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Best Buy posts $1.7b loss, to close 50 stores in mobile move

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.



By Electronista Staff
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Comments

  1. chefpastry

    Mac Enthusiast

    Joined: Nov 2005

    +5

    Doomed

    Crazy Eddie couldn't do it. The Wiz failed. Circuit City shuttered. Next is Best Buy.

  1. Mr. Strat

    Junior Member

    Joined: Jan 2002

    +3

    Just go away

    Nothing I like better than going into an inappropriately named Best Buy and having the loud music thumping my chest while making my way through the posers playing plastic guitars.

  1. daqman

    Junior Member

    Joined: Sep 2000

    +5

    Could it be the lousy service?

    My local Best Buy has been a pain to shop at for years and it all boils down to customer service. I go in there ready to spend, the thing I'm looking for isn't in plain sight and I can't find anyone willing to sell me something! The last few times when they did finally deign help me find something that the website said was in stock but wasn't easy to find in the store I got home to find that they'd resold to me something that someone else had taken back. I got a Netbook a couple of years ago that already had someone else's documents in My Documents and photos of a Christmas party in the Pictures folder. I got a "new" phone that had someone's address book already loaded, and last of all a "new" Wacom tablet that had the software CD's and cables missing from the box.

    They deserve to go out of business!

  1. c4rlob

    Fresh-Faced Recruit

    Joined: May 2009

    +3

    Online shopping and Apple

    Obviously online shopping is a big part of it.
    But a study was also just released showing that more than 50% of American households own 1 or more Apple devices. And we know people haven't stopped swarming into Apple stores because of online shopping. Every day, millions of people are walking out of Apple stores with MacBooks, iPads, iPhones, and iPods that fill most of the needs they would normally go into a BestBuy for – computing, videos, cameras, games, music, etc. With the exception of TV sets, the majority of those items are all contained within the Apple ecosystem and retail. Heaven help these big retailers if Apple ventures into TV sets.

  1. bowwowman

    Mac Elite

    Joined: Jun 2000

    0

    OLD news

    This situation was covered several months ago in an article somewhere called "Why BB is doomed"

    NOTHING has changed since then, except maybe the fact that BB has now admitted their failures and are tryin to fix them.....gOOd luck with that :)

  1. chrisstuff2911@gmail.com

    Fresh-Faced Recruit

    Joined: Jan 2012

    +1

    Retail: It's all about the experience

    On-line shopping will not kill retail. Poor experiences and high prices are what send buyers on-line. Best Buy (in-part) finished Highland Superstores, Circuit City and others because the experience WAS better than the others. Prices were good, sales people were informed and available but not pushy. Over the past 5 years I've found their prices are full MSRP, the sales people are apparently incentivized differently (cell phone sales is pushy), and the inventory is broad but not deep.

    1.) Price product so that it is genuinely 'the BEST buy'. If MSRP on a video game is $59.99, then price it a few bucks less. CD's shouldn't be $18. Same with cameras, DVD's, and accessories. If your price is high on the small stuff, I'm not going to feel comfortable that the TV's or appliances are reasonable.

    Only when an item is on sale, is Best Buy product compellingly priced and I'd suggest the discount is a bit more than necessary. If a comparable not-on-sale TV is 20% to 30% more...then I know full price is a rip and I buy the on-sale item ONLY because of price...not because I'm convinced it's also the best choice. In turn the store's margin is killed to make revenue and I'm not pleased with the experience, only the cheap price. Even if I were inclined to be happy with BB over the price, they destroy that feeling by trying to make up margin buy pushing over priced HDMI cables, power strips and extended warranties.

    2.) Pay employees better to attract better quality. a.) they will stay longer meaning less wasted money to train replacements b.) they will be better informed about their products, c.) happy employees make happy customers, d.) management can better manage the experience than falling into the 'staffing hours' rut.

    3.) The statement earlier about the 'thump, thump pounding noise' is accurate and is also a symptom of other experience issues. There should be designated car audio staff that know and love that facet of the business. Your TV department is always staffed with overly assertive people - but you can't find an educated consultative representative in car audio.

  1. qazwart

    Fresh-Faced Recruit

    Joined: Apr 2001

    +1

    Best Buy's Problems

    Best Buy is doomed unless they can suddenly go "upmarket" which may be impossible with such large stores. They face several big problems. No one shops for brand any more which means you can't get a premium for selling a particular brand. And, they find themselves competing against places like Costco, Home Depot, Lowes, and Internet stores like Amazon.

    The brick stores like Costco and Lowes sell fewer models, but since people are more price conscious and less brand conscious, they simply don't care. These stores also employ fewer employees, and tend to build their stores in cheaper locations. Internet stores like Amazon can sell more and still have higher margins.

    Best Buy's best strategy is to go upscale. Provide true services much like the Apple store does. Make people feel that it's worth paying a premium for their services. The problem is that Best Buy doesn't have the physical buildings (their stores are too big for this strategy), the employees, or the leadership they need. It may already be too late. Best Buy has a bad reputation among consumers, and a reputation is almost impossible to mend.

  1. mytdave

    Fresh-Faced Recruit

    Joined: Aug 2000

    0

    intrinsicly flawed

    BB's business model is the problem. 1. Overhead too high (the stores themselves, not the number of stores). 2. Prices too high. 3. Poor quality products (with several exceptions of course). 4. Selling too many of the wrong product (mass market garbage you can get much cheaper online or at Walmart). 5. Lots of employees, but nobody's around to actually help. 6. Inventory control. 7. Store layout. 8. Other stuff (is the Geek squad even profitable? Better to just send bad computers back to mfg. and give customer a replacement/refurb).

    To provide an example, at BB you can buy almost any type/brand of TV in existence, but you can't find a decent audio system (processors, preamps, amps, speakers) anywhere in the store, except a select few really nice items at the stores w/integrated Magnolia HiFi divisions, then you'll pay 20% more for the privilege of buying it from BB.

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