Best Buy Shrinks
The leads to the stories generally read as, Best Buy looks to reduce its big-box store square footage by 10 percent during the next three to five years because of expected growth in its online business.
On the surface this sounds like hopeful news. Clearly the world wide web is hotter than ever when it comes to competing in retail. Best Buy competitors are as fierce on line as they are in brick weather they do both or not.
Best Buy’s brick based competition comes in so many forms be it traditional CE, computer and appliance retailers, other types of specialty retailers such as office supply chains, or general merchandisers and discount chains including membership warehouse clubs.
When it comes to traditional CE retailers the steepest competition comes from strong regionals such as BrandsMart
USA in South Florida and Georgia, Fry’s Electronics out West, Texas based ’s covering the Southwest and the aggressively expansion minded, now multi-regional hhgregg. Conn
On the web-based front Best Buy is again confronted by most of the same companies it is fighting on the brick and mortar side of the ledger. Here the competition is even steeper as we add several accomplished Internet-only retailers such as Amazon and Newegg.com and a few local specialty CE brick and mortars which have gained a loyal nationwide following through their websites. Two such legends are
based independents J&R Music & Computer World and B & H Photo, Video & Pro Audio. Both retailers operate destination locations for New Yorkers and those twenty million plus residing in the New York City metropolitan area. Additionally it is not uncommon to visit these stores and get the feeling you are in a popular tourist destination. Daily, there are visitors from around the world eagerly seeking professional advice and purchasing some of the products of their dreams. New York City
Both of these retailers boast very well trained staffs and clear return policies. Certainly as important, both offer the very latest in product at very competitive prices. They also feature selections of products designed for top professionals in areas including digital and traditional photography, audio and video. Even prior to the advent of the Internet B&H’s catalogs and guide books were essentials for enthusiasts nationwide, who relied on mail order when they weren’t able to visit
. The speed and depth of the Internet have only served to increase the loyalty of these retailers’ clientele. New York
Right now it seems that Best Buy is fighting competition on at least as many fronts as any retailer in any field. But how is reducing store size going to abet Best Buy’s competitive ability on the web?
Cutting down on retail selling space should reduce some personnel and real estate costs. If the products being cut out don’t hurt the bottom line, the cuts should make the company at least a bit more profitable. The company initially expects the cuts to generate $80 million in annual savings.
Of course products trimmed from stores should be available online but many shoppers are in stores expecting to walk out with what they came for. Adding the step of then going online to order opens up the spectrum of online competition and takes away Best Buy’s advantage of the immediacy of their store locations. Also some products removed from the sales floor can reduce impulse purchases or trade-ups.
It is doubtful that reducing retail selling square footage is being done to abet any Internet efforts. Any savvy retailer must be carefully coordinating maximum efforts between its web and brick and mortar operations.
It is more likely that the retailer has identified products or categories that are underperforming and which the company sees as having little upside for the future. Over the past few years Best Buy has invested considerably in its Magnolia store-within-a-store concept, added Apple as a quasi store-within-a-store concept, ramped up Best Buy Mobile departments and created specific musical instruments departments. These costly moves also served to eat up retail space.
As to improving web sales, one would hope Best Buy is already doing everything it can in that arena. Here a strong physical store presence can be a positive by offering customers the ability to handle and interact with products, especially new and innovative ones. In-store personnel can offer user knowledge and advice. Pickups and returns can be simplified. These services have become popular with most chains.
Best Buy’s recent financials have been disappointing but not hopeless. The spin put on this latest initiative accents the worst of a questionable financial picture.
Editor’s note: Just days after drafting this Insight, Best Buy revealed that it plans to increase the size of its store reductions to a total of twenty percent per store. Typically this would amount to reductions from about 45,000 square feet to about 36,000 square feet. Further, the company hopes to sublease the resulting vacant space to other merchants including grocers, beauty supply stores and home furnishings retailers.
Almost simultaneously Staples announced its plans to shrink its footprint with smaller stores that cost less to open and operate and reflect the trend of shoppers moving their focus online.
Several years ago Office Depot decided to offer leasing options in some of its stores to non-competing retailers. At the time many saw this as a sign of Office Depot’s financial concerns. Now it seems perhaps they were correctly reading the future.