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Best Bye?

Can this electronics giant turn itself around?

Fresh off the resignation of CEO Brian Dunn and the revelation that the company lost a not-so- insignificant sum of $1.7 billion last quarter, Best Buy’s recent announcement to close 50 stores by the end of 2012 probably didn’t come as a surprise to anyone in our industry. What may have been surprising to some — myself included — is their plan to roll out 100 Best Buy Mobile stores.

The new Best Buy Mobile is, on average, 1,200 sq. ft. in size — a shoebox compared to the traditional Best Buy big box. What’s interesting is that, at that size, the Mobile stores become competition for another small-format electronics store that’s been around for some time: Radio Shack. Because Best Buy Mobile is such a different animal from the traditional 40,000-sq.-ft. to 50,000-sq.-ft. large-format store Best Buy is used to, they will have to become somewhat of a different company. And, while it will be interesting to see if Best Buy Mobile will be able to create a long-term RadioShack-like influence on the marketplace, I do think the Best Buy brand is a powerful enough asset to give RadioShack a run for their money.

Best Buy Mobile stores seem destined to be in all A and B malls (and plenty of power centers as well), as the company continues to focus on sales productivity (per square foot performance). If this is what I think it is — the beginning of a real sea change for Best Buy, and the first of what will likely be many more repositioning moves to come — I think they are doing what they need to do to stay relevant. Ironically, in some ways, the larger stores are victims of the very technology on their shelves: shoppers are increasingly using brick-and-mortar stores as a way to “window shop” for big-ticket items before ultimately purchasing them online.

I think the relative success of the Mobile store format, so far, shows that Best Buy will continue to push the smaller stores as their primary growth vehicle. Do I think Best Buy will abandon the big box completely? No! But I do think they will likely reposition many, perhaps even most of them, to smaller locations. Not quite as small as the Mobile stores, but my guess is they will settle on 15,000 sq. ft. to 20,000 sq. ft. eventually. They’re going to need to present their best-selling products in smaller stores with great locations, becoming both a destination and convenience-based alternative. It’s definitely a strategy that can work: Apple, AT&T and Verizon stores have all proven you don’t need a ton of square footage to drive sales.

The big issue our industry will now face is: What do we do with more vacated big box space? I think the problem remains that there are relatively few 40,000-sq.-ft. to 50,000-sq.-ft. users, and many of those spaces are hard to divide. Retailers like Sprouts might be interested in a portion of that square footage. Or, discounters like TJ Maxx and Marshall’s, but as I’ve mentioned before, they’ve been expanding so much, their current growth potential will be somewhat limited.

To change direction as Best Buy is doing is a monumental task. It is bound to be a slow and time-consuming process. There will be growing pains, or perhaps in this case, “shrinking” pains. But if Best Buy can pull it off, I think they could emerge as a leaner, meaner more competitive company than we’ve seen in awhile.

What do you think? Please make a public comment below or feel free to e-mail me privately at jeff@jeffgreenpartners.com.


 

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