It will launch into the toughest retail market for a decade, but Charles Dunstone believes that Best Buy will be a hit in the UK. Tim Danaher joined him in Chicago to find out why.
Female mannequins draped with Liz Claiborne and Steve Madden bags, lavish roomsets furnished with dark wood cabinets and rich carpets, and US$350 headphone sets created by Dr Dre.
Sound like your typical electricals store? Thought not. But that’s what it is. Welcome to Best Buy, the electricals retailer that has taken the US and Canada by storm and now has its sights set firmly on the UK after tying up with Carphone Warehouse.
However, with electricals retailing in the UK on its knees, there couldn’t be a worse time to launch a chain. So will Best Buy work this side of the pond? Carphone and Best Buy are convinced that it will, and to find out why they are so confident Retail Week travelled to Chicago with Carphone founder Charles Dunstone to see Best Buy in action.
The confidence is based on a conviction that the standard of electricals retailing is frankly not very high. Best Buy, in contrast, is renowned for the high standard of its customer service.
“So many retailers have tried to take labour out of their models. A lot of electrical stores now just keep the rain off the stock,” says Dunstone. “There is a different atmosphere in Best Buy stores. There are more people and, like at Carphone Warehouse, it’s all about the people. The cultures that brought us together are all about saying that you can’t make a living just selling boxes.”
On a visit to the Best Buy store in the trendy Chicago suburb of Lincoln Park, guided by an unfailingly cheerful assistant – “Jim: Customer Experience Manager” according to his badge – Dunstone was in his element. Asked whether this very American level of service could be maintained in the UK, Dunstone robustly replies: “Why couldn’t we do it? There’s no reason why not. Look at this next to Currys or PC World – there’s no comparison.”
The store certainly is very different to those of its main UK rivals, with a huge area dedicated to home cinema and furnished like a showhome standing out in particular. Even the little touches are striking, such as the USStory text gift card given to local children for every A grade they got, or the sign on the wall of the staff area from the manager that asks: “What do you know about your customer that I would never know?”
Talking about DSGi, Dunstone expands on the theme of investing in the business and its people. “We’re trying to make sure we don’t end up as they have. For years they were squeezing the lemon harder and harder without reinventing – and in the end the earnings go down and there’s a big capex bill. You have to keep investing.”
A look around Best Buy’s Lincoln Park store revealed a much broader assortment than would be expected at an electricals store in the UK. In addition to the TVs, laptops and washing machines there are games, CDs and those handbags, designed to make visiting an electricals store as attractive to women as it has traditionally been for men.
The store, at about 30,000 sq ft, is small by Best Buy US standards, and while that will be the typical size in the UK, the first few are likely to be larger. “People in the UK are not used to the scale, range and assortment. When you’re in the store, there can’t be anything else you’d want – if it exists, it’s here. It’s critical to own the category with range and choice,” says Dunstone.
By any traditional reckoning, however, the timing couldn’t be worse. The retail market generally is entering what many feel is likely to be a protracted downturn and the electricals market has been particularly hard hit as consumers rein in discretionary spending and, simultaneously, the internet grabs a growing share of those purchases that are being made.
Dunstone, however, remains certain that the concept will work in the UK. “Do we have confidence in the model and what we’re doing? Yes. Do we have confidence in the economy of Europe and the consumer coming back? Yes.” There will be a comprehensive online offer, based on the premise that by 2012 two thirds of consumer electronics purchases will be web-influenced, including a third actually being bought online.
The exact mix of merchandise for the UK stores is yet to be decided. Whether home appliances like washing machines will feature as they do in the US is still unclear, and the substantial chunk of the Lincoln Park store given over to CDs and DVDs is unlikely to be replicated in the UK given the long-term decline taking place in that market. The Geek Squad, which Carphone has already imported from Best Buy, will be a major element and the Geek brand is to be rolled out to all Carphone’s support products.
Carphone finance director Roger Taylor – who has been given the job of Best Buy Europe chief executive – is confident that it can take ground from its rivals. In Canada, Best Buy has gone from a standing start to 35 per cent market share in seven years. And he claims that the electricals multiples in the UK have low market shares in those areas where a consultative sale is required such as phones, cameras and computing.
Best Buy’s research has found that European shoppers find electricals retailers forbidding places with products poorly displayed, security guards trailing shoppers and store assistants focused on selling warranties. Best Buy stores are different in many respects – noticeably, even the easy-to-steal items like iPods and camcorders are placed out for customers to play with.
“Visualise a store which is fun, lively and a great experience,” Taylor says. “That’s hard to do in the UK today but [Best Buy chief executive] Brad Anderson is aspiring to launch the best Best Buy ever in the UK.” He adds that most consumers only use 20 per cent of the functionality of devices they buy and that helping them learn more of what the products can do will be popular with suppliers as well as shoppers.
The venture is not being rushed into, but once the stores are open the pace will accelerate significantly. Four of five stores will open in the UK next summer and the target is 100 by 2013, with other European countries to follow.
While Best Buy international president Bob Willett stresses that the partners will take their time with the European venture, Best Buy and Carphone have experience of working together already through Best Buy Mobile, which brought the Carphone Warehouse experience of independent selling of mobile phones to the US for the first time. It helped Best Buy – which, by its own admission, had struggled to establish a presence in mobiles – to double its market share to about 4 per cent, with nearly 1,000 locations, primarily in Best Buy stores but also some standalones.
While Best Buy Europe is creating a stir, the core Carphone Warehouse chain remains crucial for Dunstone. Next week it will open a new flagship store based on a concept known internally as Wireless World at Westfield London.
The new format is based on Dunstone’s belief that in the 21st century Carphone Warehouse could do in the laptop market what it did with mobile phones in the 1980s, enabling customers to take advantage of what he calls “the connected world”.
At 3,000 sq ft, the larger than average store will offer an extended range of laptops on top of the mobile phone range, and sell new lines such as games and digital TV contracts. “There should be a seamless experience when people use technology but it doesn’t happen right now,” says Dunstone.
Carphone has shaken up the laptop market in the past year by offering free laptops to customers who took a broadband contract, which has taken the company from a standing start to a 10 per cent market share. Wireless World will take it on to the next stage, and there will be four other pilot stores of which elements will be rolled out to 50 others, plus the web. Three similar stores will also be launched in the US.
Dunstone sees the new format as a vital part of reinventing the business as its core mobile market reaches maturity. “Nothing is forever,” he says. “We have to continually evolve to make the business relevant to our customers. This business is totally about expanding for the future – it would have been easier to sell more mobile phones, improve margins, squeeze suppliers. In the short term that might get us better returns but we need to follow what the customer wants.”
In an attempt to ensure that the customer service at Carphone is as good as it can be, the company axed commission for staff within the Greater London area at the start of this month (Retail Week, August 8) and plans to follow suit around the country.
This worried some analysts when Carphone reported second-quarter connections up 9 per cent last week, who feared the company might lose some of its better sales staff. It is replacing commission with a bonus based upon a “net promoter score” – in other words, how likely customers are to recommend the store to their friends.
But Dunstone believes that offering quality advice is the key to making sales. “Our product is a commodity, so we don’t sell mobile phones, we sell advice. If we solve customers’ problems, sales will be easy.”
It is this straightforward approach to meeting the needs of the customer that has made Dunstone one of the most successful entrepreneurs of his generation. But with the Best Buy joint venture, could this be the beginning of the end for the man who started it all?
Dunstone is adamant this is not the case, but admits things could change. “I don’t know if it’ll be called Carphone Warehouse in 10 years, but I’ll still be involved in some way.”
In the meantime, he has his hands full with what is arguably the most eagerly awaited retail launch in the UK for a decade. Let battle commence.