Best Buy Betting On House Brands

By Ana Gonzalez Ribeiro | April 29, 2009 AAA

When it comes to sales, Best Buy Co. Inc (NYSE:BBY) is the nation's largest electronics chain. The company has been strategically positioning itself as a strong provider of its own brands by selling electronics under its house brands: Geek Squad Flash Drives, Insignia, Init electronic cases and accessories, Dynex TVs and Rocket Fish video cables. The company has also gained market share thanks to the closing of Circuit City, enabling the company to take on more sales in the consumer electronics market. However, it's still unknown whether this will be sufficient to keep Best Buy as number one.

Increase Strength in House Brands
One of Best Buy's tactics to help increase its market share is increasing the number of private label brands. According to HarvardBusiness.org, Best Buy has had great success with its global positioning system, which has Google search functionality and a digital picture frame. In focusing on its house brands, Best Buy seems to want to accomplish what Sears Holding (Nasdaq:SHLD) has done in developing a strong customer brand loyalty through Sears brands such as the Kenmore appliances and Craftsman. Best Buy is competing with Wal-Mart (NYSE:WMT) and Amazon (Nasdaq:AMZN) by developing better quality products using customer feedback and analyzing consumers' needs and wants.

Best Buy's reliance on its house brand has increased resistant behaviors on the part of some vendors. Vizio, for instance, has been in talks with Best Buy about selling its flat-panel televisions in Best Buy stores, but hesitated when the company made comments about being worried that selling Vizio would hurt its house brands. In effect, Best Buy will not carry some low-priced electronic brands that compete with its private label, proving that one of Best Buy's strategies is to compete more effectively with the other brands it sells in the store at the risk of threatening its relationship with product makers and suppliers. (For more, see Using Consumer Spending As A Market Indicator.)

Product Expansion and Customer Service
Best Buy has also expanded flat and wide screen products in an effort to take better control of the television market. In addition, the company has focused more on mobile phone sales. Mobile phones have been a strong point for Best Buy, which, according to the Wall Street Journal, is why they took on a $2.1 billion deal with U.K's top cell phone retailer Carphone Warehouse. The deal is supposed to help Best Buy Mobile expand locations in the U.S. The company is also focused on training employees to provide great customer service and become more knowledgeable about the products they sell.

Strong Competitors
Wal-Mart has been trying to compete with Best Buy in the electronics sector by selling its own private label iLO. While Wal-Mart is known for deep price cuts on everything from toothbrushes to dresses, consumers are hesitant to buy electronics such as TVs, cameras and audio systems; consumers prefer buying well-known brands from vendors who specialize in these products. Wal-Mart ended up dropping its iLO house brand as a result of poor sales. The company's refocusing on name brands like Apple iPods has helped it gain momentum in this sector.

Wal-Mart has a strong position with its ability to negotiate price cuts with vendors and transfer these bargains to customers. In addition, Wal-Mart has a very good relationship with vendors, allowing more floor space and flexibility on what other products these vendors want to sell. This is a weak point for Best Buy, because if the company loosens its ties with vendors, Wal-Mart might gain a competitive edge. (For more, see Measuring Company Efficiency.)

Competitor Radio Shack Corp's (NYSE:RSH) first-quarter profit rose to a better-than-expected 11% in April. This was attributed to the company's sales of more digital converter boxes, and increased wireless service activations. The closing of Circuit City stores also positively impacted Radio Shack's sales.

Amazon.com is another competitor in the consumer electronics sector. It is gaining a following by providing a wide selection of products at reasonable prices. The widely known discount store Costco (Nasdaq:COST) is also involved consumer electronics, selling brands such as: Westinghouse and Samsung TVs, Olympus cameras, phone, home audio systems and wireless services.

Conclusion
Despite upcoming competitors, Best Buy is expanding its market share by offering better value and an increased selection of products at better prices. Although it remains to be seen as to whether Best Buy's dedication to house brands will sour relations with its suppliers, the strategies currently in place have positioned Best Buy as the retailer to beat.

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