Apple and Best Buy: When good retailers go bad

Nothing can be more detrimental to a retailer than arrogance. Once it gets too big and has blown away any competition, retailers often focus more on serving their own needs, customers be damned.

Two best-in-class retailers have recently begun showing signs of self defeating arrogance in a way that makes me wonder if they haven't "jumped the shark," or crossed over irrevocably into a period of decline. In this case, both Best Buy and Apple fit the bill.

This time last year, Circuit City had begun liquidation, leaving Best Buy as the only electronics retailer. There are many dangers when a single retailer emerges to dominate a shopping channel or category. Consumers suffer from the lack of competition, service declines and choices are limited only to what that retailer chooses to carry. Product manufacturers are often held hostage in order to play in the only game in town. Innovation declines and laziness sets in.
The retailer suffers too, often becoming lazy itself. It stops or slows innovation from within and worse, becomes arrogant, believing its way is the best. It was, after all, the last store standing.

Hubris will kill a thriving retailer every time. All businesses must constantly defend against the pitfalls of egos run amok. And a chain without a strong competitor needs to be extra careful. Get fat and lazy, and you run the risk of some young upstart, more nimble and hungry, coming along and knocking you off that top rung.

That's what Best Buy did to Circuit City. For many years, Circuit City was the major electronics and appliance retailer. When Best Buy came along and starting selling the same products in a warehouse setting with a non-commissioned sales force, it turned the industry upside down.

It took awhile for this transition to take hold but eventually consumers preferred the sales model, liked the low prices and were happy to buy a TV without feeling like they were buying a used car.

But Circuit City was so entrenched in its business model, so certain it knew the best way to sell electronics, management didn't seem to notice the buying public felt otherwise. So many times, executives would counter questions about the competitive sales environment with a "We believe Circuit City has the superior sales model."

That's hubris.

By the time decision makers inside Circuit City wised up, it was too late. They did a number of things like eliminate appliances and add more entertainment software, and change to a non-commissioned sales model. It wasn't all that long before the company was gone for good, leaving Best Buy alone as the largest national electronics specialty chain.

Now Best Buy is starting to crack. WalletPoppers' response to a report on Best Buy's return policy was extreme. Readers largely agreed the chain had terrible policies and even worse customer service.

A recent report from Consumerist uncovered questionable practices regarding the advertised sale price of computers largely unavailable at many stores. Instead, shoppers were told to buy an upgraded, or "optimized" model for a higher price. To top it off, Consumer Reports testers found that optimization was hardly a benefit to customers and in some cases, it was a clear detriment and shoddily executed.

Has Best Buy attained that too big to be good, status once held by Circuit City? Sure looks like it. It's hard to remember that just 10 years ago or so, customers found the stores energetic and the non-commissioned sales approach refreshing.

Apple too, is starting to show signs of hubris. The company has been long admired, revered even, by legions of users -- and rightly so. The products were elegant computing solutions that worked well, were reliable, and had a support staff that made technological failures as painless as possible.

But as a recent visit to the Apple flagship store in Chicago revealed, the computer company is taking leave of some of its most valued points of differentiation. Namely, pleasant, quick and high-quality service.

In this case, the hard drive in a MacBook died for the second time in a year. I was quoted a price and when I began asking questions, I got a standard response of "We only warranty the hard drive for 90 days, that will be $150." In addition, charges were suddenly being levied for things the original "genuis" had said would be taken care of, free of charge.

Asking to speak to a manager only delayed the repair. She called once, and then never returned a single call, four in all. Trying to resolve the issue with someone else was fruitless, as only the manager could address this issue and no one else could authorize the repair or give me details but she, who was apparently "in a meeting." One long, endless, day-long meeting.

There was much confusion, calls not returned, and a store manager who was utterly unresponsive. While the hard drive got repaired and everything was finally resolved, the entire experience was so un- "Apple like" that it's made me wonder if this company too, has crossed over into dangerous territory.

Not-returning phone calls, long meetings used to justify ignoring customers, parroting of policy to get around addressing a complaint directly; all these things are indicative of a large impersonal corporation that exists to serve the company, not the customer. Not unlike what's going on with Best Buy, or Circuit City before it.

None of this means a company is poised to fail. Just that it's vulnerable. That some upstart much like the ones Apple and Best Buy used to be, can come along and challenge the industry leader and earn the loyalty of now disillusioned customers.
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