Image of a Best Buy Store

Why Is Best Buy So Bad?

The charts on this page do not display well in the mobile version. Please visit this page on a desktop to view charts.

As the executive director of a business school, I get to choose the classes I teach, and one of my favorite classes is customer service. I always look for good and bad customer service examples to share with my students. I want to share a recent experience at Best Buy and what I learned about that business.

I recently attempted to exchange an iPhone case my sister had given me. She bought the case at Best Buy on the recommendation of the sales clerk. She asked for the best case they had for the iPhone 5. The clerk showed her one labeled iPhone 5/5S, and since it was labeled for the iPhone 5, she assumed it would fit my phone. I did not try it on the phone for several weeks after she gave it to me. When I did try the case, it did not fit. My phone is an iPhone 5C, and even though the box is labeled for an iPhone 5, it did not fit. 

Over the next few months, I went to Best Buy several times to make various purchases, and I forgot to bring the case with me every time. We recently needed a flat-screen TV in one of our classrooms, so I headed to Best Buy to purchase one, just like many times before. This time, I finally remembered to bring the case with me. I went to the customer service desk and asked to exchange the case. The clerk told me to go pick out the one I wanted. As I looked at what was available, another clerk approached me, handed me the case I wanted to exchange, and said I could not return it because it was past the 15-day return period. I told him I didn’t want to return the case, just exchange it. He said it didn’t matter; it was past the return period. I asked him if losing a customer for life was worth this. As he was walking away, he flippantly said, “Yes.” 

I returned the phone to customer service and asked to speak to the manager. I told him what had just happened and asked him if it was worth losing a customer for life to avoid exchanging the case. Without commenting on the second clerk’s conduct, he said, “I’m sorry, but there is nothing I can do.” 

I have been in business for over 40 years. It has been my experience that frontline people closely reflect their superiors’ attitudes, so I felt pretty confident complaining to senior management would result in the same attitude of indifference. I was not disappointed. 

I went to the Better Business Bureau site to file a review. I looked over many negative reviews to understand what to expect. I observed the same indifference as was reflected in the store. I filed my complaint and received a boilerplate apology for the inconvenience, but they were sticking to their policy. (Editor’s Note: the review I filed, as well as all the other negative reviews, have been removed, and now Best Buy has an A+ rating and no negative reviews, which tells you if a company throws enough money at the Better Business Bureau they will protect your rating. See the current BBB listing). 

OK, Best Buy has demonstrated that it does not care about its customers at every level. I then wondered if I could find any evidence this policy was damaging their business to show my students the folly of allowing people without contact with customers to set customer service policies. 

What I found surprised even me. Usually, definitive evidence of the effects of poor customer service is difficult to find, but in this case, it was pronounced. 

I looked at Best Buy’s sales for the last five years. Their sales have steadily declined over the previous four years, so I wondered when they implemented their restrictive return policy. As far as I can tell, they started enforcing the policy sometime in 2012, and since it takes time for the effects to show up in sales, it is understandable not to see the first sales decline until 2013.

Although the evidence was compelling, other factors could be in play. How did Best Buy’s competitors perform during the same period? Were there factors affecting the entire industry that would account for a decline in sales? The answer was a resounding no! 

I researched Best Buy’s major competitors on Yahoo Finance and found them to be Apple, Inc., Wal-Mart Stores, Inc., and Amazon.com, Inc. A quick review told me what I wanted to know: Best Buy’s treatment of its customers drove its customers to its competitors in significant numbers. 

I created the following chart to show how dramatic Best Buy’s decline is:

% Sales Decline/Growth Over 2012
YearBBY% 0f 12APPL% 0f 12WMT% 0f 12AMZN% 0f 12
201150.27B 108.60B 421.85B 48.08B 
201250.71B 155.97B 446.95B 61.09B 
201349.14B– 03170.87B+ 09469.19B+ 0574.45B+ 19
201442.41B– 20183.24B+ 15476.29B+ 0688.99B+ 31
201540.34B– 26231.28B+ 33485.65B+ 08107.01B+ 43

Using 2012 as a benchmark (the year the restrictive return policy was implemented), the chart shows Best Buy’s and its competitors’ percentage sales decline/growth compared to 2012. While its competitors’ sales were steadily rising, Best Buy’s were in decline, somewhat dramatically. 

You would think Best Buy’s senior management would be panic-stricken by this precipitous business decline and making a Herculean effort to stop the bleeding, but my experience with their customer service demonstrated they are not. OK, so what are they doing? 

The best place to find the company’s thinking is in the annual report and the CEO/President’s letter to shareholders. If you read the letter, you would have no idea how poorly Best Buy is doing compared to its competitors. The letter touts Best Buy’s Renew Blue strategy (implemented in the fall of 2012) and how they have made considerable progress in improving its performance. The letter mentions nothing about how their sales are falling off a cliff. 

The letter makes a big deal out of two benchmarks: earnings per Share (EPS) and the Net Promoter Score (NPS) (a management tool that can gauge the loyalty of a firm’s customer relationships). Let’s take a look at those numbers. 

EPS
YearBBYAPPLWMTAMZN
20113.144.014.481.39
2012
(3.36)6.384.54(0.09)
2013(1.42)5.725.040.60
20141.565.494.90(0.52)
20153.539.285.071.28

Best Buy improved its EPS not by enhancing customer relations but by bringing in a new bean counter and closing stores, reducing other operating expenses, and reducing the number of shares outstanding by 16%. Even though Best Buy’s EPS is up, it still lags behind Apple and Walmart. Amazon’s EPS is low because the firm is in a growth phase and is investing heavily in Research and Development. To correct this distortion, we can turn to another financial ratio that financial analysts use to measure management performance: EBITA (Earnings Before Interest, Taxes, and Amortization).

EBITDA
YearBBYAPPLWMTAMZN
20113.31B36.31B34.69B1.95B
20123.30B57.91B36.30B2.99B
20132.16B55.08B35.74B4.11B
20141.78B60.60B36.32B4.49B
20152.1B77.89B35.56B7.99B

By removing the things managers cannot control, i.e., interest, taxes, depreciation, and amortization, we can see how poorly Best Buy performs compared to its competitors.

NPS
YearBBY% Sales Decline/Growth Over 2012WMT% Sales Decline/Growth Over 2012APPL% Sales Decline/Growth Over 2012AMZN% Sales Decline/Growth Over 2012
201531– 2637+ 0847+ 3369+ 43

The spin on this one is almost shameful. The CEO/President’s letter boosts an improvement of 450 basis points. It sounds like a lot. Not when you realize a basis point is one-hundredth of one percent.

Once again, compared to its competitors, Best Buy is dead last among the major consumer electronics players. Also note that the higher the NPS or consumer satisfaction rate, the higher the company’s sales increase. The evidence is clear: higher customer satisfaction translates into higher sales. Wake up, Best Buy!

In summary, their sales will continue to decline until Best Buy and any other business realize they must treat their customers as individuals with different needs and expectations. Bean counters NEVER realize how poor customer service can decimate a company as they make their cuts to shore up the bottom line. The lesson here is to cherish your customers and never treat them so poorly that you lose them for life. So ask yourself, Best Buy, was it worth losing my business for life to avoid exchanging a phone case?

Follow-upBest Buy’s decline continues into 2016.