Until Steve Jobs died, Best Buy Co. (BBY) was plotting a familiar course for its Super Bowl ad: hiring a celebrity spokesman.
Then all the tributes poured in after the Apple Inc. (AAPL) founder’s Oct. 5 death, and Best Buy’s U.S. marketing chief, Drew Panayiotou, realized Silicon Valley inventors are today’s stars.
Instead of heavy metal rocker Ozzy Osbourne and teen heartthrob Justin Bieber, who starred in last year’s ad, Panayiotou opted to hire innovators who could personify Best Buy’s selling premise: that no one knows more about gadgets and how they work together than the chain’s blue-shirt sales force.
It’s a point the world’s largest electronics retailer badly needs to prove if it is to compete with the likes of Wal-Mart Stores Inc. (WMT) and Amazon.com Inc. (AMZN), according to Joe Feldman, an analyst at Telsey Advisory Group in New York.
“That service side of the business is where they’re trying to position themselves,” Feldman said Jan. 30 in a telephone interview. “The fight they are fighting is against the mass merchants and the online merchants.”
The retailer is trying to attract U.S. consumers enduring unemployment and weak wage growth. Retail sales will advance 3.4 percent to $2.53 trillion this year, compared with a gain of 4.7 percent in 2011, according to the Washington-based National Retail Federation. Best Buy may grow even more slowly, with analysts surveyed by Bloomberg projecting a revenue increase of 2.6 percent in the fiscal year that ends Feb. 25, followed by a gain of less than 1 percent the following year.
Investors punished the Richfield, Minnesota-based company Dec. 13 after it reported Black Friday discounts aimed at boosting sales also hurt gross margin. The shares tumbled the most in more than nine years and ended 2011 down 32 percent; the Standard & Poor’s Index was unchanged last year. The shares fell 5.6 percent to $23.95 yesterday in New York.
Best Buy also took heat during the holiday season after canceling online orders on some products after running out of stock. Though the company said cancellations affected less than one percent of online orders during that time, the backlash spurred Chief Executive Officer Brian Dunn, blogging on Best Buy’s website, to apologize and pledge to fix the misstep.
Best Buy canceled Tom Nenon’s order for a 42-inch Samsung plasma TV, the University of Memphis vice provost and philosophy professor said in a telephone interview. The chain offered a lesser model or a comparable model for at least $50 more, he said. Nenon declined.
CEO Dunn is betting Best Buy can tack on revenue and boost margins by selling more voice and data plans, damage and loss protection and accessories to mobile phone buyers.
The market for such “connections” is worth “$150 billion and growing” in the U.S., with Best Buy controlling less than 1 percent, Dunn, 51, told analysts Nov. 7. Doubling its share would add more than $1 billion in revenue, he said.
Best Buy has trained employees to show shoppers how gadgets work together. The company is lowering shelves and creating less-cluttered stores akin to Apple’s retail minimalism. In November, Best Buy teamed up with London-based Carphone Warehouse Group Plc to create a new venture to extend their success at selling smartphones and related services to other products such as tablets and notebook computers.
“There will be a moment in time when every product we sell is connected to a network somehow,” said Mike Vitelli, an executive vice president who took over U.S. operations Jan. 16. He said he’s focusing on basics, such as greeting customers and answering phones promptly. “We have to make bigger visible leaps in our customer service,” he said in an interview.
The Super Bowl commercial, airing in the first quarter of the Feb. 5 game, will spotlight inventors such as Philippe Kahn, who developed one of the first camera phones. Another is Kevin Systrom, who developed a free photo-sharing application called Instagram introduced on Apple’s app store in 2010.
“They may not be at the same level as Steve Jobs, but they created some amazing stuff,” said Panayiotou.
Trading in big names like Bieber and Osbourne for unknowns is a risk, he said.
“Big brands like to hire celebrities,” Panayiotou, 44, said by telephone Jan. 27. “We looked at everyone from George Clooney to Stephen Colbert. We believe the inventors are more than enough. I give those 125 million viewers a lot of credit. I think they’ll appreciate the story.”
The commercial will air during the third national commercial break of the matchup between the New York Giants and the New England Patriots in Indianapolis. It’s appearing in the same break as commercials for Anheuser Busch InBev, the maker of Budweiser beer, and Mars Inc., which plans to introduce a M&M candy character named Ms. Brown, according to its website.
Best Buy’s commercial isn’t “intended to be funny,” Vitelli said by telephone Jan. 27. “It’s a statement that these people are inventing technology and what we’re inventing is a way to bring that technology to you and make it easy for you.”
Professor Nenon, 60, plans to watch the Super Bowl on his old television. Nenon said he may shop for a new set this week, though he wouldn’t buy the TV from Best Buy even if it offered the best deal. He’s not likely to be swayed by the Super Bowl ad, either.
“Which would you believe -- your own experience or a paid ad?” he said.
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