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Best Buy Details Strategic Growth Plans

4/18/2011 12:01:00 AM Eastern
MINNEAPOLIS – Best Buy will focus on a profitable mix of accessories, subscriptions, content delivery and services, and will reduce its big-box real estate by 10 percent over the next three to five years, as part of an aggressive plan to build its business.

The strategic growth strategy, outlined last month during a fourth-quarter earnings call, was presented in finer detail to financial analysts last week in a daylong meeting at Best Buy headquarters. The event, the first in three years, was called to help calm investor concerns over declining same-store sales and market share gains by Amazon.com.

A chief pillar of the plan is to capitalize on the estimated $420 billion market for accessories, support services and subscriptions for mobile, broadband, cable/satellite and digitally-delivered content services, which is two-and-a-half times greater than the traditional CE hardware business.

According to Americas co-president Mike Vitelli, layering those offerings atop a hardware backbone of TVs, computers and mobile phones could multiply gross profits per transaction six fold. The company is already projecting that it will sell 10 million mobile phone, home and mobile broadband, and video service contracts during its current fiscal year.

Best Buy also plans to double its $2 billion online business in the U.S. within three to five years by adding competitively priced onlineonly SKUs, launching a Marketplace for thirdparty sellers this fall, and selling its products and services through outside partners including loyalty programs at Citibank and Chase.

But CEO Brian Dunn stressed that fulfilling customer needs requires a multichannel channel solution that includes physical stores as well as an online presence. He added that e-commerce taxation is gaining momentum on the state level and will become a national issue after Illinois Sen. Dick Durban introduces esales tax legislation. “It’s just a matter of time before the playing field is leveled,” he said.

On the store front, the company is building out its small-format Best Buy Mobile chain to upwards of 800 stand-alone shops within five years, and will reduce its big-box real estate by 10 percent by sub-leasing space, moving to smaller locations, and closing a small number of stores.

Co-Americas president Shari Ballard said the company is also experimenting with lowcost “smaller revenue” stores with reduced assortments and staff, while moving ahead with its Connected Store pilot in Las Vegas and Pittsburgh. The prototypes, which were designed to demo connected products and services, are 10 percent smaller than Best Buy’s flagship stores while generating comparable revenue, and feature interactive “experience stations,” 32-inch touch-screen kiosks and iPad-equipped sale staff. Operational elements, such as cross-category training for associates, will be carried to 1,000 stores this year, Ballard said.

In addition, the retailer will create a Tablet Central tablet department within 1,099 bigbox and Best Buy Mobile stores, and is expanding its test of Pacific Sales in-store appliance departments from eight to 30 stores next year. Described by Dunn as the appliance corollary to in-store Magnolia shops, at least one Pac Sales department boosted majap store revenue from $3.5 million to $10 million, Vitelli said, and could conceivably double Best Buy’s white-goods business. The company will also employ the departments’ labor and operating model in 350 big-box stores.

Dunn added that the company intends to live up to its name, and will use “a highly dynamic pricing strategy to communicate how competitive we are.”
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