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Best Buy Begins Rolling Out Customer-Centric Stores

4/19/2004 02:00:00 AM Eastern

Best Buy has seen the future of the $25 billion company and it is customer centricity.

The concept, which has been tested and refined in 32 laboratory stores and will be rolled out to 100 additional locations this year, is a revolutionary approach to retailing that tailors individual stores to key demographic groups. A quantum leap beyond regional merchandising, in which assortments are modified to reflect local tastes and needs, the customer-centricity pilot stores are reportedly customized top to bottom to appeal to a select portfolio of Best Buy's most profitable customer segments.

Though largely indistinguishable from the outside, the prototypes feature distinct fixtures, flooring, signage, background music, services and even sales floor uniforms, according to retail securities analyst Aram Rubinson, whose team at Banc of America Securities recently visited nine of the test stores.

Best Buy itself has provided few details about their workings, although it plans to unveil one of its Los Angeles locations to analysts on May 4. In a conference call this month, chief financial officer Darren Jackson allowed that the lab stores led the company in comparable sales and gross margins by boosting productivity and engendering customer loyalty.

"We're segmenting our customer base and stores by need and profitability," explained Mike Keskey, president of Best Buy Stores, whose "sole focus" this year is customer centricity. The concept has been carefully studied and tested over the past 10 months, he said, and the stores' best practices and most productive segments will be carried over to the 100 new conversions. While management still has "a lot of learning to do," he added, "We clearly intend to accelerate the rollout and can meet a total rollout in three years."

Keskey described the program as "very complex and not easy to copy." While it requires some degree of remodeling and capital investment — total fourth quarter expenditures were about $34 million — he said the biggest investment is not in hardware but intellectual capital. "The biggest bang comes from the store employees," who are being instilled with an "owner/operator mentality" as decision-making is moved to the customer level, he told analysts.

Banc of America's Rubinson was able to discern five distinct store types during his nine-unit tour, which catered to, by his description, "affluent soccer moms," "swinging single professionals," "cherry pickers," gadgeteers" and "small business." His observations follow:

Soccer mom: These stores featured brightly colored signage, play areas for children, educational toys, in-wall appliance displays and provided personal shopping assistants.

Swinging single: These stores placed greater emphasis on higher-end and more cutting edge CE, and featured separate rooms with full home entertainment vignettes and enhanced A/V assistance.

Cherry picker: Aimed at technophiles on a budget, these stores appeared to offer the most promotions and incentives, and the best financing packages.

Gadgeteer: Geared toward teens and twenty-somethings, these stores emphasized cellphones, music and movies, home theater, gaming and mobile audio.

Small business: Signed "Best Buy for Business," these stores have an expanded computer section and Geek Squad presence, plus central help islands staffed by associates wearing blue collared (vs. knitted golf) shirts.

Rubinson lauded Best Buy for changing and innovating rather than resting on its already substantial laurels, and said customer centricity represents the kind of "ground-breaking stuff" that separates good retailers from great ones.

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