Best Buy Plans to Outrace Rivals on Electric Cycles

Last Updated Jul 6, 2009 5:17 PM EDT

One way Best Buy can differentiate itself from key competitors, particularly big, non-specialist rivals such as Wal-Mart, is by offering technology products and services beyond the range of what its competitors can practically fit into their operations.

In that light, it isn't surprising that Best Buy has begun selling electric vehicles. The initiative is a test that includes electric bikes and scooters, and Segway transporters, which will be joined before summer's end by an electric motorcycle, said Kelly Groehler, a company spokesperson. A story in the Wall Street Journal, and a lot of the other reporting that's been knocking around the Internet, has focused on Best Buy's offering of the Brammo Enertia, an electric motorcycle that, for 12 grand, can take riders up to 45 miles at 50 miles per hour on a single charge. The reports peg Brammo's Best Buy introduction to a Portland store and slate it to occur later this month. Best Buy has sponsored Brammo racing since May. Best Buy has been offering the electric bikes and scooters, as well as the Segway transporters, at about 20 stores on the West Coast.

For the electric vehicle makers, putting products in front of folks heading into Best Buy for DVDs and televisions will raise their profile and tempt many more consumers to check them out.

For Best Buy, the electric vehicles represent a potential new sales avenue, but, even if that doesn't work out, the retailer is positioning itself as more cutting edge than the big box operators that are pursuing electronics sales eagerly. Sales and margins of key Best Buy product segments, including flat-panel televisions and DVDs, have been impacted as Wal-Mart, Target, Costco and others have boosted electronics operations.

At an analyst event this spring, Bill Simon, executive vice president and COO, Wal-Mart U.S., detailed the success the company is having in terms of getting consumers who can afford high-priced gadgets to shop its electronics departments:

Higher income, $65,000-plus folks, traditionally shop the grocery side of our store focusing on food and consumables that are primarily nationally branded, but in the past 12 months, we've seen them move into some of our general merchandise categories as we have improved that offering by adding some national brands in areas like electronics.
Simon said the addition of brands such as Sony, Samsung and Apple had closed the gap between Wal-Mart and its electronics competitors.

In the meantime, Best Buy is enhancing its business in critical segments such as cell phones, with Best Buy Mobile, and notebooks, with additional assortment backed up by Geek Squad service, and others. It wants to take advantage of what newly appointed CEO Brian Dunn called in the company's June 16 conference call, as reported by SeekingAlpha, a "unique opportunity to present a compelling and unmatched experience for the customer."

In the same conference call, James Muehlbauer, Best Buy senior vice president and interim CFO, noted, "We're playing a different game this year with the mix of competitors that we have and certainly the offerings that we are putting in the marketplace."

Best Buy executives are hoping that they can establish solid operations that are beyond the high sales volume product categories where their big-box retail competitors want to play. If they generate profitable sales, Brammo motorcycles and Segway transporters provide a new income source and, if they don't, they give Best Buy a cachet as the cutting edge technology retailer and a destination that's ahead of the pack. If an initiative doesn't generate a whirlwind of dollars, the company can sell through what would likely be a limited inventory as it ushers in the next new thing. To the extent it adopts such a strategy, Best Buy would be, ironically under the circumstances, taking a page from the playbook developed by its cross-town rival Target.