Is Best Buy undermining its storybook turnaround?

Even Hubert Joly's friends thought he was nuts when he took over as CEO of Best Buy in 2012.

A few years earlier, the retailer's largest direct rival, Circuit City, had filed for bankruptcy and ultimately liquidated. A couple years into Joly's tenure at Best Buy, RadioShack fell into bankruptcy (the first time) as well.

Even with its main competitor gone, Best Buy was flanked by competitors. On one side were generalists like Walmart and Target, who offered shopping convenience and low prices. On the other side was Amazon, quickly growing into an online "everything" store, expanding its electronics sales in the process.

As Joly has freely stated in public, the world thought Best Buy was doomed. Yet he took on the challenge. "I felt that the world needed Best Buy," he said at a virtual National Retail Federation conference this summer. "Customers needed Best Buy. For some of our purchases, we need to see, feel, touch products."

Best Buy's sales declined in four out of the five years between 2013 and 2017. Then, starting in 2018, they began a steady march back up. Joly credited Best Buy's now famous turnaround to an approach that centered on the company's front-line workers. "The essence of the turnaround was a very human-centric turnaround," Joly told the NRF audience in June. "Listen to the front line. They had all the answers." Explaining what this means, the former chief said he ignored advice to cut employees and close stores. "Don't start with firing people, start with growing the top line," Joly said.

"The essence of the turnaround was a very human-centric turnaround."

Hubert Joly

Former Chairman and CEO, Best Buy

In 2019, Joly passed the baton to longtime Best Buy executive Corie Barry, who until then had served as chief financial and strategic transformation officer. The next year, a pandemic swept through the country, and Best Buy weathered one of the biggest upheavals the industry has ever seen. It came out seemingly as strong as ever, with sales and profits up.

Then, early this year, Best Buy started making the kinds of staff cuts that Joly said he shunned.

Best Buy employees have weathered the growth of Amazon, e-commerce generally and a pandemic. Current and former employees who spoke with Retail Dive say they already struggled with understaffing at their stores. Now with cuts to full-time staff this year, they have lost knowledgeable, invested coworkers from their stores and are feeling more squeezed than ever.

A new operating model that Barry and the executive team have rolled out recasts Best Buy sales floor workers, the "blue shirts" in company parlance, into roving generalists and jacks-of-all-trades.

Workers are being asked to work across product departments and fulfillment channels, taking on ever more tasks even as staffing is tight and allotted time to properly learn new areas is slim. At the same time, they are trying to sell to and assist customers in purchasing products that can be complex, confusing and intimidating for customers.

Through the cuts and operational shakeups, Best Buy may be compromising one of the primary competitive advantages it has: its stores and customer service.

This story is based on interviews and exchanges with more than 10 current and recently departed employees, who worked at different stores and in various departments, most of whom spoke with Retail Dive on condition of anonymity out of fear of losing their jobs and other negative consequences. Their observations and sentiments have been echoed by many more anonymous posters identifying as Best Buy employees on social media sites like Reddit and The Layoff.

Best Buy did not respond to requests for comment on this story.

A changing sector

Electronics are different from many other retailed products. Complex, interconnected, ever-changing — they can baffle many consumers.

Best Buy and other box players over the years displaced smaller, service-oriented stores, offering a stripped-down version of the salesmanship that made those stores attractive.

As Françoise Carré, research director at the University of Massachusetts Boston's Center for Social Policy, explained, Circuit City and Best Buy became the two leaders in consumer electronics, with box players acquiring smaller retailers or knocking them to the wayside.

In doing so, they reduced the expectations for customer service going into an electronics store. "Knowledge was less important," Carré said. "You no longer had the small specialty shops where somebody knew a ton about the technology. And these companies were able to package enough of the information so that the person could do it without being an aficionado of high technology and audio technology."

Even so, Best Buy and Circuit City in years past offered a level of customer service and product knowledge above what customers would encounter at pure commodity retailers like Walmart or Target.

Tied to a certain product department — televisions, appliances, computers and so forth — Best Buy's staff had relative specializations and knowledge of a category compared to generalists.

Large players also developed high-service units within their organizations and stores. In 2004, for example, Best Buy developed its Magnolia division, a store-within-a-store specializing in home theater equipment that once boasted of "a fanatical dedication to customer satisfaction."

This May, Best Buy restructured Magnolia, merging its sales team with the retailer's in-home advisers and Pacific Kitchen & Home staff.

At the time, Barry told analysts the move would "allow us to serve customers more seamlessly across all the ways they want to interact with us, whether it is virtually, in our stores or in their homes."

She added that the reorganization "positions our most skilled employees against the most complex work within an entire market and will provide improved career progression opportunities for our sales team."

In an interview with Retail Dive, a Best Buy employee who previously worked at the Magnolia unit described it now as "defunct" following the reorganization, after which roughly a third of the staff quit or transferred at that employee's store. The employee, who asked not to be named, now works across the store, carries the title premium consultant and has seen his compensation reduced.

The restructuring was just one way the company has changed this year and asked its employees to take on more responsibilities.

Fewer blue shirts

In February, Barry said on the company's fourth quarter earnings call that Best Buy had laid off about 5,000 employees, a majority of whom were full-time, and had plans to replace less than half of those positions with part-timers. This came after a 17% decline in head count, to 102,000 team members, over 2020, much of it due to employee attrition.

At the time, Barry said that the cuts "position us to be more responsive and flexible as we continue to refine our operating model going forward in response to the incredibly rapid change and how customers want to shop with us."

She also said that the retailer had "too many full-time and not enough part-time employees" as it tries to build a more flexible operating model. Elaborating in May, Barry noted that the company by this time had 60% of its staff at full-time, six percentage points higher than its pre-pandemic levels. With a decline overall in staff, its proportion of full-timers rose.

"We are iterating to find the balance between providing employees full-time opportunities that come with benefits and guaranteed hours and schedules, while also maintaining the flexibility that is often important in retail."

Corie Barry

CEO, Best Buy

Most current and former employees who spoke with Retail Dive said that their stores lost knowledgeable workers, many of whom had been with the company for years, in the layoffs this year.

"They're laying people off where it doesn't really make too much sense to lay people off," as one employee said.

Other long-time staffers have quit voluntarily because they didn't like changes they had seen in their stores and the company, according to several employees Retail Dive talked to, including one who left specifically because of changes they saw at the company.

Staff cuts are commonplace in retail, and the industry has a long history of replacing experienced full-timers — who typically get paid more and have more benefits — with part-timers who are cheaper to employ, and whose schedules are more easily reconfigured on a weekly basis. Retailers such as Guitar Center, Toys R Us and former Best Buy rival Circuit City all made cuts to full-time staff to save money, to their detriment.

In current times, job cuts often happen in tandem with falling sales, as a company tries to shrink its costs to match a declining sales base. That's not the case at Best Buy. The retailer reported a 3.2% increase in comparable sales for the pandemic year and double digit sales growth in the first and second quarters of this year.

With sales not just steady but growing, remaining sales staff have been trying to keep up with the extra work flow. Employees who spoke with Retail Dive said their stores have frequently struggled to keep up with customer service demands, and they have encountered or observed irate customers who can't find any help on the sales floor.

The company has been working over the year to bring in new part-time help, including from the ranks of laid-off full-timers, to rebalance its staff. In July, the company announced it would raise its starting wage to $15 an hour.

In May, just three months after laying off thousands of employees, Barry told a CNN reporter about Best Buy's drop in applications and the difficulties the company was having in finding help for its stores.

Many tasks, little time

Along with trying to keep up with customer needs, Best Buy employees are taking on more tasks across departments than ever before.

As Barry explained to analysts in February, the company is asking its workers to "flexibly work across all our channels" and to take on more areas of knowledge.

In the past, Best Buy store employees were often tethered to a single product department. That meant customers might talk to multiple employees over the course of a trip. For the employees, it meant they had time to build deeper knowledge in a given category.

Now Best Buy is refashioning its operating model so that a single employee can serve as a point person for a customer across the store. That means many store workers, especially newer employees, are being asked to work across departments, often with inadequate training, current and former employees said in interviews.

Key to making that system work is training, to bring new employees up to speed on a large cross-section of the store's operations and products as well as for existing employees who are trying to pick up new skills and knowledge. Much of that effort is through "e-learnings," primarily short training videos, or in-person time with expert colleagues.

"Basically, you just log in to the system and you go through a bunch of videos or text documents that tell you about products or procedures in Best Buy," one employee, who has been with the company for nearly five years, said of the trainings. "For the most part, especially for new hires, or when you're trying to learn a department, it's a lot of information being thrown at you in a short amount of time. So they're not particularly useful."

The primary challenge is time. In an unfamiliar department, a blue shirt might have to resort to internet searches for some kind of answer — something customers could easily do on their own — several employees said.

Multiple employees Retail Dive spoke with said new hires are being thrown into store operations with very little in-person training from colleagues and a voluminous sequence of training videos that are difficult to absorb.

Best Buy has also been piloting a new store format with less staff, which queues up customers who have questions for employees. "Our goal is to retain customers and improve customer satisfaction, while reducing selling square footage, improving speed and convenience and operating a more efficient model," Barry said in May of the pilots. "We will continue to refine and iterate to learn and evolve our hypothesis."

Some customers have not "taken kindly" to the queue system, Matt Canon, who worked at one of the pilot stores before leaving in July, said in an interview. "I think they're used to just being able to come in and shop around and find help," he said.

Canon explained that customers are told by the host that they can shop around and return to the queue, but roaming customers still flag down employees on the floor. "That's instinct," Canon said. "That's what customers have been doing for years."

More generally, the focus on operational flexibility can hurt customer service in many situations, according to those Retail Dive spoke with.

"The worst thing is when I had to go sell appliances," Canon said. "Somebody would ask me a question, and I would have to admit, 'I'm sorry, I have no idea.'"

'We're basically credit card salesmen'

During Barry's tenure, according to employees who spoke with Retail Dive, the goals for stores and individual employees have taken on a narrow focus: credit card applications and sales of Total Tech Support memberships, which come with discounts and technology services.

Those two goals, on credit cards and Total Tech Support memberships, have come at the exclusion of others, such as revenue goals, which used to be a focus for stores. As one employee, who works at a Best Buy in Massachusetts and asked only to be referred to by first name, David, said, "We're basically credit card salesmen."

Another employee said: "Everything is about getting people to apply for the Best Buy credit card and buy Total Tech Support. They say that credit card apps and TTS can lead to revenue." At that employee's store, not hitting a goal of two credit card applications a day could result in cuts to an employee's hours, and therefore income. The consequences, if any, for not making goals varied by store, though no employees were offered direct incentives for getting customers to apply, according to interviews.

The retailer's emphasis on store-branded credit cards is not unique to the industry. Best Buy's credit card offers rewards points back on purchases at the store and has the potential to drive loyalty, while also providing a profit stream with interest revenue. Roughly a quarter of the retailer's revenue is transacted on a Best Buy-branded card. This risk in focusing on credit card signups is diverting attention away from product sales or even alienating customers with persistent sales pitches for financial products they don't need or want.

"If you're just competing with online sales, what is the difference between Best Buy and Amazon?"

Chris Tilly

Professor and Department Chair of Urban Planning, University of California, Los Angeles

With the singular focus on signing up customers to its credit card, multiple employees Retail Dive spoke with had observed dishonest tactics used by their peers, such as not being fully clear with customers that what they were applying for was a credit card.

Chris Tilly, professor and department chair of urban planning at University of California, Los Angeles, who has researched labor markets and retail jobs, said such behavior is commonly seen in retail and other industries, often around sales of extended warranties and other financial products, which may be profitable to sellers but have limited value to most consumers.

"You could call it the Wells Fargo effect," Tilly said. "If that's what the incentives are keyed to, then people are going to find ways to push that whether they're being straightforward or not."

'There's something about Best Buy'

Amid all these changes at the company, Best Buy Chief Operating Officer Mike Mohan left in July after 17 years with the company. The retailer said at the time it would not fill the COO role but rather redistribute the operating chief's responsibilities around the executive team.

For employees Retail Dive spoke to, the recent cuts, tasks and restructurings at the company have added to the challenges of their job — and that comes after a harrowing year defined and made dangerous by the pandemic. The changes have also hurt their ability to meet customers' needs.

In retail, customer service in electronics may matter more than for others. "Best Buy was a good place for people to come and get demos and [talk to] specialists. There's something about Best Buy with most people, their expectations are different there than walking into any other big department store," Canon said. "You can't have good customer service when you barely have any customer service reps."

"You can't have good customer service when you barely have any customer service reps."

Matt Canon

Former Best Buy Employee

To some degree, the cuts and retooling of staff represents a further drift along the path box electronics retailers have been on for decades, with declining full-timers and commissioned salespeople. They also mark a new phase in Best Buy's life as an electronics retailer. The company is placing bets on its future, on the expansion of digital shopping as well as on services, such as through the company's recent acquisition of care-at-home technology platform Current Health.

Joly has continued to praise his successor through the changes. "My successor is so much better than I was," Joly said in June, after the company's layoffs. "The way she led during the pandemic, putting the safety of the employees and the customers first, and then wanting to build a company that could come out stronger, which is very much in line with our values and our stewardship, I think it's very inspiring."

Barry has said that the company anticipates a wide, permanent shift to digital buying, accelerated by the pandemic. In February, Barry said the company needs to "invest in our future as we proactively evolve all the channels of our business to deliver amazing customer experiences in a world where half of the revenue might be initiated online."

Some of the company's own employees think it will be difficult for Best Buy to compete digitally with the likes of Amazon and other online players, even with the convenience of its stores as pickup hubs. And they see the stores as suffering in the meantime.

"It seems like a self-fulfilling prophecy that people won't want to shop with us because they're making that experience as miserable as possible," one employee said.

Even if Best Buy's expectations for a future of digital shopping prove correct, and stores become naturally less important to shoppers, it raises questions about the company's future competitiveness as it proactively prepares.

"It's clear that the entire store-based consumer electronics industry has faced incredible pressure from online sales," Tilly said. "The fact that Best Buy survived and bounced back is miraculous, when a lot of other companies were going down. The pandemic has shifted things more to online, which makes it that much harder."

"If you're just competing with online sales," Tilly added, "what is the difference between Best Buy and Amazon?"