updated 09:00 am EDT, Thu March 29, 2012
Best Buy shifts from TV to mobile after loss
(Updated: loss in context) Best Buy planned dramatic action Thursday after it posted a $1.7 billion loss for the last quarter of its fiscal year. While better than expected, it led the company to a plan to save $800 million by its fiscal 2015 that would see it close 50 of its "big-box" stores during its fiscal 2013, which started with the beginning of March. The retail chain hadn't named the stores in question, but expected these and other cost savings to cut $250 million in 2013 and $300 million just for retail by the 2015 target.
Some of the other savings would come from cutting 400 corporate-level jobs, infrastructure savings, keeping non-product purchasing to a minimum, bringing former consulting work in-house. It hoped to reduce the costs coming from switching to new products and reduce the costs of both supply and handling returns.
The results would be partly helped by closing UK big-box stores after a brief attempt at exporting the primarily North American shop format abroad. Best Buy would still run in Europe, but in 2,400 small locations.
While it didn't directly explain the reasons for the loss, Best Buy made clear that pressure from Internet sales and the shift away from the traditional focus on TV were at play. It would introduce "full market" tests of its new Connected Store format, where web kiosks let users shop or make price comparisons, customers can get an Apple-style on-the-spot checkout, tables are lowered to ease talking, and staff are trained to show product integration rather than treat products in isolation. The tests, due in San Antonio and the Twin Cities areas, would be in effect by the holidays.
About 100 Best Buy Mobile stores would open in the current fiscal year. An extra 50 new Five Star stores would open in China, 14 of which would have a dedicated mobile store inside.
Whether or not the strategies work is uncertain at best. Although Best Buy has been focusing more on mobile devices like smartphones and tablets, it's still defined by TVs, whose sales may drop in the US this year after decades of growth. The stores also can't realistically halt either Internet sales or an increasingly common tactic of using retail as a showroom to ultimately buy something for a better price at Amazon.
The Connected Store format is partly meant to mirror that of Apple, which has had one of the few rapidly expanding retail technology businesses in the US. Some of its success comes from factors that Best Buy can't directly match, however. As a company well-known for refusing to put its products on sale for nearly all of the year, customers at its stores often get as good a price as they would online. Its manufacturing most of the products it sells at its stores also means it can offer full service with technicians directly trained on its products instead of generic help like the Geek Squad.