Geek Squad, the electronics repair and service arm of Best Buy, is being positioned to bring the struggling electronics retailer back on the path to profitability. Best Buy, plagued by slumping sales and now operating under new management, announced last week that it would offer Geek Squad’s services to customers through eBay. The company is also testing a pilot program to place Geek Squad representatives in Target-brand stores.
The two moves seem to suggest that paid services — and not products — represent the key to a turnaround for Best Buy. According to Bloomberg Businessweek, the company’s U.S. revenue from services rose 6 percent last quarter, while comparable-store sales dipped by 3.2 percent. A private-equity firm speculated that Geek Squad may have annual revenues of $3 billion.
But while service may be Best Buy’s last hope for relevancy amid stiff price competition on consumer electronics, the company hasn’t exactly charged full-speed ahead with it — yet. Let’s take a look how we got here:
April: How the Geek Squad — and Field Service — Can Save Best Buy
In the space of just a few weeks this Spring, Best Buy posted a $1.7 billion quarterly loss, announced the closure of 50 stores, and saw its CEO resign following an investigation into an alleged inappropriate relationship with a young coworker. At the time, Motley Fool consumer goods editor Austin Smith posted a video online, explaining, “Best Buy needs to become the thing that Amazon can’t: They need to get into your home. … Best Buy needs to become a service-centric company again.”
June: Why a Best Buy Turnaround Hinges on the Geek Squad
Geek Squad scored a big hit when Best Buy announced a partnership with AARD offering subscribers a $169 year-long electronics support program featuring 24/7 phone, Web, and in-store service, plus discounts on in-home services. Mike Mikan, the company’s interim CEO, said during a first-quarter earnings call with reporters that the “mandate” for Geek Squad techs “will be to shift the customer execration from repair, our traditional Geek Squad offering, to one of relationship.”
July: After Layoffs, Geek Squad May Not Get to Save Best Buy
Just as it began to look like Best Buy was throwing its weight behind services, the company suddenly announced in early July that it was laying off 2,400 employees, including 650 Geek Squad techs.
July: Are Things Looking Up Again for Geek Squad?
Then, a week later, the company announced it would hire 500 techs back on — although this time, the company was focusing on adding techs with more high-end capabilities, rather than simple electronics repairs and installations. The company also announced it was partnering with Verizon to offer tech support for small and medium-sized businesses doing things like securing data.
Oct.: Best Buy Taking On iPad with Own Tablet
The store, still not apparently convinced that it can’t compete on hardware, announced this week that it will exclusively offer the “Insignia Flex” Android-powered tablet PC, priced under $250. We’ll see what that release brings.
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Best Buy will not survive with their current business model. Their promises, although as nice as it sounds, is what’s choking them. They are promising knowledgeable employees who are there for the life of the devices you buy. However, the employees tend to be recent high school graduates, this being some of their first jobs, and they stand like a deer in headlights when any technical questions are asked. Also you cannot have the kind of knowledge they need for $9.75 an hour. When you are trying to be price competitive with companies like Wal-Mart and Amazon, who have low labor costs and higher diversity of products, you are not going to have the profitability on the items in the store that you need.
Unfortunately for Best Buy, they have to make up for disappointing their customers before they can begin to turn around the business. Being called the Grinch of Christmas in 2011 for failing to fulfill orders placed through them and this year not having stock of hot Christmas items does not help their public image. Once they become a reliable place to shop getting their customer base back in the stores shopping, Best Buy can begin to capitalize on their strategic advantages.