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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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