November 8, 2005 2:02 PM PST
Best Buy looks to expand house-brand products
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The giant retailer is looking at ways of hooking up with start-ups and other companies to design and produce products under its own brand name, said Kal Patel, executive vice president of strategy and international at Best Buy, speaking at the Dow Jones Consumer Venture Conference taking place here.
With its own brands, the company could better compete on price against Wal-Mart and Dell, he said. At the same time, Best Buy could begin to sell products in relatively cutting-edge categories. Currently, the company sells some house-branded products under its Insignia brand, but mostly in established product categories, such as DVD players and TVs. Except for its Matrix PC line, Best Buy also does not deeply participate in the design of the products but relies on contract manufacturers/designers.
"For the next five years, we are going to see a lot of stuff coming out of the labs of Sony and Samsung, but we are also going to see a lot of innovation from a lot of other places too," he said. "There is a lot of room for collaboration with start-ups."
House brands can be difficult to pull off. Best Buy has had uneven success with its Matrix line of PCs, which it's not selling at the moment. Other retailers and some PC makers have stumbled in trying to establish LCD TV brands.
Nonetheless, Best Buy can bring a few key strengths to a start-up, Patel asserted. One, the company has shelf space all over the place. Two, starting a few months ago, Best Buy began a program to better collect feedback from customers, which gives the company information on customer preferences that may not show up, or show up in a timely manner, in sales results or via market research groups. Store representatives report that people look at but don't buy silver MP3 players? Give 'em black.
Best Buy has also begun to link up venture capital firms with "laboratory" stores in Southern California.
"We want to play a bigger part in the (product) design process," Patel said.
Start-ups that approach the retail giant, however, should adjust their pitch. Typically, start-ups promise glorious futures and huge market potential because that's what they have to tell VCs. Retailers want to hear about potential risks with manufacturing supply and inventory.
"The puffer fish sort of thing sort of turns (retail) buyers off," Patel said.
On a final note, Patel proclaimed that Best Buy is ready to cut prices along with its competitors. Analysts have said that price cutting could be particularly fierce this year.
"This Christmas we will compete on price," he said.
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