It was the best of times for Best Buy and the worst of times for Toys “R” Us in the news this week. Years ago, analysts expected Best Buy to go the way of Borders, a bookseller disrupted by Amazon’s online magic. Instead, Best Buy has held up well against Amazon. It not only avoided the fate of electronics chains that did go bankrupt (e.g., Radio Shack and Circuit City) it’s a stock we all should have purchased. Toys “R” Us, on the other hand, announced its bankruptcy this week. Economists love natural experiments, and the Best Buy versus Toys “R” Us comparison offers one for retail markets. Why did Best Buy succeed where Toys “R” Us failed? What lessons can we glean? The key takeaway: You cannot beat Amazon at its own retail game. You must win at a different game. Toys…
What JC Penney didn’t understand about the role of price in business models
Wizard of Oz protagonist Dorothy captures the shock of her post-tornado world in the memorable line, “Toto, I’ve a feeling we’re not in Kansas anymore.” Ex-Apple retail wizard Ron Johnson, now CEO of JC Penney (JCP), must be saying “I’m not in Cupertino, California [Apple’s headquarters] anymore” as he discovers the challenges of transforming his new employer’s retail stores. The first head has already been chopped: merchandising and marketing leader Michael Francis left JCP after less than a year on the job. We’ll now see if Johnson, who created the “shabby chic” value promise at Target and the stellar shopping and learning experience at Apple, has the chops to fix a troubled company in a category with excess supply. I thought Johnson had a great idea – reinvent the department store, which had offered wonderful shopping experiences when local high-end stores dominated the…
More than running shoes – a business model innovation Best Buy should model
Amazon’s quarterly revenue rose 51% year-over-year while Best Buy’s revenue remained flat. Is it any wonder Best Buy’s stock prices fell by one-third this year? What’s going on? A high percent of store visitors use Best Buy for decision-making but turn to the Internet to find best prices and make purchases. Without stores and with a government-given competitive advantage called “no sales tax,” Amazon has the lowest cost business model. Best Buy is stuck in commodity-competition quicksand, sinking steadily while customers see little difference between buying from them, Amazon or other reliable suppliers. Of course, lowest price wins. Best Buy is not alone. Most manufacturers and retailers are stuck in this situation. I saw a great solution to this dilemma while helping my husband Nick shop for running shoes at Road Runner Sports, the world’s largest on-line running and walking store with a…