Best Buy stakes big share of its future on Geek Squad

Best Buy Co. is letting its Geeks run free.

Once relegated to computer repair, Geek Squad agents have morphed into the all things Best Buy. They install GPS devices on cars. They lead in-store smartphone tutorials for customers. They advise homeowners on how to reduce energy bills. They tell hospitals how to safely transmit patient records through tablets.

As Best Buy continues to lose its dominance in computer and television sales, the Richfield-based consumer electronics retailer hopes to catapult Geek Squad back to relevance. Executives want to transform the company from a mere seller of merchandise that can be purchased on Amazon to one that offers something Amazon can't: long-term advice and service to consumers and businesses.

"We're clearly stepping it up," George Sherman, Best Buy's senior vice president of services, said in an interview. "We've evolved quite a bit."

But Geek Squad faces several challenges. Its founder, Robert Stephens, recently left Best Buy. The company must better oversee and develop its 20,000-strong Geek Squad workforce, no easy task for a mass retailer more adept at managing inventory than managing people, analysts say. Then Best Buy said that by August it will lay off 600 Geek Squad agents who mostly perform home television and PC repairs. The company will hire 500 new agents to focus on in-store customer service and small businesses by the end of the year.

And as more consumers become comfortable with technology, some analysts even wonder whether calling them "Geeks" is somewhat outdated.

Geeks, by definition, are supposed to be smart but antisocial, fluent in software code but unable to master basic human conversation. But in Best Buy's smaller-format Connected Stores, Geek Squad agents are literally front and center, manning the Solutions Central desk where they answer customer questions, activate mobile devices, install software, and lead tutorials on smartphones, digital cameras and tablets.

"This is our greatest investment of talent," said Josh Will, Best Buy's vice president of Connected Stores. "We're pulling [Geek Squad agents] out of the back area where they normally repair computers, and we're putting them out to teach."

Solutions Central isn't cheap. But Will believes the service will pay for itself through fewer product returns and customers willing to visit (and buy) more often.

"When you know how to use technology, you use it more frequently, you're inspired to do things with the technology," Will said. "We believe it will pay out in customer loyalty and customer satisfaction."

Best Buy is clearly copying Apple's popular Genius Bar concept. But that makes perfect sense since Geek Squad agents possess "the best product knowledge, the best consumer knowledge that other competitors can't match," said Burt Flickinger, managing director of Strategic Resources consulting firm in New York.

In fact, Best Buy's "one major weapon to compete against Apple is Geek Squad," Flickinger said.

Best Buy officials often say Geek Squad was the best acquisition the company ever made. The retailer used to offer customers tech support using store employees, known as Blue Shirts, but it had little success. All that changed in 2002 when Best Buy purchased the little-known computer repair firm founded by Stephens in 1994.

Over the past decade, Geek Squad has been a cash cow for Best Buy. The company does not disclose separate financials for the business. But analysts estimate Geek Squad generates a gross profit margin of 40 to 50 percent based on a minimum annual revenue of $2 billion, or about 4 percent of Best Buy's total revenue of $50 billion.

But Geek Squad's growth has slowed in recent years as sales of flat-screen televisions and personal computers, two of Best Buy's core products, began to fade. As a result, the company has expanded the Geek Squad brand to other markets. For example, Best Buy recently formed an alliance with Car Toys, the country's largest independent car audio and mobile electronics retailer, to target car dealerships, commercial fleets, and insurance companies.

Other analysts wonder if the Geek Squad concept, not just the name, has become passé. When it debuted 18 years ago, few people owned personal computers. Today, everyone from baby boomers to elementary school kids comfortably knows how to download apps and take photos and videos with an iPhone or Galaxy Tablet.

"It's not as if technology is a foreign concept that only a geek would know," said Laura Kennedy, an analyst with Kantar Retail consulting group outside of Boston.

People, of course, will always need help with their gadgets. But branding an in-store customer help desk as Geek Squad perhaps creates "artificial barriers" between consumers and technology, said Carol Spieckerman, president of Newmarketbuilders retail consulting firm.

One group of customers that clearly needs Geek Squad is small businesses, officials say. Earlier this year, the company paid $161 million to acquire MindShift Technologies, a provider of data storage and other IT services to small- to medium-sized businesses. And in March, Best Buy said Geek Squad will sell 24/7 tech support plans to small companies, which include diagnostics and repair, data security and server administration.

Earlier this month, Best Buy said it will partner with Verizon to offer remote tech support to small to medium-sized businesses. For example, Geek Squad will help companies synchronize data from various devices or provide up-to-date security patches and virus removal. Best Buy has been adding more "covert agents" who can remotely log in to customer computers and provide tech support without leaving their offices.

The small-business market "is competitive but highly fragmented," Sherman, Best Buy's head of services, said. "There are not that many scaled coast-to-coast competitors."

Geek Squad definitely enjoys the benefit of brand recognition, said Christopher Horvers, a retail analyst with JPMorgan.

But building a national business based on service will be difficult for a retailer used to selling large numbers of televisions and computers across the country, Horvers said. Managing people and relationships is an entirely different matter, he said.

Thomas Lee • 612-673-4113