Best Buy Looking to Musical Instruments & Lessons for Growth

In my house, we have a lot of stuff from Best Buy. In the last year alone, we bought a red Samsung front-loading washer and dryer, a floor model 72” Mitsubishi TV, wireless routers, storage drives, Go-Phones, a car stereo, and countless XBOX 360 and PS3 video games there. (Actually got the game players at Costco and Amazon.) We’ve also had the Geek Squad to our house a few times.

Besides the fact that we have too much stuff, what are the common themes here? We go to Best Buy for electronics, convenience, somewhat technical stuff and/or when an in-person comparison of alternatives, a live demonstration, or the opportunity for techie questions and answers is important.

So, where does a big brand that dominates its traditional category look for growth? In Best Buy’s case, probably lots of places within (e.g., airport kiosks, as E-commerce Times reported in August, for one) and outside the cut-throat consumer electronics category.

The South Florida Sun-Sentinel reported today that Best Buy is opening the first of six 2,500 square foot store-within-a-stores in South Florida carrying more than 1,000 guitars, bass drums, keyboards, recording equipment and other instruments and accessories. The current plan is to sell instruments and teach music in a total of 85 Best Buy stores.

How big a stretch is it to parlay Best Buy's business selling mostly consumer electronics and accessories, including home-recording equipment and pre-recorded music, to selling and servicing musical instruments and offering music lessons in the store? Our work in the music category suggests that while the business is ripe for consolidation, this is a pretty big stretch for the Best Buy brand.

About 10% of adults and kids took music lessons last year. When asked what makes a class great, most people say it’s the instructor, and 65% of people say the best way to find an instructor is through word of mouth. All of this makes the business of selling instruments and classes look like an interesting place for a roll up. No doubt, that’s what attracted Best Buy when scanning the landscape for growth opportunities.

In our house, we have a collection of six electric and acoustic guitars and a mandolin (in the picture), mostly from Guitar Center and Bananas, and everyone in our family plays. My kids take lessons from Jesse – he comes to our house. He’s a musician, a friend, a teacher, and a lot of fun to be around. Importantly for my teenage kids, they think he's cool.

Will Best Buy be able to attract the great local guitar teachers, like Jesse, who tend to be musicians themselves? Will consumers buy classes and instruments through mass channels that are not steeped in music cred already? Will they take music lessons in the store? Or will Best Buy have to become a referral service for local instructors who teach away from the store? How would they mitigate the inherent liabilities?

The homogeneous consumer electronics big box experience is not a good fit with the personality-driven business of musicians who teach and wanna-be musicians who take classes. The store-within-a-store is essential to any chance of success. Probably needs a separate entrance, too – like Macy’s Herald Square is considering for it’s teen business as reported by Fortune last week.

I think it’s a long shot that Best Buy will be successful on the music instruction end, and it’s the instructors that give the store selling instruments its authenticity. I’m all for experimentation – and they can’t all be hits. Though I don’t like betting against Best Buy, this is one idea I think will be a miss.

Scrambled Merchandising

You've seen it all around you - now there's a term for it. Scrambled Merchandising refers to a practice by wholesalers and retailers that carry an increasingly wider assortment of merchandise. It occurs when a retailer adds goods and services that are unrelated to each other and to the firm's original business.

It used to be that you went to a drug store for drugs, hardware store for hardware, a pet store for pet food and a grocery store for groceries. Now you can buy groceries at the drug store, find pet food at the hardware store and get anything you want at Wal-Mart or Target, not to mention Zappos or Amazon.

The Consumer Electronics Association presented at RetailVision results from a recent consumer survey about buying preferences: 25% would be willing to buy consumer electronics products from Starbucks, 30% from Ikea, 40% from Bed, Bath & Beyond and almost 60% from Home Depot. What does this mean for category leader Best Buy? For Radio Shack? For Circuit City? How can any retailer facing inroads from non- traditional competition protect its turf and retain its customers?

The answer lies in understanding how people make decisions about where to shop. Our research says there are generally two main considerations: the likelihood that the store will satisfy the requirements (i.e., Selection) and the availability of knowledgeable help (i.e., Expertise). Price, location, and loyalty are usually secondary. Last year in researching the home center market we learned that people go to Home Depot when they feel pretty confident about what they're doing because Home Depot has the best selection. Conversely, when help is needed, consumers will trade off a little selection to make sure they can talk to a real person who knows what they are talking about. In category after category, we have seen this same basic tradeoff.

So, should Best Buy be worried about Home Depot moving into electronics? Hardly. For Home Depot to make a go of it, they'll have to change a lot. Top priority would be to get more employees in the stores to answer people's questions. The folks at Home Depot are friendly enough and if you can find them, they are actually helpful. Problem is, for cost reasons, employees are few and far between at most Home Depots. Even though we're comfortable buying CE, we still have questions, or unique situations that require talking to someone. As long Best Buy keeps innovating the customer experience, they should be able to defend against scrambled merchandising.