Some people insist that Best Buy is dying a slow death.

Meanwhile, its CEO, Brian Dunn, maintains that 80% of consumer electronics sales still come from brick-and-mortar stores. But in its most recent earnings statement (for the three months ending Nov. 26), Best Buy’s net income was down nearly 30%, compared to the year prior. The company says that’s because they had to lower prices to increase sales.

Here is what I believe to be the core cause of Best Buy’s problems: There is almost nothing you can buy at Best Buy stores that isn’t cheaper and more convenient to buy online. And when you think about buying online, you think about Amazon first, and a number of other retailers second (Buy.com, Walmart.com, etc.). BestBuy.com usually doesn’t top that list.

The problems — including Best Buy’s recent inability to fill holiday season purchases — are already well-documented. Let’s focus, instead, on how to fix Best Buy.

1. Focus on the Stores

CEO Dunn stated earlier this month that Best Buy has expanded the products available on BestBuy.com and has launched a new online marketplace. This is the wrong approach. You don’t out-Amazon Amazon. I’m constantly telling my clients that they must build on their strengths, not try to overcome their weaknesses.

For example, Research In Motion spent a year of resources developing and marketing a tablet device instead of focusing on its major competitive strength, the Blackberry smartphone. Best Buy needs to focus on the asset that separates it from the competition — its physical stores.

This is urgent. For the next year, the majority of Best Buy’s investment, attention and marketing budget should go towards improving the customer experience in its retail stores.

What should it improve? That’s easy.

2. Fewer SKUs

One of the major ways retailers measure success is the sales-per-square-foot metric. This figure eliminates any differences in number of stores and size of stores; it simply measures how well a retailer performs.

According to a report from August, Apple dominated the field with a whopping $5,626 per square foot of retail space. In second place, the jeweler Tiffany’s came in at $2,974; that’s how much Apple trumps everybody else. Costco wholesale makes $998 per square foot.

Best Buy? It comes in at $831 per square foot, behind retailers like Whole Foods, Polo Ralph Lauren, Signet Jewelers and GameStop.

What do Costco and Apple stores have in common? A relatively small selection of products to buy. Best Buy should focus on the best products, not on as many products as can be crammed onto shelves.

3. Better Blue Shirts

One of Best Buy’s major advantages over Amazon is that it employs people in blue shirts who are expected to help customers. These folks are young (because they cost less this way), but insufficiently trained. Of course, Apple Stores employ young people too, but Apple’s people are empowered, no, mandated, to help people. Best Buy’s store staffers read the back of the box with you.

The sooner Best Buy can roll out a comprehensive and aggressive training program for its blue shirts, the sooner it can make people feel better about coming to its stores. Then, every newspaper with a Best Buy in its city would positively cover the store’s efforts to improve its floor staff. So, in addition to improving the customer experience and sales, this is a powerful marketing and PR strategy.

4. Better Store Layouts

Wider aisles. Cleaner spaces. Get the product packages off the shelves, because these horrendous boxes aren’t doing anybody any favors. Simply give people more space to physically try as many products as possible. After all, that’s why people go to retail. Basically, study what Apple is doing in its stores and try to apply.

5. Better Marketing

It’s time for Best Buy to go beyond its weekly blue flyer. The company needs to launch a powerful marketing and PR campaign. Find out what’s important and compelling to consumers.

I don’t know this for fact, but given the current state of its marketing activities, I can all but guarantee that Best Buy isn’t having enough qualitative conversations with its customers to uncover the language and emotion that resonates with them. My best clients have learned that deeply understanding your customers is the fastest and most direct path to effective marketing. It’s time for Best Buy to start understanding its customers.

6. Better Customer Service, Better Feelings

The 2010 American Customer Satisfaction Index Report found Best Buy in the middle of the pack in terms of customer satisfaction, behind retailers such as Publix, Staples, Kohl’s and JCPenney.

If you say you’ll price match, then price match. Don’t make people stand in line to beg cranky 24-year-olds, who are trained how to best decline the price match. Similarly, if you want to compete with Amazon and Costco, then you better accept returns without question, and without an annoying restocking fee.

Instead of anticipating a frustrating experience, people need to foresee satisfaction when they think about Best Buy, as they do with Apple and Costco.

Many of Best Buy’s problems result from the negative feelings their actions and inactions have built in consumers, who have plenty of other options, as Best Buy painfully knows: “I can shop at Costco and return something three months later if it breaks, or I can go Best Buy and be out of luck.”

Best Buy literally can't afford any more bad feelings. Over the next year, Best Buy must do everything possible for people to feel good in its stores. In fact, the majority of Best Buy’s innovation efforts — from product selection to layout, from customer service to marketing — should focus on its most powerful remaining competitive advantage: its physical stores.

Image courtesy of Flickr, staticjana, Ron Dauphin