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Best Buy Puts Plan B Into Action

Best Buy Puts Plan B Into Action

The big box business model served Best Buy well until e-commerce gained traction. Now more and more customers are browsing for electronics at its brick-and-mortar stores but making their purchases at online outlets like Amazon. And Best Buy doesn't offer the customer experience of, say, an Apple retail store. "Best Buy is all about the gadget and not how it integrates with peoples' lives," noted Craig Carl of The Integer Group.

By Erika Morphy
03/30/12 5:00 AM PT

Best Buy is taking an ax to its big box retail business model. The company plans to close 50 of its larger stores and test new store formats in San Antonio and Minneapolis.

The formats will be so-called "connected stores" that will emphasize tech support and wireless products. They will feature checkout lanes designed to speed shoppers through the buying process, as well as hubs to better assist them.

The company also plans to lay off 400 employees including corporate workers. At the same time, it will invest in more worker training and restructure its sales incentive program.

Best Buy's financials have been sliding at an alarming rate. It just reported a fourth quarter loss of US$1.7 billion. Its third-quarter profit fell 29 percent, surprising analysts and retail observers who had been expecting stronger results.

A Best Buy spokesperson was not immediately available to provide further details.

Amazon's Showroom

The plan seems to be aimed at shoring up Best Buy's vulnerability to e-commerce sales. The company has become known as Amazon's showroom, in that consumers will go there to check out electronics in person but then order them from Amazon or elsewhere online where the price is cheaper and where, until recently, they didn't have to pay a sales tax.

However, Best Buy is also hampered by its big box legacy. Retailer after retailer in this category has declared bankruptcy, unable to afford rents after consumers pulled back their spending. Indeed, even at the beginning of the year, the large store closures were still making headlines. Sears, for instance, announced it would close a number of its retail outlets.

There is also a certain sterility about the Best Buy retail experience that doesn't sit well with some consumers, Craig Carl, SVP and creative director of The Integer Group, told the E-Commerce Times. "It's not just about the hottest tech gadget but what it does for the shopper. Best Buy is all about the gadget and not how it integrates with peoples' lives."

However, it is the economics that is Best Buy's worst enemy right now, he continued. Not only is the Internet a competitor, but plenty of additional brick-and-mortar stores have become so as well.

"Larger electronics stores are seeing their margins disappear as Walmart and Target offer the latest in tech products," Carl said.

Mobile Is the Place to Be

Best Buy is right to focus on mobile, Carl continued -- after all, how often does a family purchase a big screen TV? -- but even changing its focus to mobile may not do enough for the retailer.

"The mobile store environment is already crowded, and this will require a major shift in their retail strategy," he said.

All the Right Steps

Best Buy does seem to be facing an uphill climb, but many believe the brand can right itself.

Best Buy has made significant strides in the last few months to become a dominant player in the digital world, said CTPartners Vice Chairman Umesh Ramakrishnan, the executive recruiter who placed Stephen Gillett as the new digital head of Best Buy.

"The first step was the hiring of Stephen Gillett two weeks ago to become the president of Best Buy Digital," Ramakrishnan told the E-Commerce Times. "Stephen is a digital powerhouse. He is credited with turning Starbucks into a world force in digital markets. When you pay for your latte with your smartphone, or when you become a member of Facebook's largest brand on the planet, you are playing in Gillett's sandbox."

Best Buy is taking other steps as well, such as partnering with small businesses like Revel Systems, in this case to manage the countrywide deployment of its iPad POS system by the Geek Squad, Christopher Ciabarra, principal of Revel Systems, told the E-Commerce Times.

Best Buy is looking into more such partnerships, he added. "The market is turning to small businesses because that is where the growth is and the most amount of potential."


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