Who Will Buy It?

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But Anderson was nagged by a concern--that Best Buy had somehow turned into a less innovative retailer, one that was so focused on efficiency that it had lost sight of its customers' needs and expectations. In the summer of 2002, he attended a lecture at Best Buy headquarters by Columbia University professor Larry Selden. Afterward, Selden--a proponent of the theory that companies that cater to their best customers while discouraging the worst tend to thrive--hitched a ride with the Best Buy marketing team on a flight to Memphis, Tenn., and wound up quizzing Brian Dunn, today president of the company's North American retail operations, about Best Buy's strategy. Dunn found himself unable to answer a disturbing number of those questions and told Anderson so when he returned. Not long after, Anderson hired Selden as a consultant to help the management team focus less on products and more on customers.

Not surprisingly, Best Buy now emphasizes research in a new way. Consider one of the segmented stores, the 58,000-sq.-ft. outpost in Santa Rosa, Calif. "We gathered information for years about customers," says Best Buy's Jeniece Knobelauch (whose title is "Jill segment manager"). The demographics suggested that Best Buy's most profitable customers in the area were primarily women and small-business owners. So the store was redesigned with those customers in mind, particularly the Jills, soccer moms who live in Sonoma County. The store is bright and airy and dotted with signs to make navigation easy. The Consultation Center for Small Business has its own section at the front of the store. The Geeks, ever ready to offer advice, and tech support for a fee, are a central fixture.

Each morning in Santa Rosa, the managers meet with the staff to go over the store's financial performance. They also prowl for ideas that can help propel sales, like sending gift coupons to customers' kids on their birthdays (an innovation now being considered for a roll-out in Best Buy stores across the country). The Santa Rosa team also helped boost sales of iPods and other hot items in December by displaying the devices at the entrance to the store and posting an employee there who talked to shoppers about the gadgets.

So far the experiment seems to be working. The company says its segmented stores generated sales last year that grew at twice the rate of those at other Best Buy stores. The Santa Rosa property has done especially well, earning $70 million in revenues last year, vs. $40 million to $50 million pulled in by the average Best Buy store in the U.S.