Who Will Buy It?

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But Geek is only one part of Anderson's integrated plan to refocus his company on its customers--from in-depth research that identifies what types of consumers contribute most to Best Buy's margins to specifically targeted storefront and marketing operations to boost their patronage. Best Buy calls that aspect of its strategy "customer centricity," and it is already in action in 67 "segmented stores" that have been rolled out in the West. In fact, the company has identified five customer types to target and conferred names on four of them: Jill, the soccer mom; Ray, the family man; Barry, the affluent, married male professional; and Buzz, the tech enthusiast. The unnamed group: small-business owners. "Best Buy wants to tailor each store's assortment [of products] to the customers that are actually going to shop at that store," explains Morgan Stanley analyst Gregory Melich. "In a way it sounds elementary. But, believe it or not, a lot of retailers don't do it." A store catering to Barrys, for instance, would promote high-end entertainment systems; a store for Jills would dedicate more real estate to things like learning software.

Anderson's bet is that the right kind of consumer experience can trump low prices, and there is evidence to back up that thinking. Darrell Rigby, head of the global retail practice at the consultancy Bain & Co., points out that Wal-Mart has yet to gain more than a 30% share of any of the regional markets it enters; two-thirds of consumers find the products it peddles to be of middling quality, and many dislike the long lines at the cashier. "People seem to be realizing that you get what you pay for at Wal-Mart," says Ryan Erickson, of Holt-Smith & Yates Advisors, which manages more than 1.6 million Best Buy shares.

Still, Anderson's customer centricity is a huge shift in focus for a company that came of age in the 1990s as a warehouse purveyor of affordable gadgetry. By the middle of that decade, in fact, its largely do-it-yourself model was growing so fast Best Buy nearly imploded. After building huge stores that didn't run well and focusing far too much on low-margin gadgets like PCs and CDs, Best Buy paid the price in 1996, disastrously miscalculating its PC inventory and essentially wiping out its profits. Facing a cash squeeze, the company was forced to violate its loan agreements and withhold payments to suppliers.

But Best Buy bounced back. Working with advisers from consulting firm Accenture, the company responded by cutting low-margin goods, tracking computer sales more closely and stocking merchandise more flexibly. By early 1998 it had improved the turnover of its PC inventories from a rate of 8.6 times a year to nearly 12 and begun working on a consistent operating platform. It didn't hurt that demand for new products like DVD players soon skyrocketed. When Anderson moved up from chief operating officer to CEO 21/2 years ago, Best Buy was a tightly run, revived retail juggernaut with 631 stores across the U.S. and 100 in Canada.