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Best Buy Details Growth Plans

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 day-long 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

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 online-only SKUs, launching a Marketplace for third-party
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 e-sales 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 low-cost “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 big-box 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.”