Best Buy's Selling Machine HE'S 26. HE WEARS HOOP EARRINGS. HE'S A DEMON SALESMAN. AND THE ELECTRONICS CHAIN HE WORKS FOR IS CRANKING, THANKS TO AN ARMY OF FOLKS JUST LIKE HIM. BUT IS THAT ENOUGH TO SAVE IT FROM DEATH-BY-WAL-MART?
(Business 2.0) – Standing on the polished floor between the wireless department and the Geek Squad repair center, Josh Solomon begins his workday. Knees bent slightly inside pressed khakis, he slaps his palms on his thighs seven times, then claps seven times. He rises up, clenches his fists in the air, and bellows, "Best!" Three more slaps on the thighs, three claps. "Buy!" Solomon builds to a crescendo of one slap, one clap, and "Best Buy, Best Buy, whoa, Best Buy!"
"That is the 7-3-1," Solomon, 26, explains, two silver hoop earrings swaying slightly with his big grin. "OK, let's do it," he commands, and the 20 salesclerks--"blueshirts," as they call themselves--who work with him at the Maple Grove, Minn., Best Buy store bend at the knees and give it their best. Some are a bit off with the clapping. "We always have some people out of rhythm. It's the Midwest," Solomon says with a laugh. But they all chime in loud and proud with a final "Best Buy ... Wooo!"
The blueshirts break for their stations, radiating the kind of go-get-'em energy you more often see from a high school football team all fired up to take the field and crush the competition. And crush it they do: Maple Grove is one of the highest-grossing Best Buy outlets in the nation, and a laboratory where new approaches in sales and merchandising are tuned before being rolled out to the rest of the company's 629 North American stores. Solomon, one of the company's top sales performers, jogs over to the wireless, digital imaging, and camcorder departments, where he oversees sales. At the front of the store, the doors are unlocked, and a handful of gadget fiends--there are some waiting almost every day when the store opens at 10 a.m.--rush in to buy or simply ogle the latest and greatest in high technology.
The scene at the suburban Minneapolis store is replicated daily in Best Buy stores across North America, including the 7-3-1 or some similar rah-rah ritual that gets the sales staff properly pumped to seal deals. If it all seems a little goofy, consider this: It works. The legion of energized blueshirts helped Best Buy move $24.5 billion worth of gizmos, services, music, and movies last year. Net income in fiscal 2004 was $705 million. The blueshirts are trained, motivated, rewarded, monitored, and measured every hour the stores are open. And they are a selling machine.
Best Buy is the largest consumer electronics retailer in the nation, and it's putting distance between itself and the likes of Circuit City, Good Guys, and Ultimate Electronics. Per square foot, analysts estimate, Best Buy sells almost twice as much gear as Circuit City. Remarkably for a company its size--and given the recent recession--Best Buy has managed double-digit revenue growth for eight years in a row.
Much of that success can be attributed to skillful merchandising and marketing. But the real secret is Best Buy's unique sales culture, and the intricate ways in which it has sought to systematize the art of selling into something like a science. That it works is all the more impressive given that Best Buy salespeople don't get commissions; they're paid by the hour. "Best Buy has done an incredible job of motivating the blueshirts," says Stacey Widlitz, a retail analyst at Fulcrum Global Partners.
And yet, up at Best Buy's Richfield, Minn., headquarters, a chill wind blows. It isn't just the flood of imports and the ever-shorter product cycles that constantly pressure margins. The colder reality is that Wal-Mart is coming. About a year ago, the retail behemoth began a massive push into the higher-end consumer electronics that have been Best Buy's most lucrative domain. As always, Wal-Mart is ruthlessly cutting prices--the same formula that the company, with 2003 sales of $256.3 billion, has used to steamroll rivals in virtually every retail category it's ever entered. Equally ominous, Dell is bringing its lethal direct-sales model to bear, selling everything from MP3 players to flat-panel TVs.
Best Buy has no intention of becoming the next slab of Wal-Mart or Dell roadkill. Yet the countermeasures it's taking are unorthodox and, in the view of some experts, fraught with risk. To withstand the onslaught, Best Buy must sell more higher-margin gear and services. One way is simply by opening more stores, but Best Buy has almost reached the limit of its ability to do that. Thus, the company is turning to its blueshirt army: It's pushing its sales staff to sell more by connecting more deeply with customers and by lavishing them with attention and service and know-how--by trying to make Best Buy, in short, a kind of Nordstrom with blue collars. Put another way, in the coming battle for consumer electronics dominance, Best Buy is betting the company on the likes of Josh Solomon.
"Hello, my name is Josh," Solomon says, shaking the hand of a woman gazing at an array of digital camcorders. "What brings you in today?" The smartly dressed woman tells him she's just looking. "Well, are you looking to buy or looking to shop?" Solomon responds brightly. "We're noncommissioned; I don't get paid on what you buy today. If you don't mind, can I ask you a few questions?"
Solomon has launched into the first steps of Best Buy's "CARE Plus" sales approach. C is for "contact," which he has made as soon as the woman strides into his department. He has also told her he doesn't work on commission, implying, "Relax, I'm not here to hustle you."
The A means "ask questions," and Solomon does, discovering that the woman has her heart set on a $1,000 camcorder that records on DVDs rather than digital videotape. Next up is R, "recommend." Solomon explains the differences between the various digital camcorders and, because the resolution is better, recommends a $900 job that records on digital video. He's quick to offer a 5 percent discount on the pricier model if she still wants it.
Then E, "encourage the sale"--"You've made a great purchase"--the final step in CARE Plus. Solomon doesn't get that far. The woman wants to consult her husband before buying. Solomon thinks she'll be back. "She wanted the camera, and if she wants DVD capability, I'll get her a burner," he figures.
Every Best Buy employee has been trained in the basics of CARE Plus, and Solomon hammers it daily into the blueshirts in his departments. The idea is to become, as Maple Grove sales manager John Nelson likes to put it, the customer's "smart friend," and Solomon is a pro at it. He never seems to be pushing a customer toward higher-priced items--upselling, as it's known in the trade.
A couple in their early 30s sidles up to Solomon, looking to buy a digital camera and a camcorder. The guy explains that they want to spend a total of $1,000 on the gadgets, and he knows he wants a JVC camcorder. He wants the digital camera for $500. Solomon starts asking questions, and learns that the guy already has a lot of Canon camera lenses. He walks the couple over to a $999 Canon digital camera. "That's the one you want, man," he says. "It's unbelievable." He ticks off the Canon's advantages; within minutes, the guy is sold. Soon, the couple walks out with almost $5,000 worth of gear: a new Sony computer, service plans, technical support, accessories. Was this an upsell? Solomon would argue no; he asked them specific questions and sold them what they wanted. Solomon calls it a "complete solution," a package of gear that's part camera, part computer, part home-entertainment center--and every bit a key part of Best Buy's new sales strategy.
Gadget fans have forever been hearing about the wonders of convergence--all your electronic devices melding into one seamless system--but now it's happening. Best Buy believes that its future success hinges on being able to sell packages of high-margin technology that enable convergence. Doing that requires Josh Solomon and his colleagues to excel at demystifying the benefits of a wireless home network. They must be able to sell you on the joys of how a plasma-screen TV can service your computer, your game player, your cable set-top box, your digital images. They must convince you that bundling the hardware and accessories together with software and services like Netflix or Rhapsody will improve your life.
It's a sophisticated sell, and one for which Wal-Mart is not likely to spend the resources to train its employees. Best Buy's approach is a change for the 38-year-old company, which for most of its recent past has been much more like a Home Depot that sells electronics. Selling convergence, or a "solution" in Best Buy-speak, requires a lot more of the sales staff, and there are some in the industry who question whether the average 19- or 20-year-old Best Buy hourly salesperson will be able to pull it off.
Blueshirts like Solomon harbor no doubts. They are continuously trained at weekend meetings and at online e-learning terminals in their departments to understand how the store's steadily advancing digital technologies can work together and be sold together. "Selling a solution vs. a single item is like the difference between a layup and a three-pointer in basketball," Solomon says. "It's all about maximizing the score."
Brad Anderson, now the company's CEO, didn't rack up many points when he started working at the original incarnation of Best Buy. It was 1972, and Anderson was hired as a commissioned salesman in a three-man store called Sound of Music in West St. Paul, Minn. Living in a mobile home after attending a Lutheran seminary to become a pastor, Anderson didn't take the job seriously. He was mostly a music fan, and loved listening to Miles Davis, Cream, and the Doors through the most massive stereo systems he could find. He was a horrible salesman. "In my first two weeks, I made about $69 in 120 hours of work," Anderson says. "I didn't understand what it took to sell."
Anderson tried to quit but, while playing out his two weeks' notice, made a sale or two, kept at it, and eventually got hooked. "I became very competitive about it," he recalls. Best Buy gained a future CEO, and the Lutheran church lost a pastor. After a tornado tore through Sound of Music's flagship store in 1981, Anderson and his colleagues sold off damaged inventory at a bargain basement "best buy" sale--which brought in loads of cash and led to a new corporate name.
As Best Buy expanded, it made a point of hiring not just good salespeople but enthusiasts like Anderson, people who loved the stuff they sold. Brian Dunn, now Best Buy's executive VP for retail sales, started in 1985, hawking what was then the latest gadget, the VCR. He used to blast tapes of Miami Vice over huge speaker systems and giant screens to wow customers. "People used to gather around like it was a party," he recalls.
The collective sales wisdom earned by people like Anderson, Dunn, and many other Best Buy folks over the past four decades has been codified into what the company calls its standard operating platform, or SOP, a fat encyclopedia of sales rules. There is a Best Buy way to do almost everything imaginable in a store. "If you wanted to brush your teeth right now, we'd have a protocol for that," Dunn says. Through the years, the SOP has helped Best Buy launch new stores at an incredible clip and ensured that all operate similarly and successfully. But Best Buy is realizing that the cookie-cutter approach won't cut it much longer. Just as Best Buy ripped off Circuit City in the mid-'80s when it adopted the superstore format, now Circuit City has copied Best Buy's noncommissioned sales force and is trying to emulate the merchandising tactics of Best Buy stores.
What can't be copied so easily is the sales culture and approach that has developed at Best Buy. "Customer-centricity" is what Anderson calls the latest distillation of all he learned pushing gear, and it's another core element of Best Buy's new strategy. "You need to really understand why a customer is in the store and have a detailed knowledge about what products are available to meet that customer's needs," Anderson says. "And you need to have fun. Those are the things that make a good salesperson and drive sales. What we are doing now is all about trying to go deeper with those same themes."
To do that, headquarters will start relying more on feedback from the blueshirts about what customers in their specific stores want. For example, how can the stores be altered in terms of merchandising, products, and services to better fit the customers in a community of young families, or one of well-heeled urbanites? The SOP isn't being thrown out, but it's being given a little wiggle room. As customer-centricity is rolled out across all of Best Buy's stores during the next three years, a St. Louis store will be stocked and presented differently than a store in Dallas. And while the stores are being customized, the blueshirts are being trained to provide a complementary depth of sales assistance.
With its hourly workforce, Best Buy is trying to offer the type of hyperinformed sales help usually reserved for much higher-market retailers like Nordstrom and Neiman Marcus, while still being perceived as a store with great prices. The strategy puts a lot on the shoulders of guys like Josh Solomon, but Anderson and Dunn believe it's vital if Best Buy is to escape the Wal-Mart steamroller and stay ahead of Circuit City. "We're proud of what we have accomplished," Dunn says. "We're also paranoid that people are going to take it away." With that comment, Dunn reveals the other side of the sales culture at Best Buy: These folks are insanely competitive.
When asked to name his nearest competition, Josh Solomon ticks off stores in nearby Coon Rapids, Minnetonka, and Burnsville. He's naming other Best Buy stores. Places like Circuit City and Ultimate Electronics aren't the competition. They're the enemy.
Solomon knows every day where his departments rank in the district, in the region, and stacked up against every other Best Buy store in North America. "We are typically the top store in the district and the region," he says. "I don't plan on losing."
Best Buy is fanatical about measuring everything. Several times a day, stores will tally and send off totals for revenue, productivity (the revenue against the number of people who walk in the door), and close rate (the number of people in the door vs. the number of products sold), department by department. At the next morning's meeting, the blueshirts learn how their department did and where they ranked. Sometimes managers will videotape an interaction with a customer, then break it down for the salesclerk, like golf pros analyzing a swing.
Every morning, department supervisors like Solomon are given a sales goal for the day. On a slow weekday, Maple Grove's overall sales goal is nearly $90,000. To do his piece of that, Solomon will ask his blueshirts to make commitments for what they plan to sell that day. "Most days they are going to give us a goal that will exceed last year's on that same day. We know that," Solomon says. "My job is to help them attain the day's goals."
He does that by coaching less experienced blueshirts in how to approach the customer. After Jennifer O'Brien, a 17-year-old part-timer, finishes with a customer, Solomon strolls up to see how it went. O'Brien followed the SOP but didn't close the deal on a digital camera. "It's all in the questions you ask," Solomon instructs gently. "The questions will sell the camera for you and make the difference between selling a $400 camera and a higher-end camera, which is a better sale for the department."
The constant pressure to sell can wear on employees. Yet Best Buy is renowned in consumer electronics for a relatively low turnover rate. And it's not uncommon to see an hourly employee come in at 6 a.m. to build an elaborate balloon arch for "new release Tuesday," or for a clerk to chase customers down in the parking lot to offer them a performance service plan. The staff isn't paid more for stuff like that. But Best Buy is expert at finding ways to motivate--and retain--people through means other than pay.
When someone gets something right, for instance, the whole store hears about it. In Minnetonka, a well-executed sale prompts a Code 4. All the blueshirts stop and applaud the sales associate. In Coon Rapids, it's the "five-clapper," five staccato claps from the store's general manager and whoever else is in range. Solomon likes to yell "Boom" over the intercom when his department pulls off a sweet sale. For jobs well done, there are also free $50 meals at area restaurants. It might not seem like much, but for a high school kid working part-time for $8 an hour, or even a full-timer like Solomon making $20 an hour, a five-clapper or a free meal works motivational wonders.
That's not to say there aren't financial carrots. Supervisors like Solomon (and on up the corporate chain) get bonuses tied to how their departments and stores perform annually and during big sales seasons. And all full-time Best Buy workers can buy company stock at a discount. With a share price that's up 73 percent since May 1999, that's been a huge draw.
The package was enough to lure Solomon to Best Buy two years ago. Before taking the job, he looked at becoming a commissioned salesman at Ultimate Electronics. A friend had been working there for five years and was making $50,000 a year. "I might have made more there initially," Solomon says, "but long-term, with the stock and the opportunity, Best Buy seemed the better option." He can't resist zinging the competition: "My friend over at Ultimate will nickel-and-dime you all day."
To skeptics, a lot of what Best Buy claims as its secret sales mojo isn't all that special. Plenty of consumers have gotten lackluster service at Best Buy, despite all the five-clappers and pregame speeches. Anderson realizes his strategy "requires more from the folks in the stores," but adds, "Look at what we've done already." Still, can an army of revved-up blueshirts really fend off Wal-Mart and Dell? Wal-Mart has pep rallies too--and 3,551 U.S. stores. It has already seized more than 14 percent of the market for consumer electronics. Best Buy is still in the lead, but with only 18 percent. And some observers think pinning so much on the effort to sell harder, smarter, and classier--to Nordstromize--could prove a costly mistake.
"That kind of sales help is very expensive," says Ryan Mathews, founder of Black Monk Consulting. Nordstrom itself is hardly a profit machine, he notes, adding, "Best Buy will probably end up eroding its price advantage or margins or both." John Hennessy, VP at retail consultant Concept Shopping, is also dubious about the supersalesman strategy. "But, boy, if they do pull it off," he says, "they'll be deadly."
After a recent shift, Solomon is digging into fajitas and checking out the waitstaff at a nearby Houlihan's. "They ask us to recruit," Solomon explains. "I'm always looking for people who are good with customers--teachable with talent."
That sounds a great deal like Josh Solomon himself. He knows there's a lot riding on the ability of him and the blueshirts to deliver on Best Buy's new approach--including his future at the company. Solomon, who writes and records R&B tunes in his spare time, sees himself on track to become a general manager at a Best Buy store. "I've heard there is a GM in Pasadena who sings Elvis tunes over the loudspeaker when they make a good sale," Solomon says. "Believe me, when I'm a GM, I'll be singing over the loudspeaker."
Until then, he'll be rallying the troops in Maple Grove with the 7-3-1, as he was on another recent morning. "Digital imaging was rocking yesterday--we were banging out packages all day long!" Solomon gushes. He describes a sale that started with a $500 digital camera and proceeded through a huge Toshiba television, a printer, and loads of accessories. The total tab: $3,000. No layup there: three-pointer, nothing but net. "So give it up for digital imaging!" Solomon finishes with a flourish. The blueshirts roar. The doors open. One of the first customers in is that woman who'd been eyeing the digital camcorders a few days ago. She's checked with her husband. In minutes, Solomon has closed another $900 deal.