Serve and Connect: How Best Buy Plans to Fend Off Walmart

Best Buy (BBY) posted fourth-quarter results that were good enough to impress Wall Street and provide evidence that its service-oriented strategy is winning over customers.

Selling stuff will always be important, of course, but the company is committed to going after the opportunities that go home with the gadget. It's a strategy that not only could help Best Buy build more enduring connections with consumers, but could also be an important asset as it competes with Walmart (WMT) for consumer electronic dollars.

Best Buy reported net earnings of $1.82 per diluted share before extraordinary charges in the fourth quarter, a 13 percent increase over the year-earlier period. Revenues increased 12 percent to $16.6 billion and comparable store sales -- those at locations opened for at least a year -- gained seven percent

In a conference call as transcribed by SeekingAlpha, Brian Dunn, Best Buy CEO, said the company's success largely rested on unit sales gains in notebook computers, televisions and mobile phones that ensured dollar advances would remain despite electronics deflation. "Staying connected has become a non-negotiable for millions of people," he noted. "Some of the things we offer no longer fall under the category of discretionary purchases."

That observation is directing Dunn's vision of the company. Rather than fight it out on price alone, Best Buy plans to provide packages of goods and services that the company can configure to individual technology and financial requirements.
The big-box store, said Dunn, is

learning to see that hardware is merely the starting point in a relationship with customers, not an end in itself, but the means by which we can connect customers to the people, content and networks they care about.

Best Buy hasn't surrendered its reputation as a competitively priced electronics retailer; in fact, it has matched many of Walmart's promotions, pricing notebook computers at less than $300, for example. Yet, Best Buy sees adding services -- both basic free informational services to help customer understand the equipment they've purchased or paid installation and support services from the company's Geek Squad â€"- as the best method of serving today's electronics customers.

Neither Walmart nor Amazon (AMZN), can match Best Buy in the array of services it offers today, and they are its major competitors. Warehouse club chains are offering their members more support on technology purchases, but they cannot match Best Buy in breadth or depth of selection. As a result, Best Buy is in a unique position in the market, and its results suggest that, consumers are attracted.