No matter what traditional camera makers did or how well run their companies were, no amount of planning, managing, or cost-cutting would have stopped digital photography from making film more or less obsolete.
The same could be said of countless other industries. You can't stop progress simply by executing the old thing well. You might be able to survive a little longer, but you're really just putting off the inevitable.
In some ways it feels that's the problem Best Buy (BBY -0.30%) faces. Hubert Joly has done an amazing job turning the company around since he took over as CEO in 2012, but he may simply be up against a task that can't be accomplished.
It may not be as obvious as it has been historically, when new technology replaced whole industries, but the digital revolution led by Amazon.com (AMZN -1.14%) almost certainly guarantees the end of Best Buy as the big-box retailer it currently operates as.
Best Buy stores are big, and that's part of the problem. Source: Best Buy.
Where Best Buy came from
When Joly took over as CEO, he entered as the company was reeling from a scandal in which its former boss was shown the door over what the company called "personal conduct" issues. Later, an independent audit board determined that when he was CEO, Brian Dunn had an inappropriate relationship with a female employee.
But while Dunn's behavior may have been why he chose to resign ahead of being fired, he was also facing rising concerns that he was not the right person to lead the company. That was partly because Dunn was a longtime retailer, a Best Buy lifer who had worked his way up from the floor to the top job. That probably made him the wrong person to serve as CEO in a time where Amazon was taking over.
In the last quarterly results reported before Dunn stepped down, the company reported a $1.7 billion loss. The then-CEO, in an interview with The Wall Street Journal, seemed to understand the problem, but not the depth of it.
"While we know 'showrooming' happens, we continue to be the No. 1 player in consumer electronics," he told the paper. "Really, if a customer comes into our store to see something, I like our odds."
Where Joly has taken it
Unlike his predecessor, Joly didn't think being used as a showroom for Amazon was simply a problem of getting enough customers in the door. He moved quickly to counteract the online retailer's pricing advantage by offering a price-match program. He also worked to create more value in actually visiting stores by rolling out store-within-a-store concepts with Samsung, Microsoft, and other key electronics manufactures.
While he attempted to fix the showrooming problem, Joly also instituted "Renew Blue," in November 2012, a program at first designed to cut $750 million in expenses that would eventually grow to over $1 billion.
It was a simple formula where he acknowledged that the company had to plan for lower sales by spending less. And it worked better than expected. In Q3 2015, its most recent full quarter reported on, Best Buy had slightly higher domestic revenue and an increased profit year over year.
Q3 success is one thing, but retailers live or die based on Q4. Joly addressed that matter in the company's earnings release and set table for a big holiday season.
"One thing we are certain about is our team's ability to execute exceptionally well throughout the holiday. We are going into the holiday clear on our priorities and our plan, and with a better trained, engaged and most importantly, highly determined team," he said.
That might be true, but it didn't matter, and what happened during the crucial shopping season may suggest that Best Buy's demise is as inevitable as the death of the typewriter.
It was a bad holiday
Despite all of the company's prep and Joly's faith in his team, Best Buy delivered disappointing holiday sales results, seeing a 0.8% decline over the previous year for the nine-week period ending Jan. 2. Those numbers are especially crushing when Amazon experienced what it called a "record-breaking" holiday season.
Best Buy also reported lower sales in a year when overall sales rose 3.3% from Oct. 31 through Jan. 4, according to First Data Corp., which processes credit card transactions and analyzed payments at 1.3 million retailers, The Wall Street Journal reported. Those gains happened even though foot traffic was down 6.4%, according to figures cited in the same article.
Best Buy is not alone in having an off holiday season -- Macy's and Gap were also down -- but this slight misstep for the electronics retailer may show that no matter how well Best Buy operates, it simply can't compete with Amazon. That's admittedly a big leap based on one down period, but it may well be true.
What is Best Buy facing?
While Best Buy has a network of enormous retail stores that cut into profit margins, Amazon has the most advanced consumer delivery system ever created, as well as an ever-expanding list of customers with credit cards on file. The online retailer also has a price advantage that Best Buy can't overcome just by matching prices.
Though the physical retailer will match Amazon's prices, it can't match Amazon's free two-day delivery for Prime members or on any purchase over $35. Best Buy matches that number, but not the shipping speed. This difference gives Amazon a huge advantage, as consumers might wait two days for their new TV to be delivered, but at the same price, why would they elect Best Buy's standard shipping, which takes three to seven business days?
Amazon also has a huge pricing advantage when it comes to high-margin accessories and cables. Through its Basics line, Amazon sells HDMI cable, power cords, and much more. Since these aren't direct comparisons to Best Buy items, price match doesn't apply and Amazon's items are almost always much cheaper than the choices Best Buy offers in its stores.
Best Buy does have a better selection online, and in some cases it has comparable prices, but Amazon has the advantage of its installed user base, as well as its Prime members. If a customer is standing in a Best Buy and an HDMI cable costs $9.99, but Amazon has it one click away via phone for nearly half that price, in most cases, anyone who can wait will elect to go cheaper.
It's death by a thousand cuts
Every time Best Buy loses a sale to Amazon, it bleeds a little more. That problem is compounded when a customer uses the physical store as a showroom, and it gets really bad when a salesperson spends time essentially making a sale for its online rival.
Best Buy lacks Amazon's shipping abilities and its customer base while it's saddled with stores that are much too big for its current needs. Joly has brought costs under control. which buys him more time, but he can't do anything in the short term, really even in a few years, to counteract the advantages Amazon has built up.
Though it's not going out of business tomorrow, Best Buy as we know it simply makes no sense. Joly probably knows that, and he almost certainly realizes that if he wants the company to survive, Best Buy has to become much less of a big-box retailer and more of a service company that also sells stuff.
That's a very difficult transition, and it's one that will leave a much smaller Best Buy, though for shareholders, that's better than no Best Buy at all.
