Best Buy Didn't Bypass the Channel. It Fired the Salesman and Bought the Leverage.

In 1966, Richard Schulze opened an audio store in St. Paul called Sound of Music and rang up $173,000 in his first year selling hi-fi to people who wanted to be talked into the right turntable.¹ Two decades later, the company he'd renamed Best Buy did something that looked like heresy in consumer electronics: it fired the man who did the talking. No more commissioned salespeople hovering over the speakers. All the inventory hauled out of the back and stacked on the floor where you could grab it yourself. The format had a flat, engineering name — Concept II — and it arrived around 1989 to the open dismay of both the sales staff and the manufacturers who supplied the store.³

The story usually gets told as a tale of channel rebellion: Best Buy cut out the middlemen, went direct to manufacturers, and seized control of its own supply. The real move was quieter and more interesting. Best Buy didn't bypass the channel so much as change which seat at the table held the leverage — and the leverage came not from buying direct, but from changing how it sold.

Here is the thesis a smart friend could repeat at dinner: Best Buy's weapon was never disintermediation. It was eliminating the commissioned salesman and putting every box on the floor — a move that let it sell on volume and price, which in turn gave it the only thing that ever actually matters in retail negotiation: the ability to move enough units that manufacturers needed it more than it needed any one of them.

Why firing the salesman was a buying strategy

Trace the causal chain and the legend inverts. A store built on commissioned salespeople is a store that competes on persuasion and margin — you keep prices high enough to fund the people who close the sale. Concept II tore that model out. Brighter lights, self-serve product cards, the whole inventory on display, far fewer staff and none of them paid to push.³ That stripped cost out of the unit economics and let Best Buy compete on price and selection instead of on a salesman's patter. Lower prices pull volume. Volume is the currency you carry into a supplier negotiation. The salesman wasn't a casualty of the strategy — he was the strategy, in reverse: getting rid of him is what made the volume that made Best Buy worth supplying on Best Buy's terms.

Suppliers hated it, which tells you it was working. A manufacturer prefers a retailer that protects price and pampers its product with a trained sales pitch. A self-serve box on a discount floor is the opposite of that. The discomfort of the channel was the proof that power was shifting toward the retailer who could move the most units — not away from the channel altogether.

The 'direct buying' that wasn't a revolution

The popular history likes to date the channel bypass to 1996, when Best Buy began ordering home video straight from Disney's Buena Vista subsidiary to cut costs and fight for the home-video shopper. It sounds like the moment the middleman died. Read the company's own contemporaneous account and the romance deflates: it kept buying most other video through distributors, because distributors gave it quick turnaround and warehousing it didn't want to build.⁷ Buying direct from Disney was a single-category experiment run for cost reasons, not a wholesale transformation. The channel wasn't slain. It was selectively skipped where the math happened to favor skipping it.

That distinction matters, because today buying direct from manufacturers is simply how the business runs — most merchandise ships from the manufacturer to Best Buy's distribution centers as a matter of course.⁶ The thing that once looked like a daring 1996 gambit is now plumbing. And plumbing is never the moat.

The 'bypass' that ended in deeper dependence

If Best Buy had truly freed itself from the channel, you'd expect its supplier base to be broad and replaceable — many vendors, no single one with a knife to its throat. The filings say the reverse, and they say it with growing emphasis over time. In fiscal 2011, the five largest suppliers — Apple, Samsung, Sony, Hewlett-Packard and Toshiba — were about 39% of all merchandise purchased, and the top twenty just under 65%.⁵ By fiscal 2025, the top five — Apple, Samsung, HP, Sony and LG — had climbed to roughly 55%, and the top twenty to about 80%.⁴ The company that 'bypassed the channel' is more concentrated on a handful of suppliers than it was a decade and a half ago — and it generally does this without long-term written contracts.⁴

This is the part the heroic version misses. The leverage Best Buy won in 1989 was real, but it was always conditional on those suppliers needing a high-volume retail floor. As consumer electronics consolidated into a few dominant brands — and as those brands learned to sell directly to consumers themselves — the balance of need crept back toward the manufacturer. A store can be the best place in the country to buy an iPhone and still have very little say over the terms on which it buys iPhones.

The honest objection: didn't the bypass actually work?

The fair counter is that this read is too cynical. Best Buy did, after all, outlast the specialty retailers that clung to commissioned selling; it grew from a single St. Paul store into a public company — IPO'd in 1985 raising about $8 million, NYSE-listed two years later — and it survived long enough that its own founder tried to take it private again in 2012, offering $24 to $26 a share, a 36–47% premium to the price at the time.²⁸ By any survival test, the model won. That's true, and it's the steelman: Concept II built a durable, cost-advantaged machine that crushed weaker formats.

But notice what the survival proves and what it doesn't. It proves Best Buy built a better retail operation. It does not prove it escaped the channel — and the filings show it plainly didn't. The win was operational efficiency and selling leverage, not independence. Best Buy is as channel-dependent as ever; it just changed the layer where the dependence lives, from a thicket of distributors to a short list of giants who can now reach the customer with or without it.

Best Buy's real act of nerve happened on the sales floor, not in the supply chain. It bet that customers would rather grab the box themselves at a lower price than be sold to at a higher one — and it was right for a generation. But a bet on selling is not the same as a bet on independence. The company that is remembered for cutting out the middleman now buys more than half of everything it sells from five companies it cannot afford to lose. It didn't bypass the channel. It traded a crowd of small middlemen for a handful of large ones — and discovered, slowly, that the second kind is harder to argue with.