Saturday, October 31, 2009

Best Buy should buy GameStop!

Bear with me, this one will have numbers…

Best Buy: Let’s save ourselves a lot of time effort and money and just buy GameStop.

I know that we have been considering jumping into the used video games market for a long while; here are two of the first URLS that came up on a Google search for best buy tests used games:

There are a lot of reasons why I feel that we should be looking at this company for acquisition. GameStop is a power house in used games, it has over 6000 locations, two e-commerce sites, well-known brands, a magazine, a source for old games.

Let’s look at the model they have for used games and why we should be interested. In the first quarter of 2008 used video game products represented $415M or 23.9% of their gross. This year as video game sales dipped 2.8 percent, GameStop did $545M in the first quarter, a gain of 31%. In all of 2008 GameStop sold $2.02 Billion in used games with a gross profit of $974.5M, which is 48% margin, this is huge considering the profit margin on new video game products is close to 12%. GameStop drives a large amount of its profit through used games, and we are obviously interested in this market and have done some testing to see how we can get into the resale business. We have rolled out our own trade-in program, but it isn’t as immediate as GameStop’s model and may not be able to attract the same customers due to the instant gratification they are used to. I would say that by acquiring GameStop it would make it a thousand times easier for us to transition into the used games market.

Next, let’s talk about the sheer number of locations. GameStop currently boast’s over 6100 locations; this is a huge number of locations on par with of Wal-Mart’s 8,159 worldwide locations. They operate in 17 countries, which is huge in terms of our quest for global domination as it gives us a foothold in many more countries than we currently have a presence. This would give us 7 times the number of physical locations we have currently meaning we can then bring our brand messages to more customers.

GameStop currently operates and was ranked 243, ranked at 2043, and ranked 69 in the US via at the time of writing. ( was over 300,000.) By acquiring GameStop we would add two very powerful gaming based e-commerce sites to our arsenal.

GameStop, EB games, Electronics’ boutique are very well known brand for gamers. Most gamers perceive that the staff is typically passionate and knowledgeable in the areas of video game hardware, software, new releases, etc. This comes from being in this specialty market for over two decades, an employee used game check-out program, and being a sponsor of MLG (major league gaming). It is hard to compete with their long term devotion to video games. Although Best Buy has sold video games for a very long time, the average hardcore gamer doesn’t see us in the same light, they don’t consider our employees an equal expert in knowledge of video games. This lack of knowledge in games comes from the fact that a new game comes out about once a week, and at GameStop the employees are typically allowed to bring home “used” games, which sometimes include the new games that they take out of the case to create their hollow/dummy displays. Also, due to the new op model there are less Gamers working in Gaming, where the department is being covered by DI, Car-Fi, and PC enthusiasts. (Labor being the biggest SG&A controllable drives me nuts and I will likely comment on it in a future blog.)

GameStop also uses its huge amount of locations as the primary advertiser of its magazine -Game Informer. Game Informer reaches 3 million subscribers each month, and is rank 4th in magazines reaching males 18-34. Game Informer is a great way for GameStop to keep its customers current on both video games and offers in store. It is essentially a monthly ad that customers subsidize. By acquiring GameStop we would then gain this publication and be able to utilize it to bring our brand messages to 3 million customers per month. These subscribers also happen to be our bread and butter customers that we impress with our current strategies and inventory.

Another large benefit that GameStop offers to its customers is the availability of older games. By selling used games this gives GameStop the ability to offer games that are upwards of 10 years old. Our current Latest and Greatest model means that as games get over a year old they are normally phased out, unless they are very popular and then with luck might make it to the second year past their release. By acquiring GameStop we would have the ability to give the customers a larger “out dated” selection.

So those were the reasons that we should be looking at the company, but there are a hand full of benefits we gain that may or may not be obvious. Let’s walk through a few of them:

First and most obvious is the Trade-In program. This is one of the big reasons why I even considered this as a viable idea for the future of our company. The part that might not be obvious is the logistical advantage we gain by acquiring a company that is very good at this; we have a place to move our games. Regardless of where it is being traded in, we can move the titles between Best Buy and GameStop. Most customers right now don’t know that we have a trade-in program or that we sell used games via Dealtree, but millions of customers already know that GameStop buys and sells used games. This means that we would be able to skip a lot of advertising dollars letting people know that we do this at Best Buy, and if we aren’t selling a lot of titles from one store we would be able to move them to another via our established DDC shuttle routes and a then shuttle from BBY DDC to GS DDC.

Next, more locations means more customers. This has been the growth model for GameStop for a long time (Wal-Mart as well). The more locations they can open, the more customers they will reach. We aren’t served with this model due to the way the Best Buy operating model works, but with the GameStop acquisition we would be able to spread the message of why Best Buy through 6100 new locations. We would be able to sign customers up for Reward Zone, sign up customers up for Best Buy Card/Reward Zone Master Card, give information on Geek Squad Black Tie Protection (and offer the plan with GameStop purchases), offer scheduling for Geek Squad in-home services (along with GS pre-setup consoles), etc … Via over 6100 new locations.

Another great gain would be a well established Brand for our gaming department. Instead of just Gaming, we would have GameStop in every one of our locations as well. We could utilize this very much the way the Geek Squad brand has galvanized services vs. the “black shirt” techs we had previously. This would make our Gaming department more marketable as a whole and help us make up ground with our gaming customers.

We would also have one less competitor in retail gaming. Again this is obvious, but it is worth calling out. By acquiring GameStop we will eliminate one of our biggest competitors in this field. This will also give us the ability to crush our other competitors. How do Wal-Mart, Target, K-mart compare to our current gaming department? The easy answer is that they don’t. They can’t offer half of what we offer; they are farther behind us than we are behind GameStop in terms of ability and benefit to the customer. By making this acquisition we would further strengthen our ability to serve customers in the area of gaming.

Two words: Profit Margin. Last Year GameStop drove 2 billion dollars in gross margin. That is absolutely huge from a company that did 8 billion in gross sales. This means their profit margin was 25.7% where we drove about 9.5 billion margin on 40 billion in sales leaving us with about 23.8% margin. This doesn’t seem like it would have a huge impact on our numbers (if we 2.2+9.5/40+8=24.375) as we would have only gained 0.575% margin that half a percent is still 2 (TWO) BILLION DOLLARS!

There are probably hundreds of benefits, small and large, but I am long winded as it is and am moving on with the goal of making a conclusion of this piece.

Here is a brief and assuredly inaccurate (pulled info from the interwebs) list of business we have acquired: Audio visions for 7 million, Magnolia for 87 million, Speakeasy for 97 million, Napster for 121 million, Five Star for 184million, Future Shop for 377 million, Pacific Sales for 410 million, Musicland for 685 million (then sold for just its liabilities), and 50% of The Carphone warehouse for 2.2 billion. Also, GameStop spent 1.44 Billion acquiring EB Games not too long ago.

Can we do it? As of Aug 09, GameStop was only sitting on about 250 million in debit with projections of making 500 million in free cash by the end of the year. Currently GME (GameStop’s symbol) is sitting around $24.30, with around 90% of their 164.68 million shares owned, we could swoop in and take 10% of the company for about 400 million dollars, then we could start taking chunks as often as possible to affect a hostile takeover, or we could just offer to buy the company for 4-6 billion dollars. I know that their director just sold off about 2.3 million shares a few weeks ago; they may be in the market to sell or if their stock price drops enough maybe we can scoop up enough to have controlling interest.

This obviously is just a thinking exercise and not a true business plan which would require a lot more research on the matter than I have at my disposal. Let me know what you think, either through comments on this page, or via @MichaelASander on Twitter.

Monday, October 26, 2009

Encyclopedia Best Buy - Truly a massive amount of offerings from one company.

I have been wondering for a long time: What is the best way to educate customers as to who we are and more importantly why they should do business with us. During the keynote speech at the 09 DMA the speaker told a story about Accidental Death & Dismemberment Insurance and the takeaway is asking yourself how does the customer answer the question: "What's in it for me?" While he was talking about that, I started thinking a little more deeply about how I much love I feel for the company that I work for and the lack of a content in the messages that we currently send to our customers. In this blog update I am going to attempt to convey how I feel and some ideas for improvement. Bear with me as I try to get my points across, and please remember that the opinions and views that I express in this blog do not reflect or represent any thoughts, views, policies, or anything else of that nature for/of Best Buy LLC, and are solely the views and opinions of the contributing writer.

Features vs. Benefits has been a big part of the training I have received and coached to others during my tenure at Best Buy. I am very aware that no one buys a feature unless they are showing off, but that most people make the decision to purchase when the value of the product or service in question outweighs the price at which it is being offered. One of the areas where I feel we struggle the most is in explaining all of the benefits of doing business with us to our customers and sometimes even to our own employees. The question "Why [should I shop at] Best Buy?" can be answered a great many ways, it really depends on what product or service we are talking about, but can this be answered by the average loyal customer? What about our lapsed customers or even by the average associate? I would pose that there is going to be a wide range in terms of those who can truly answer that question and how they answer it. I believe it would be an interesting experiment to run and give us a lot of data around our message.

The Best Buy brand message is simple: "We improve people's lives by making technology and entertainment products affordable and easy to use, while learning from challenge and change, unleashing the power of our people, showing respect, humility and integrity, and having fun while being the best, while we promise to make sure you know all that we know, to delivery an experience that inspires you, make a difference, never leave you hanging, and blow you away with the latest and greatest.

Maybe it isn't so easy after all and I didn't even begin talking about Geek Squad services or Geek Squad Black Tie protection or Best Buy Mobile or Insignia or any of the other Brands that we currently offer for that matter. The point I am trying to make with all of that is that our brand message is more of an encyclopedia that can't be conveyed in a 30 second commercial, or even in a 5 minute conversation with a customer. Personally I have talked with customers for 20 minutes or more around specific reasons "Why Best Buy" is the place that will meet/exceed their end to end needs.

The fact is, right now in this current model we do rely heavily on the "blue shirts" to deliver our messages, and as someone who wears a blue shirt I am thrilled that Brian Dunn believes in us enough to give us the opportunity and responsibility to make or break our great company. I can't think of many companies that would let its front line employees control its destiny in such a way, and the companies that come to mind don't have hundreds of thousands of interactions with the general public every day of the year (excluding the three where we are closed).

The reason I am writing this is to spark conversation, and ideas around what ways we can improve upon the delivery of the information that we want our customers to know about us. It seems to me that at this point there are a million reasons why Best Buy is the greatest place to shop, and until we can get that message out to the public we will have to continue to fight with places like Walmart and Amazon on price, when price isn’t even one of the top concerns for technology customers ( Informed customers make the best decisions. They typically get the right product, coverage, and services to meet their needs. This is part of why Best Buy employees (current or former) make great Best Buy customers as they know why they want and know what Best Buy has to offer in terms of accessories, Geek Squad Black Tie Protection, services, financing/reward zone master card, etc. This is also a reason why so many Ex-Employees continue to shop at Best Buy even after they move on to other careers. So with that in mind here are some of my ideas.

Lets make the "Why Best Buy" message accessible. This fix is pretty easy, we already have tools in place (a dozen different .com sites, lots of social media: Facebook/Twelpforce/etc.., weekly flyers, buyers guides, commercials). The only thing that has to be done is to put more of the information into these formats and let our customers know the information is there for them in the interest of transparency. Maybe we could turn it into a marketing campaign where the goal is trying to get the customers interested in all of the reasons that make Best Buy such a great company, perhaps a hunt and find game with different quizzes that they can take to earn prizes.

We can print a Quarterly Catalog. Look at Ikea's success with this direct mail catalog. This is a great medium for informing customers as we can inform them as to what we offer and to go into more benefits of our products on each page. This is really the next evolution of the Buyer's guides we have been using. If we used a quarterly Catalog as a Buyer's guide, we could then go deeply into how each feature benefits different activities, and cast a spotlight on products that bring these features out. We can also educate customers around how Geek Squad can make it easy for them, and how we can help customers protect their products with Geek Squad Black Tie. We can talk about how our financing gives more buying power and streamlines large purchases and how Reward Zone Master Card will double your points and the life your certificate (6 months vs 90 days), and that you can use it anywhere to get back up to 2%. We can inspire ideas of how you can setup your camera to wirelessly transmit the pictures you have taken of your family vacation the moment you get back home to your computer, and how you can then instantly view those on your TV, or share them with family all over the world. I feel that the weekly ad has enough emphasis on selling and offering product, this would be more about fulfilling the promise of make sure know all that we know. I think a cool name for it would be "Encyclopedia Best Buy".

Have a presence at more community events to drive awareness. A while back I submitted an idea to IdeaX around a mobile team to support community events - by using a team like this we can educate customers who may never come to our stores, listen to our commercials, or our other marketing attempts. This is a way to have a very personal one customer at a time type of education much like our efforts in store and via Twelpforce. By putting our brand out there we also become a local business instead of a “giant faceless monster here to eat your babies”. Forgive my attempt at humor, but I really fail to understand how we aren't a local company. I understand that part of the profit goes up the ladder to Minnesota, but from there it is divided among shareholders who live in everyone's community. Also, it isn't as if we are being bussed in from corporate HQ, generally we live in the communities where we work, and thus we spend our earnings in the local community. Presence at community events would just help people understand that we do have faces and that Best Buy is a place to go for help.

Better employee education. I read posts everyday on the Internet that an associate didn’t have knowledge to meet the customer’s needs; then I read feedback that that an associate at Best Buy blew me away because they knew so much. Clearly every store is going to be different, and beyond that every employee and every interaction will be as well. What this shows us is that most customers have come to expect a certain amount of knowledge from us, which can be a double-edged sword. At our store part of our local culture that helped us through our Grand Opening was L2T2. Despite the visions of druids L2T2 was really simple - everyday your goal was to learn two things and teach those two things to other people. We don't really focus on this anymore and it is easy for mature stores move away from their foundational excellence. I think the best way we ensure that we have the most knowledgeable employees is moving 80-90% of the head count to full-time. Employees that are in the store more often have a better chance of having more knowledge. The next part is to require that all associates become board certified quarterly. The board we be composed of employees from across the district, the questions would range from general Best Buy knowledge to general product knowledge to more specific product knowledge based on rank. Very much like the old ranking system of Magnolia Pros. Employees then would have their rank on their name badge so everyone would know where an individual stands. In terms of the logistics for this program we would use a Net-meeting program like Skype and each session would be a 5-10minute process and the board would meet for 8-10 hours a day meaning each board would be able to process 48-120 employees a day. Meaning each store would take a day or two to process making this a two week rolling process with a huge speed impact given to having multiple boards. The advantage to this over the current process is that employees and training dept gains better localized knowledge of where we are succeeding and struggling.

Let the customer decide which is the most relevant part of Best Buy. The issue that consistently comes up when I have conversations about this with people is that there is a too much to deliver and it is nearly impossible give weight to one piece of what we do over another, which leads to why I am so frustrated with our current marketing: no one seems to know everything we offer, or at times anything we offer, beyond product before walking into the store. Its great that they came in, but the next question is the one I ask most customers, "what brings you in today?" The answer is usually the product, although sometimes they still give their trained response "just looking". The point is that we are doing some amazing stuff, and other retailers can't or won't compete with most of it, but because we haven't given this knowledge to our customers they don't have to compete. If customers knew the differences between Best Buy and the other retailers I can't think of a reason they wouldn't shop here for most products other than just price, which we match vs. other local retailers. If its price alone Amazon is a great place to shop, but what if you would like to have an expert come out to your house before you buy anything and recommend the best solution for the room, then help you pick it out in store, hook you up with an amazing 0% interest financing plan, schedule delivery and install, and be there if something goes wrong even four years after you bought it. I don't think Amazon can compete with that even if you do save a few hundred bucks when you buy it, who cares if you can't use it? There was a recent study that many people only use 20% of the features/capabilities of what their currently technology can do. They have the products in their house, but simply aren't using these products for many reasons such as not having the know how to do it, using the product on the wrong setting, or not using the right cable.

So I guess the question then becomes how do you let the customer decide what is the most important part to them? It’s easy; you ask them. Lets start giving lists of our features/benefits to our customers through the many forms of surveys that we offer now. Lets also start polling customers that are shopping the competition, and putting links up all over the Internet. We can find out what is most important to a wide variety of customers. We can then sort and target them with the messages that fit them. Essentially letting the customers decide how they want to be marketed to based on the answers they give us. It would be interesting to try it.

The last idea I want to talk about… Advertise! Apple is a great example of how advertising is supposed to work. With a legion of loyal fans and giant success with their iPod this company knows how to use advertising to accomplish its goals, like forcing even Microsoft’s hand at times. Let’s stop and look at the iPod for a moment. Apple wasn’t the first company to produce an Mp3 player (or a DAP for those in the know) the first MP3 player was Saehan’s MPMan which was quickly followed up with Rio’s PMP3000, and this all happens three years before Apple places the iPod on the market. Apple leveraged its fan base for its initial release of the iPod, then turned to advertising to move beyond Apple fans and into the mainstream, there was nowhere you could turn without seeing those silhouettes wearing the iconic white earbuds against brilliant backgrounds. Maybe it doesn’t exactly drive home my point about giving customers knowledge around what we do, because those ads didn’t tell people much about the product, but it did get them excited enough to find out what it was. What if we created an ad campaign for each of the features we offer? ROI be damned. We just move to educate customers around all of the Why Best Buy. A commercial for Geek Squad Black Tie Protection would be easy, as we have already filmed one that we ran in our Home Theater department. (The customer accidentally knocks over her “Big Sip” spilling liquid on her camera, a Geek Squad Agent comes to the rescue and uses the force to undue the damage). It would be an easy task to reshoot this with new actors, or get a new release drawn up and have the existing actors paid for their work to go national. It would be great to see a 30 second commercial focused on Financing, or Reward Zone Master Card. I would love to see a print ad for Home Theater Installation. What about an ad for Geek Squad Autotechs installing a GPS in a Car Magazine? What about our Appliance department being featured somewhere (wait Best Buy carries appliances?) The list goes on and on, and I don’t want to leave Best Buy Mobile or Rocketfish or Insignia out of this random list at the end (or Init, or 5-Star, or Speakeasy, or BBFB, or Pacific Sales, or Magnolia, or Dynex, or AudioVisions, or Napster, or Future Shop, or Carphone Warehouse).

Anyway, I guess that about sums up my portion, if you are still with me I encourage you to post your ideas, views, theories, or miscellaneous comments. Keep in mind the question, “How can Best Buy let customers know about the millions of great things we have to offer?”