This is article is part of a series describing the turnaround efforts at Best Buy (BBY), focusing on the role of its Renew Blue initiative. Best Buy was once lauded by Forbes (“Company of the Year” in 2004) and Fortune (listed as a “Most Admired Company” in 2006). In recent years, BBY has floundered; the result being precipitous declines in earnings and stock prices. Indeed, its future as a publically-traded company is doubtful; as an entity it may go the way of its vanquished competitor, Circuit City (bankrupt and liquidated in 2009).
Only the coming months will tell if Renew Blue is successful.
As I always, my purpose is to describe useful insights and tools that will benefit strategic initiative leaders.
The Renew Blue Initiative
The color blue is central to BBY’s brand image. It is a common color in the stores and is the color of associate’s sport shirts; hence, the appellation, “Renew Blue.”
BBY announced Renew Blue to the public in an investor’s 55-slide presentation on November of 2012. The reader should note that presentations have the purpose of providing “forward looking” information to investors. It also has a rhetorical purpose of reassuring and building confidence in this group of stakeholders. The Renew Blue presentation is not a management plan.
Turnaround efforts have been underway for some time, so Renew Blue may not be so much of an initiative (the start of something new) as a branding device intended to organize past and ongoing actions into a more coherent and recognizable set of policies.
The Renew Blue Vision
According to the Renew Blue presentation, BBY’s vision is this: “To be the preferred authority and destination for technology products and services.” See the graphic for the strategic pillars for that vision in the context of the business model (this is my interpretation).
Is Renew Blue an Executable Strategy or a Public Relations Spin?
I continually see corporate announcements that purport to be strategic or a strategy, but often these are simply “cheap talk” announcements. Using Richard Rumelt’s criteria, I find that Renew Blue is a strategy. Here’s my reasoning:
- There is a competitive diagnosis of the situation. BBY provides data on its performance versus competitors (warts and all) and arrives at a problem statement, “we have two main problems to solve,” which it states as “declining comps” and “declining operating margin.”
- Renew Blue has guiding policies to address the challenges it has identified. Two of them are the intentions to reinvigorate the in-store shopping experience and to reinvigorate the on-line shopping experience. The company also is addressing its cost structure, moving away from the traditional big box business model (especially for its low-performing stores) and toward a market and store footprint that is more in line with market needs.
- Resources are being applied and action is being taken. The evidence to support the in-store reinvigoration is visible in the redesign of the retail outlet. The on-line reinvigoration has evidence by the mention of “Renew Blue” in three Director-level job postings on its web site.
Is Blue Renew a Good Strategy?
Given that Renew Blue is an executable strategy, the logical follow-on question is, “Is Renew Blue a good strategy or one that is correct for the situation?” Here the answer is debatable, and the debate starts with whether BBY has accurately defined the challenges it faces. Could the stated challenge of “declining comps” and “declining operating margins” be symptomatic of something deeper? Many industry observers are pessimistic about BBY’s prospects. Consider Standard and Poors’ opinion on BBY in a January 14 analysis,
“We think the consumer electronics retail landscape has too much physical space devoted to a category that is increasingly moving online. We believe BBY will need to make significant changes to its cost structure in order to compete profitably with Internet retailers.”
In a prior article on the Business Value Proposition, I presented a simple evaluation of Renew Blue and its efforts to alter the cost structure. BBY is making progress, but is it quick enough? Megan McArdle’s article in Newsweek provides this rather disturbing-but-vivid image:
“Best Buy’s challenge is like that of a trapped animal:
it needs to gnaw off its limbs quickly before all hope is lost.”
A valid question is this, “Is there a chance that BBY has mis-framed the competitive situation?” The answer is “possibly.” First, Renew Blue’s lists as its premise #1 in its “investment thesis” that it was market leader in a fragmented and growing market. The growing part of the market is the online space, where Amazon dominates. BBY is the market leader in the shrinking space of big-box electronic retailing. Further, BBY is trapped by fixed costs (real estate leases for its big-box stores), which is the trap that McArdle was referring to in the prior quotation.
Second, BBY benchmarks itself against Lowes, Sears, and Starbucks for customer satisfaction and loyalty; but Lowes and Starbucks are not seeing their basic business model being destroyed by Amazon. (Again, note the caveat that the Renew Blue document has an audience of investors and is not a management plan.)
One final point: The Renew Blue document includes a page titled “Develop a wining online strategy.” Frankly, it is just fluff. Clearly BBY has to execute better than Amazon, but there doesn’t seem to be any evidence that they have a strength to apply over Amazon that they can leverage. BBY’s on-line weakness is its price; I compared four items and Amazon had lower prices than BBY on three items and the same price on the fourth. If BBY has a winning online strategy, they are keeping it to themselves.
Is Renew Blue a Defensive Action to Gain Time for a Developing New Strategy?
It may well be that Renew Blue is a holding action to stabilize the situation until a new strategy and business model can emerge. After all, the company is has been dealing with turnover in the senior management ranks, and competitive responses are still emerging.
It will be interesting to follow this story. The 2012 holiday season was unremarkable for BBY. Time continues to slipping away, and stakeholders seem to be impatient. BBY needs to get Renew Blue right. If Renew Blue can’t defend against the many strategic headwinds, we may see this mighty and proud organization go private or bankrupt.
As the situation develops, I will update readers on the status of Renew Blue.
Personally, I hope Best Buy is successful with its turnaround. And consistent with the mission of this blog, I will report and analyze the presence or absence of leadership practices within the initiative itself.
Lessons for Strategic Initiative Leaders
Here are some lessons and insights that you might find from this tentative analysis of Renew Blue:
- Strategy is more than a set of goals; it is a problem solving process designed to produce meaningful advantage on a key competitive dimension
- Understand the business value proposition
- Avoid fluff in strategy presentations
- The vision for a strategic initiative rests upon strategic pillars
- Develop a brand for the strategic initiative
- Communications about strategies have different audiences; for example, an investor presentation is different than a management plan
- In critical situations, sometimes the best you can hope a “holding action” until you can formulate a better strategy
What are your opinions on BBY’s Renew Blue initiative?