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Best Buy To Scale Down Stores, Scale Up Online Presence

April 15, 2011

Best Buy, looking to win back market share from rivals including Wal-Mart and Amazon, plans to open hundreds of smaller mobile outlets reaching as far as China and even expand its online presence.

The largest US electronics retailer plans to shrink the size of its retail outlets by 10 percent over the next several years hoping to save more than $70 million annually.

The news follows concerns by investors about the retailer’s massive overhead costs and oversized stores at a time when many consumers are buying their gadgets online.

Best Buy has reported three straight quarters of same-store sales declines and also forecast a decline in the current quarter as well.

“The online channel is our greatest growth opportunity,” Chief Executive Brian Dunn told investors and analysts in a meeting on Thursday at the company’s corporate headquarters in Richfield, Minnesota.

Meanwhile, the retailer would like to have 200 mobile stand-alone stores open in the US by July 4 and up to 800 within five years, executives said at the conference.

Best Buy also said it wants to double its current $2 billion online business within 3 to 5 years.

As shoppers increasingly buy electronics online and competition from large discounters like Target and Wal-Mart continue to dominate the market, Big-box outlets like Best Buy are becoming obsolete. The company has been trying to revamp its strategy to improve results, avoiding a similar fate of its one-time main rival Circuit City, which went out of business in 2009.

Best Buy is placing its bets on mobile stores that will help reverse its falling net income. They have proven more profitable than the company’s traditional Big-box outlets because of the popularity of smartphones and sales of add-ons that go with them.

Industry experts have urged the electronics retailer to shrink down its stores for a while now.

“These (large format) stores were built for another era in consumer electronics retailing,” Craig Johnson, president of Customer Growth Partners told Reuters last week. “These stores, unless they are radically reconfigured or shrunk, are white elephants.”

Dunn, however, defended its brick-and-mortar traditions.

“Stores … augment the online presence,” said Dunn, highlighting the importance of knowledgeable customer service experts that are there when customers need them. It is an important part of our strategy, because service matters,” he said.

The retailer also plans to invest more in its Chinese brand — Five Star — looking to more than double its revenue in China to $4 billion within five years, and adding 400 to 500 stores in the same timeframe.

Best Buy is expanding its appliance and video game selections in its stores, and is now taking orders for new games before their release dates, and is also buying and selling used games. It is also consolidating tablet computers in area of the store.

The electronics retailer is also testing “connected stores” where employees put more emphasis on services and connections they can offer customers.

Addressing analysts, Dunn said the company plans to be competitive on pricing and use different pricing strategies depending on the item and where it’s being sold. “The name of our enterprise is ‘Best Buy’ and we fully intend to live up to that name,” he said.

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