Best Buy set to be virtual reality’s first mainstream test

Bloomberg

Best Buy Co. Chief Executive Officer Hubert Joly was sold on virtual reality after he was almost eaten by a shark in an experience he called “mind-
boggling.”
Now he’s betting the masses will be enthralled with the technology too. In what’s seen as the first mainstream test of VR products, Best Buy began rolling out demonstrations for Facebook Inc.’s Oculus Rift headsets in May and will have them in 500 stores for the holiday-shopping season. The chain also is running 200 demos for Sony Corp.’s PlayStation VR, which will be released in October, that rotate between locations.
The plan is a wager that virtual reality is ready to move beyond early adopters and catch the eye of regular U.S. consumers: the kind of big-box shoppers who browse the aisles of Best Buy looking for Christmas gifts. The electronics chain is eager to find a new hit product after years of slow sales, especially as the iPad and other innovations lose their allure.
“It’s going to be really cool and
fun for our customers,” Joly, 57, said on a conference call. “Virtual reality has the potential to contribute to
our growth.”

Early Days
For now, Joly is tamping down expectations. Virtual reality won’t have a material impact on results this year because it’s in the early
stages, he said. And there are plenty of obstacles: The gear costs hundreds of dollars, and many Americans might not be ready to strap screens to their faces.
Still, the Best Buy test is key both for the chain and the technology companies racing to cultivate VR. If it takes hold, the electronics industry will have a new product category to attract customers, potentially helping Best Buy finally return to consistent growth. “The performance of virtual reality at Best Buy will be a very good indicator of how successful the VR movement will be,” said Brad Thomas, a retail analyst for Keybanc Capital Markets. “We’re hopeful that virtual reality turns into a new traffic driver for Best Buy.”
Adopting VR requires a big commitment from consumers — something that could boost technology spending but also relegate it to a niche product. Few computers have the graphics capabilities needed to run virtual reality, which means users need to upgrade or buy new hardware. That alone could cost thousands of dollars.

Costly Headsets
VR headsets also are pricey in their own right. Best Buy is currently offering the Oculus Rift for $600. The technology will likely appeal to video game players, but no one’s sure how many others will buy in, Thomas said. GameStop Corp., which caters to gamers, started adding demos to stores in April and now has them running for PlayStation VR, Samsung Gear and HTC Vive. But if only the hardcore gaming community adopts the headsets, that could alienate other consumers and slow mainstream acceptance. There’s also a precedent for shoppers balking at similar innovations. Best Buy made a big bet on 3-D television a few years ago, and it flopped.
Best Buy, based in Richfield, Minnesota, has had more recent success with wearable technology such as Fitbit Inc. trackers. And Joly has bolstered earnings at the chain by cutting costs and shedding overseas operations. That helped profit beat analysts’ estimates in the second quarter, sending the shares up 20 percent on Tuesday. But growth is still meager: Same-store sales rose less than 1 percent in the period.
Waiting Decades
VR’s potential has excited the tech and gaming industries for decades. But they had to wait for advances in computing and graphics before equipment could provide a truly immersive experience.
The first modern VR headsets have been out on the market less than a year. Samsung’s Gear VR, which uses Oculus-developed software, debuted in November, while both the Oculus Rift and HTC Vive became available to consumers this year. About 2.5 million VR headsets will be sold in 2016, according to Deloitte estimates.