Is Best Buy For Real?

The Minneapolis-based company has designs on becoming a major player in the channel. Its new partner program passes services leads on to solution providers and also—and perhaps more importantly—it's trying to convince vendors to allow it to sell products currently procured through distribution to solution providers.

Slide Show: Is Best Buy For Real?

It's a heady two-pronged strategy for Best Buy aimed at creating a national network of solution provider partners that can use their value-added services to complement its own Geek Squad, while also becoming a product supplier to the channel. All the while, gingerly side-stepping the broken promises left behind from retailers' previous attempts to woo solution providers.

"At a gut level, based on anecdotal feedback, it feels like there is opportunity for us in the channel," said Dave Hemler, president of Best Buy for Business, the business unit crafting the program. "There are holes in execution out there. We said let's do something that's really value-added for the channel vs. another 'me too' program."

To date, no big-box retailer or direct marketer has enjoyed wide success engaging with solution providers on services. Many companies, including CDW, CompUSA, Circuit City and even Best Buy itself, have tried before. Jaded solution providers have learned to be wary of such programs. Been there, done that. No thanks.

But Best Buy believes it has a unique approach this time. It's actually listening to solution providers and designing a program around that information, executives said. How successful it will be remains to be seen.

"Someone could be very successful, especially someone with the girth of Best Buy," said Bob Venero, president and CEO of Future Tech Enterprise, a $70 million VAR based in Holbrook, N.Y. "I don't see it as a channel upset, but channel augmentation. If they have the ability to pass a relationship on to the VAR and get something out of it, it really becomes a lead-generation solution for VARs. It's more feet on the street for the [solution providers]."

Alex Zaltsman, managing partner at Exigent Technologies, a Morristown, N.J.-based solution provider, said Best Buy won't be successful unless it limits the number of partners. "I told them they better not open it up to just anybody. Qualify the solution providers and limit the number of partners in the territories. Otherwise, they're going to have an issue," Zaltsman said. "Is it good for the channel? The VARs are getting more business ultimately. Best Buy is like their outside sales force. There's no downside as long as quality control is maintained. That's the key."

Passing services leads on to VARs is one thing, but Best Buy also has its eyes on another prize—capturing more product revenue from VARs that traditionally has gone through two-tier distribution, which, if successful, could dramatically change the current landscape of the channel. It's a tall order. Right now, the language in many of Best Buy's vendor contracts prohibits it from selling wholesale to other solution providers. But the company is talking with some of its largest vendors—such as Hewlett-Packard and Microsoft—to get it done, Hemler said.

The objective, said Hemler, is to give end users a single purchase order, rather than one for products from Best Buy and one for services from the VAR. In one scenario, the VAR may resell its services to Best Buy, which then bills the end user for everything. In another possibility, Best Buy may take on the characteristics of distributors Ingram Micro, Synnex or Tech Data and sell products to resellers, which package the total solution for the end user.

Best Buy won't rule out anything, Hemler said.

"I don't think the world needs another distributor right now, but [VARs] do need in many cases better pricing or more local access [to products]," he said. "I wish I could say we're further along with [that]. Right now, there is some stuff we can sell to other resellers. We are in the process of working with larger resellers where it makes sense, so we can take care of the end customer."

For example, an end user may want a specific VAR as its single point of contact for billing but want to receive the products from Best Buy. "Right now, we can't provide that with HP products," Hemler said. "Those are the minutia details—the big minutia details—that we are trying to work out. It's hard to say what will happen. Some vendors want to push us that way. At heart, we are a retailer. How can we use that expertise to help those partners to get product at better prices today?"

Solution providers said a single point of contact would be a key ingredient to a partnership.

"At the end of the day, the value of a single PO and the relationship is important to the customer. I expressed that to [Best Buy] early on," said Venero, who has had numerous conversations with Best Buy to help architect the program. He is unsure how Best Buy would serve as a product fulfillment vehicle. "Best Buy is not a warehousing, 80 percent drop-ship [entity] like a distributor is," he said. "They're really going to have to change their model internally to support that."

Zaltsman said he cannot envision sourcing products through Best Buy for his own customers. "I would do it, but only for their customers if there was greater efficiency. I wouldn't change my preferred distributor partner."

Best Buy also faces a marketing challenge with business customers, Zaltsman said. "I don't know if businesses think of Best Buy as an IT provider. I didn't even know they sold business-class stuff until [recently]."

Next: Best Buy's Rapid Expansion