy officer at ShopRunner, a company that runs a two-day subscription shipping service on behalf of dozens of retailers. “It has taken a very long time for some of these companies to admit they have a problem.”

The question is whether it’s too late for companies like Best Buy to put themselves on the path to recovery. The retailer’s business hasn’t collapsed; annual sales have been stable at around $50 billion for the past few years. But it needs to adapt in a hurry. An excursion to the Apple Store in New York’s Grand Central Terminal illustrates how much the ground beneath traditional retailers has shifted. Despite the throng in the store, buying an iPhone charging cable lasts about three minutes: the time it takes to grab the box off a wall, scan it, tap a couple of security codes into the iPhone app that popped up, and walk out. No need to wait in a checkout line—or even speak to a salesperson—and if security personnel were watching, they were invisible. It’s a process designed to remove any lingering barriers between shoppers and their money. You might call it frictionless.

At a much less busy Best Buy two blocks away, there were no lines at the registers. Yet buying a similar cable took twice as long as it did at the Apple Store, and the experience didn’t end with the sale. A security guard posted at the front door rummaged through shoppers’ blue bags and verified receipts before allowing them to leave. Friction is overrated.

- Brad Stone and David Welch, The Future Retail Wasteland via Businessweek

Best Buy surprised the market with a $1.7B quarterly loss, and will be closing 50 stores. CEO Brian Dunn, who a week earlier was trumpeting the companies prospects, resigned.

Successful retail in the US is falling into two categories: companies selling their own products, like Apple, and focused specialty providers, like Trader Joe’s and Uniqlo. Otherwise: a wasteland. And soon we will be dismantling all the big box stores.

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