Best Buy Lures Small Business

The $30 billion retailer noted for staging midnight sales of Xbox 360 video games and “Star Wars” DVDs now has small-business customers squarely in its sights.

To date, it has opened Best Buy for Business operations in more than 100 Best Buy retail stores to serve the technology needs of small businesses. The mission: to leverage its consumer brand to identify and attract business customers to existing locations and make buying technology more enjoyable.

The Minneapolis-based company plans another 120 locations by the end of fiscal 2007, ending Feb. 25, 2007, according to information from a presentation that Best Buy made at a Bear Stearns investors conference in March.

Whether this game plan translates into competition or opportunity for traditional solution providers depends on where you are located and your core value proposition, according to channel executives.

“Some level of our services could be commoditized. They’ll grab some of it. We’ll have to build more value on. We have to keep on chasing more value,” said Joe Toste, vice president of marketing at Equus Computer Systems, a Minneapolis-based system builder.

According to the Bear Stearns presentation, Best Buy is counting on selling products and services to small-business customers as a key growth driver over the next five years. It plans to add about 600 trained business professionals to penetrate what it estimates is an $80 billion opportunity in small businesses. “These customers already shop at Best Buy for personal needs,” stated a slide from the Bear Stearns presentation.

The Best Buy for Business catalog pitches small businesses on anything from free on-site IT assessments for network installations to other services that leverage—at least partially—its Geek Squad technicians, who offer 24-hour on-site and remote services such as wireless network setup for $159 or data backup onto a DVD for $89.

Best Buy executives declined to comment, but sources with knowledge of the strategy said the retailer likely will engage a multitiered channel, using its own hired technicians for lower-end projects and contracting with third-party service providers, including VARs, for more complex work. Best Buy would not detail its partnering strategy, but the sources said it will need solution providers to hit all the geographic and technological areas it plans to cover across the United States.

The Best Buy for Business catalog reveals that the company already is selling higher-end business products typically not available to consumers at its retail stores—for example, a Belkin 42U rack enclosure for $1,100, according to the catalog. Moreover, vendors including Microsoft and Lenovo have struck special accords with Best Buy covering their products (see sidebar).

Sources said Best Buy is even exploring a deal to represent the NetSuite ERP managed service—ironic, since the software doesn’t even come in a shrink-wrapped box appropriate for retail. NetSuite has denied that a deal is in the works.

The Best Buy plan is mainly being leveled at Dell, not SMB solution providers, said one source familiar with the strategy. “Dell is the monster,” the source said. Moreover, Best Buy views its own Geek Squad technical talent as a big competitive advantage since Dell relies on third-party service providers, he said.

Dell, for its part, last week said it is opening two full-size retail stores as part of a pilot program. Dell, Round Rock, Texas, said the stores will only carry display models and customers will still have to order online or by phone.