Electronics

The battle for market share moves to
e-commerce

“Price changes have begun escalating at brick and mortar stores as retailers fight for consumer dollars."

As recently as 2009, Best Buy was the second most valuable retail brand in the U.S. after Walmart. Electronics was the fastest growing retail sector, with Best Buy far out front. Two years later, however, weak sales and online competition chipped away at the company’s dominion and, by 2013, Best Buy had lost more than 50 percent of its brand value. This year, its brand value drops 42 percent.

The Best Buy story illustrates that electronics has become a mature industry. The sector expects some growth in the Asia-Pacific region and softening demand in most developed countries. Korea’s Himart, even with a market share of 47 percent and high awareness, saw its brand value dip in this year’s report. Retailers around the globe face a fiercely competitive environment. Ongoing challenges include waning customer loyalty and shrinking profit margins.

Online competition—coming primarily from Amazon—is price-centric and notoriously fierce. Shoppers visit as many as 14 online sources for product information before buying and the e-tailer that “upended the book industry and displaced electronics merchants” typically lands high on their search lists. Furthermore, like many online players, Amazon has enormous pricing advantages—not just due to low overhead, but also due to its ability to make millions of price changes per day compared to traditional retailers’ thousands a month. These price changes have begun escalating at brick and mortar stores as retailers fight for consumer dollars. Best Buy, for example, has begun matching any online price for the products it sells in its physical stores.

Traditional retailers are scrambling to find ways to transform the expensive liabilities of physical locations into assets. The best of them, such as France’s Fnac, which boasts one the country’s most-visited retail websites, is adopting hybrid models by focusing on a competitive online channel, developing its mobile experience, and digitally enhancing the in-store experience with features such as interactive kiosks. Aiming to break down all barriers between its stores and its internet and mobile sites, the goal is to be omnipresent. Fnac continues to expand its store network, mainly through new formats for high-traffic areas (such as airports) and smaller proximity format stores—which all benefit from the brand’s omnichannel functionalities.

China’s Suning is working to de-emphasize its electronics image in favor of becoming a multi-category retailer with a fully integrated online/in-store presence. Like Germany-based Media Markt, whose stores spread across 14 countries, Suning is giving itself a makeover in the hopes of becoming a “youthful and daring” brand. Media Markt only launched its online store in 2012 and is busily trying to recover lost ground with younger, tech-savvy shoppers.

In general, when it comes to retail, there’s not as much innovation as one might expect from the electronics sector. Consumers are liable to get far more excited about the product itself than they are by the in-store experience they have when actually purchasing the product.

Summary

Most electronics brands dropped in brand value this year. The category continues to lose relevance as lowest price trumps everything—a sign the industry needs to take retail brand experience more seriously.


Electronics Innovations and Opportunities

Bring online payment options in-store

RadioShack is allowing customers to use PayPal as a form of payment in its (shrinking number of) physical stores. RadioShack’s shoppers get the same convenience and efficiency in-store as they would conducting mobile or online purchases.

Match competitors’ online prices in-store

Based on the fact that it commands a market share more than four times larger than Amazon, Best Buy is banking on a comeback. Amazon will soon be charging state sales taxes across half the U.S. market and raising Amazon Prime to USD $99, stripping it of some of its price advantage. Meanwhile, Best Buy claims to be closing more in-store sales by immediately matching any online price—an attempt to muscle in on Amazon’s share.

Add services to create value for shoppers

In Australia, JB Hi-Fi, with its “always cheapest prices” and energetically chaotic brand persona, had a decent year. In addition to its online/in-store sales of electronics and appliances, the retailer has found a way to profit from the demise and consolidation of the traditional music category with the 2011 launch of its JB Hi-Fi NOW subscription-based music streaming service and the 2013 addition of e-book sales.

Expand by creating a franchise

French retailer Darty has charted an interesting new course to steer itself out of the doldrums. With its stores mainly in urban areas, the European electronics giant is exploring a franchising model to extend its multichannel capabilities to France’s 2,000 small independent electronic retailers.