What Best Buy Is Doing Right: Rewarding Loyal Customers

Best buy CustomersFinally there's some good news for Best Buy (BBY) shoppers -- and perhaps, eventually, its shareholders.

Lost in last week's dreary announcements of job cuts, superstore closures, and potentially problematic employee incentive programs was a mandate to beef up its customer loyalty programming.

Reward Zone Silver -- the program that Best Buy reserves for customers spending at least $2,500 a year at its stores -- already offers some enhanced features that include free ground shipping on most BestBuy.com orders and relaxed terms on returns and reward point expirations.

Last week's quarterly report promises even more advantages to Reward Zone Silver members, who already account for a significant chunk of the company's business.
  • Reward Zone Silver customers will soon be upgraded to free expedited shipping on their BestBuy.com orders.
  • Members will receive "premier access to many of the most popular products and major sales events" at the store.
  • Silver members currently have a 45-day window for returns, slightly longer than the 30 days that other buyers have. The new policy will offer "no hassle" returns and price matching for up to 60 days.
  • The beefed-up plan will include a free house call from Geek Squad, Best Buy's tech support arm. The current plan already offers a complimentary home theater consultation, so one would think that this is related to other home tech issues.
How to Keep Shoppers From Straying

One can always argue that there aren't too many people spending $2,500 a year at Best Buy, especially these days, when lower prices are typically easy to find online.

However, customer loyalty plans work. Just ask members of frequent flier programs whether they even bother to check the fares at rival carriers when they need to book a flight. The same can be said for lodging chains with their customer reward programs. You'd be surprised how the promise of free WiFi or in-room amenities will keep travelers ignoring cheaper rates at nearby hotels.

Video game retailer GameStop (GME) has been able to hold its own during the past three years, which have been disastrous for the sale of games and gear, by growing the number of its PowerUp Rewards members.

PowerUp Rewards is a free program that offers GameStop shoppers points on purchases which can be used for discounts, exclusive game codes, and more. There is also a $15-a-year PowerUp Reward PRO option that includes even more goodies, 10% discounts on pre-owned purchases, and a magazine subscription.

Taking a Page Out of the Amazon.com Playbook

If some of the new Reward Zone Silver initiatives seem familiar, it may be because the meandering consumer electronics giant is eyeing some of the ideas that have been working for Amazon.com's (AMZN) Prime program. (As far as companies to emulate, Amazon's a good choice: Motley Fool analysts named it one of the cash kings changing the face of retail.)

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There are reportedly millions of Prime members paying $79 a year for the program, which provides free two-day shipping on all of the Amazon.com-warehoused goods. Yes, that's the "expedited" shipping that Best Buy appears ready to roll out to Reward Zone Silver members.

Amazon also offers Prime customers some unique digital perks. They get a free Kindle "rental" once a month from a select group of titles. Amazon also has growing video catalog of 17,000 titles that can be streamed at no additional cost.

Best Buy obviously doesn't have an e-reader platform to promote. It does have a digital movie service, but CinemaNow doesn't appear to be gaining any kind of traction. However, Best Buy is giving Reward Zone Silver members some neat perks that regular shoppers are certainly not getting.

Saving Best Buy -- Is There a Chance?

Is Best Buy the next Amazon.com or the next Circuit City? Negative store-level sales in four of its past five quarters, layoffs of hundreds of employees at the corporate and support levels, and plans to close 50 of its superstores this year may indicate that Best Buy is walking the path of Circuit City and smaller failed retail concepts.

However, Best Buy's resilient profitability gives it time to tweak the model and see if something works.

It may be too late. There are already too many ex-Best Buy shoppers with unpleasant memories of buying in the store, only to find the same thing elsewhere for less. Others are simply turned off by the litany of insurance protections and services that employees try to attach to merchandise sales.

We still can't underestimate the value proposition of a strong loyalty program. If Reward Zone and Reward Zone Silver can be magnetic enough to turn buyers to Best Buy the next time they need a printer cartridge or a washing machine, the company's prospects may not be as dim as last week's stock hit would seem to suggest.

For a free Motley Fool report about the cash kings changing the face of retail, click here. Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Best Buy, Amazon.com, and GameStop. Motley Fool newsletter services have recommended buying shares of Amazon.com. Motley Fool newsletter services have recommended writing covered calls on GameStop

5 Big Retail Chains That Will Be Gone in 5 Years
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What Best Buy Is Doing Right: Rewarding Loyal Customers

Click through to see 5 Big Retail Chains That Will Be Gone in 5 Years

By Rick Aristotle Munarriz, The Motley Fool

1. Barnes & Noble (BKS)

When the last of the Borders stores closed its doors forever a few months ago, it was only natural to view Barnes & Noble as the obvious beneficiary. Bibliophiles would just flock to the other gargantuan bookstore chain, right?

Wrong. Things aren't going so well at B&N. Sales actually fell in its latest quarter, as sales of the lower-margin Nook e-readers can't make up the sharp decline in physical books.

Yes, B&N is ready for the passing of bound books, but what will this mean for its cavernous stores? Store-level sales will continue to decline, and folks will continue to download their books from a wider variety of sources.

2. Sears Holdings (SHLD)

Lousy sales for Sears and Kmart during the holiday season proved that both department store chains continue to fade in relevance for bargain-seekers, and in late December, the parent of the two struggling retailers revealed that it would be closing as many as 120 stores.

Sears Holdings is in a lose-lose situation. It needs to update its stores if it wants to stand a chance against its "cheap chic" rivals. Unfortunately, the company just began tapping its credit line, so it's not as if it can afford the necessary upgrades.

Sears itself has been around for several generations, dating back to its mail-order catalog. Could it really disappear in the next five years? Well, Woolworth was around for more than 100 years when it was liquidated in 1997.

3. Best Buy (BBY)

Everyone seems to be buying smartphones and tablets. They're just not buying them at Best Buy. Shoppers are finding cheaper prices online, forcing Best Buy to shave its already meager margins just to remain competitive.

It gets worse.

"Best Buy's worst fears are coming to fruition," I wrote after the consumer electronics retailer's latest quarterly report. "The same shoppers whom it has armed over the years with smartphones, tablets, and laptops are now using those devices to find better prices online. Even when folks do walk into a store, they can seamlessly compare prices on their smartphone to make sure that they're getting the lowest price."

Let's also not forget that these are also the same devices that are making all of the shelf space that Best Buy has been devoting to CDs, DVDs, books, and video games obsolete.

For growth, Best Buy has turned to smaller stores that sell only mobile products. That strategy may or may not pan out over time, but either way, the gargantuan Best Buy stores as you know them now are toast.

4. RadioShack (RSH)

If Best Buy focusing on bite-sized stores emphasizing wireless handsets through different carriers and related accessories sounds familiar, welcome to RadioShack. The small-box specialist got into that game awhile back, after realizing that folks just don't need to stop by a strip-mall shop anymore to pick up some batteries or a remote-controlled car.

Is this market wide enough for both RadioShack and Best Buy Mobile?

Forget about the future. RadioShack's situation is ugly right now. The retailer has missed Wall Street's quarterly profit expectations all year long.

5. GameStop (GME)

Today, GameStop has one of the most profitable retail models around. The growing retailer's stores stock the latest gaming systems, video games, and accessories. Margins aren't that hot on hardware, but they're pretty sweet on software.
However, the juiciest part of GameStop's model is where gamers trade in their tired games and systems for store credit. GameStop goes on to resell those items at huge markups.

GameStop stores don't need a lot of selling space given the compact nature of their merchandise, so they fit conveniently in the middle of strip malls where rent is cheap. Sales have held up reasonably well, even though video game industry sales have been largely languishing since 2009.

GameStop definitely doesn't seem very endangered now, but now that even Best Buy and Amazon.com (AMZN) are accepting trade-ins, the most lucrative part of the GameStop model is under attack.

Let's also flash forward a few years. As console makers shift to digital delivery of software, where does GameStop fit in? The retailer has made some intriguing acquisitions in digital delivery, but the days of GameStop's physical stores are numbered.

Add It Up

Some of these chains will last longer than others. GameStop's balance sheet is a far cry from Sears Holdings, where credit ratings agencies are biting their nails as they ponder downgrades. However, all five of these concepts just aren't built to last in today's retailing climate.

Enjoy them while you can.

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