Best Buy 4th quarter report shows a changing company

Best Buy, the big box consumer electronics store, reported its fiscal fourth quarter results this morning. Two points of interest can be seen regarding the companies’ storefront properties. The company plans to close 50 big box stores in the USA and open 100 Best Buy Mobile small format stores during the fiscal year 2013.

While the company seemed to be given a little breathing room when its nearest national competitor Circuit City folded in 2009.

“In order to help make technology work for every one of our customers and transform our business as the consumer electronics industry continues to evolve, we are taking major actions to improve our operating performance,” said Brian J. Dunn, CEO of Best Buy.

“As part of our multi-channel strategy, we intend to strengthen our portfolio of store formats and footprints — closing some big box stores, modifying others to our enhanced Connected Store format, and adding Best Buy Mobile stand-alone locations — all to provide a better shopping environment for our customers across multiple channels while increasing points of presence, and to improve performance and profitability.

“These changes will also help lower our overall cost structure. We intend to invest some of these cost savings into offering new and improved customer experiences and competitive prices — which will help drive revenue. And, over time, we expect some of the savings will fall to the bottom line. At the same time, we will continue to accelerate our key initiatives — growing connections and services, expanding our digital capabilities and growing our business in China.

“As a result, we believe these actions will position us to grow earnings, improve ROIC, and increase value to our shareholders in the years ahead.”

I can’t help but see the parallels between Best Buy today and the Radio Shack of yesteryear. Radio Shack was once the geek paradise with all sorts of electronics components. Now, it has annoyingly become a mall staple that pushes cell phones like the kiosks in the hallway.

Best Buy has to compete with online retailers as well as other stores for its appliances, video game, and entertainment collections.

Specific actions intended to lower costs are expected to include:
- The closure of 50 U.S. Best Buy big box stores in fiscal 2013.

- Cost savings in corporate and support structure from IT services savings, procurement savings on non merchandise purchases, a reduction in outside consultant services and reduction of approximately 400 positions in our corporate and support areas.

- Savings in cost of goods sold driven by reduction of product transition costs, lower product return and exchange expenses and supply chain efficiencies.

The new store formats include both the smaller Best Buy Mobile blueprint but also the new Connected Store format.

Best Buy’s retail store strategy is to increase points of presence, while decreasing overall square footage, for increased flexibility in a multi-channel environment. The company intends to remodel key stores with a new Connected Store format in fiscal 2013, and to continue to build out the successful Best Buy Mobile small format stores throughout the U.S.

- Based on results from store pilots conducted in 2010 and 2011, Best Buy will be deploying “at-scale” market tests of its new Connected Store format in the Twin Cities and San Antonio metro areas. The store remodels are expected to be completed before the 2012 holiday season. Connected Stores are remodeled big box stores that focus on connections(1), services and multi-channel experience through a total transformation of both the store and the operating environment.

- The company expects total big box square footage in these combined test markets to be reduced by almost 20 percent through store downsizing and closures, while points of presence will increase by more than 20 percent.

- Best Buy expects to open another 100 U.S. Best Buy Mobile small format stores in fiscal 2013 and continues to expect to have a total of 600 to 800 such stores by fiscal 2016 (from 305 today).

Best Buy will look globally for new areas of growth as well as growing its online sales.

Best Buy plans to invest to maximize the long-term opportunities offered through its existing four key growth initiatives: e-commerce, connections, services and China.

- Domestic segment online sales are expected to grow 15 percent in fiscal 2013 and the company continues to expect to reach $4 billion by fiscal 2016.

- As announced earlier this month, Stephen Gillett has been named to the newly created role of executive vice president and president, Best Buy Digital and Global Business Services to lead the company’s global digital strategy.

- Connections in the U.S. are targeted to grow 15 percent in fiscal 2013, driven by continued mobile phone growth and increased connections in other product categories including tablets and computing.

- Revenue from Domestic segment services category is expected to grow 10 percent in fiscal 2013.

- In China, the company plans to open 50 new Five Star stores in fiscal 2013, including 14 new mobile store-within-a-store concepts, and continues to target $4 billion in sales and a total of 400 to 500 (from 204 today) Five Star stores by fiscal 2016.

Best Buy will be following a similar model to Amazon’s Prime membership to improve its own loyalty program. The new store formats are also intended to improve customer experience.

Best Buy plans to expand the benefits under its Reward Zone Silver loyalty program, whose members account for a significant percentage of the company’s profit. Reward Zone Silver customers will receive exciting enhancements including free expedited shipping, premier access to many of the most popular products and major sales events, a free house call from the Geek Squad, and 60-day no hassle returns and price-match policy.

As part of the company’s actions to significantly improve the customer experience, Best Buy will be making important changes later this year to its store operating model that are designed to drive a differentiated employee experience. The company plans to introduce a new store labor model to be implemented in all of its U.S. big box stores before the 2012 holiday season that will provide increased store employee training and a new enhanced compensation plan that introduces financial incentives for delivering on customer service and business goals. The new compensation plan, which will be implemented across the company later this year, is based on a model that has been used successfully in the company’s Best Buy Mobile stores.

The customer interaction can’t be much worse than it currently is. If I find myself in a Best Buy, I find myself avoiding the sales people working the floor while chuckling to myself at the inaccurate/biased answers they convey to customers they managed to corner.

Categories : Business
Posted by Jason Hamilton | March 29, 2012  |  No Comment

Leave a Comment