Best Buy Cites Soft CE Climate; Rolling Out Apple Shops

By Alan Wolf -- TWICE, 6/19/2007 9:29:00 AM

Minneapolis – Despite its dominant marketplace position, Best Buy is also feeling the pressure of a soft retail environment, executives conceded during a first-quarter conference call this morning.

Senior management described the industry-wide downturn as a temporary setback rather than a souring on CE by consumers, and said the retailer’s wide product selection and suite of in-store and at-home services will help it gain further share during the dip.

“When the market is soft, great companies pick up market share,” said president/COO Brian Dunn. “Our market share is already at an all-time high … [and] the marketplace has never been more competitive.”

Dunn also announced that the company will expand its Apple store-within-a-store program to 300 additional Best Buy locations in time for the holiday selling season. Best Buy began testing the concept last year, which groups Mac desktops, notebooks, software and accessories within a dedicated area of stores’ PC departments.

During the call, executive VP/CFO Darren Jackson described the soft retail environment as “an industry pause,” and cited a considerable slowdown in TV sales beginning after Super Bowl as consumers defer their flat-panel TV purchases until the fall.

Dunn attributed industry weakness to high gas prices and overzealous promotions during the holiday selling season. “The consumer hit the pause button, but we may have fast-forwarded the business,” he said, leading to what he described as the first industry-wide interruption in the past six years.

Mike Vitelli, senior VP for CE and product management, added that last January was perhaps the best month ever for TV sales and suggested consumers were merely taking a breather until the start of football season. He dismissed an analyst’s suggestion that 1,080p TVs were siphoning off sales of 720p models, noting that both technologies have a place in the mix and serve the needs of different customers.

TV pricing has remained relatively stable, Vitelli added, and praised the company for pulling off “one of the largest TV transitions ever” during the quarter, as four core vendors shipped their new lines almost simultaneously, and Best Buy stocked its stores with 80 new SKUs in a matter of weeks.

Vitelli also described wireless HDTV technology as “science lab level at this point,” as broadband capacity in most households is currently incapable of delivering an HD signal.

On the issue of market share shifts, Vitelli said that major appliances represent an especially ripe opportunity for Best Buy, as close to $1 billion in majap revenue is changing hands. The chain, he said, is well-positioned in that category thanks to specialized sales associates who have enhanced the shopping experience.

Customer support services, including Geek Squad, will also help Best Buy increase market share and profitability, Dunn added, citing the aforementioned wireless TV and, on the PC side, the shortening of Moore’s Law from 18 to 10 months. “There are staggering increases in capability,” he said, “and staggering increases in [consumer] confusion,” which plays into Best Buy’s services strategy.