Electronic shops need new marketing gameplans

The launch of Best Buy stores in Canada raises the spectre of an industry shakeout, the likes of which the electronics industry here has never witnessed, analysts say....

The launch of Best Buy stores in Canada raises the spectre of an industry shakeout, the likes of which the electronics industry here has never witnessed, analysts say.

They believe the U.S.-based behemoth, the largest purveyor of electronics goods south of the border, is poised to cut a swath through the highly fragmented Canadian industry, wiping out regional players and independent store owners who haven’t carved out a specific market niche. Best Buy’s launch may also take market share from retailing stalwarts such as Sears Canada, The Brick and Canadian Tire.

However, the company’s Canadian big-box rival, Future Shop will likely emerge largely unscathed if the industry soothsayers prove correct.

[Best Buy] is not a Godzilla like Wal-Mart, but it is a Raptor,” says Richard Talbot president of Unionville Ont.-based Talbot Consultants International. ‘It is fast-moving and has deep pockets. But there is room in the market for two national players.”

There is much at stake: a $4.4-billion market that has clocked significant growth every year for the past decade. With plans to open 65 stores over the next three years, Best Buy Canada is staking claim to a large share of that market. ”We feel the Canadian market is ripe for us given that there is only one national competitor,” president Tom Healy says.

He believes Best Buy’s move into Canada is likely to unfold much as it has in the U.S. over the past two decades. In the mid ’80s, he says, Best Buy was a mere regional player up against Circuit City Stores, a big-box retailer that dominated the category.

Last year, however, Best Buy eclipsed Circuit City with sales of $13 billion U.S., compared with $9.57-billion for its competitor. Best Buy has grown by taking market share from independents and smaller competitors, and it’s likely to be much the same story here in Canada, Healy predicts.

In fall 2002, Best Buy plans to open 15 stores in Ontario, largely in the Toronto area. Healy is reluctant to reveal his marketing strategy for Canada, however industry watchers predict it is likely to mimic the strategies that have proved effective in the U.S. The company, which has garnered numerous awards for its own in-house advertising (it’s one of the top 50 agencies in the U.S. based on billings), typically enters a new market with a blitz of television advertising.

In its recent launch in the New York market, for example, Best Buy ran six spots featuring its corporate mascot, a man dressed up as a foam price tag. The tag line for the spots was ”Turn on the Fun,” and touted the company’s key corporate messages: low prices, no-hassle shopping, and a wide selection of products.

The company also staged a number of guerilla marketing efforts, including a free Sting concert. Hundreds of employees were dispatched to the streets on scooters and in PT Cruisers to hand out tickets. The launch was also supported by advertising on local billboards and at the Jumbotron in Times Square.

Marie Driscoll, an analyst at Argus Research in New York, says Best Buy has built its market share through aggressive advertising. ”They spend considerably more than their nearest competitor in the U.S.’ They also frequently have merchandise in stock before their competitors and are typically ahead of the technology curve, Driscoll says.

While Healy admits that customer service is increasingly important, big-box retailing has long been driven by price and product. Best Buy pioneered flyers in the electronics industry. The company will likely rely heavily on flyers and other print advertising when it begins its assault in Canada, he adds.

The way he tells it, he’s not worried about a toe-to-toe showdown with Future Shop – both offer consumers most of the same brand-name products at competitive prices.

”Circuit City was once number one. Now we’ve usurped them. We expect to do the same in Canada.’ Besides, he adds, Future Shop has been busy playing catch-up, copying much of the look and strategy that Best Buy has rolled out in the U.S.

Best Buy is able to compete with Future Shop by offering a friendlier shopping environment and better customer service, Healy adds.

Few appear to disagree with him. In fact, many have criticized Future Shop for some elements of its customer service.

”Future shop has to change if it is able to effectively compete with Best Buy,” says Steve Boase, a consultant at J.C. Williams Group in Toronto. ”We feel that they need to focus much more on the customer experience, although we think that they recognize this and are now on the right track.”

Because commission drives the sales people at Future Shop, some customers are leery, believing the product they are being sold might not be the one that best suits their needs. Best Buy doesn’t offer incentives to its employees.

Future Shop has recently undertaken a training program in which sales clerks learn how to better serve customers’ needs. ‘A formidable competitor makes you take stock of your own company,’ says Lori DeCou, the head of communications at Future Shop.

Future Shop will have an advantage over Best Buy through its loyalty program, launched in February in partnership with Air Canada, DeCou says. The company also inked a philanthropic partnership with Boys and Girls Clubs of Canada.

The company has also begun to revamp some of its 88 existing stores to better position itself for Best Buy’s onslaught. It has begun to ”right-size” some stores, and has remodeled them with wider aisles and an uncluttered look, along with better signage. Future Shop has also undertaken a significant expansion program – mostly in smaller urban areas such as Prince George, B.C., and Sarnia, Ont. – with plans for another 37 stores across the country by 2005. This fall the company will launch a major branding blitz with TV ads through its agency, Doner Canada. Over the past year its tagline has been, ”You will like what the future has in-store and online.” In the past, the company has largely focused on products and price in print ads. Print advertising and direct mail are still the largest components of Future Shop’s marketing efforts, and DeCou doesn’t see that changing in the wake of Best Buy’s push north.

As for the industry independents, consultant Boase believes that they may unleash a new wave of marketing that focuses more on brand building. However, the most effective way for the independents to weather the battle with the launch of a new entrant, he says, is to develop their own niche.

”They are going to have to compete by offering a personal relationship with their customers and eking out their market, much as Bay-Bloor Radio has done in Toronto by serving the higher end of the market.”

Analysts also point to Radio Shack as a company that has been able to effectively compete against players such as Future Shop by developing their own market niche.

Radio Shack, owned by InterTAN, has thrived in the U.S. despite the dominance of the big-box retailers. Currently with 470 stores across the country and 360 dealers, it has carved out its own place in the market by having mall-based stores. It also focuses more on the bits and bites of the electronics market and communications.

James Gingerich, EVP of the company’s Canadian division in Concord, Ont., says that Radio Shack is the largest retailer of cell phones in the country, as well as direct-to-home satellites. Gingerich adds: ”As long as we continue to stick to our market niche, we won’t have anything to worry about.’

Radio Shack spends between 65% and 70% of its marketing dollars on print with flyers and inserts, with an additional 10% allocated to ROP and the remainder on broadcast. Flyers, which now have value-added services such as advice on new technologies, are typically sent to the company’s best customers at the beginning of the month, says Lyndsay Walter, Radio Shack’s senior director of advertising. ”We are a price and product house. But we’ve been moving to value-added,” she says.

The company has recently been branding itself as a company that has staff who are friendlier and more knowledgeable. Its recent TV campaigns – developed by Wolf Group – have trumpeted the tagline ”You’ve got questions, we’ve got answers.’

Future Shop currently dominates the Canadian landscape, with about 18% of the market. Sears Canada holds an 8.6% share, followed by Staples with about 5.5% market share. Radio Shack, The Brick, and Leon’s are all much smaller competitors, vying for anywhere between 2.5% and 4% of the market, according to the most recent industry statistics.