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Best Buy Eyes Major Growth In Digital Sales

MINNEAPOLIS — Setting its sights on augmenting its competitive advantage in the coming months, Best Buy continues to whet customers’ appetites for more highly technical and profitable digital products.

Digital merchandise alone accounted for a 10 percent share of Best Buy’s product mix in the first fiscal quarter ended May 27 – double the share of the same quarter a year ago. Digital revenues as a percentage of sales mix are expected to grow to 14 percent by the end of the current fiscal year, with the projected compound average growth rate pegged at 84 percent year over year.

During a question-and-answer analyst phone conference tied to the retailer’s annual meeting held here last week, Best Buy said it will concentrate its digital growth through its Solutions Group – primarily in wireless, broadband and narrowband technology, interactive television and bundled solutions.

Overall, Best Buy said it plans to drive market-share gains through its product assortment by optimizing key categories, improving its in-stock situation and increasing sales of high-tech categories. The retailer is upbeat about high-tech sales possibilities, primarily because the number of technical enthusiasts among its customer base is estimated at a 2-to-1 ratio over its next closest retail competitor in the markets it serves.

“We’re looking to focus our position on technology as this relates to life centers – by keying on the customer’s comfort level, not just low price,” said Dick Schulze, chairman/CEO of the nation’s largest consumer electronics retailer. When combining the chain’s newly launched with its brick & mortar locations, Schulze said, “we’re offering customers a seamless experience, where a customer can get a product anytime, anywhere.”

Looking at categories beyond consumer electronics, Best Buy said it experienced positive comps for personal computers in the first fiscal quarter, with overall PC sales flat as prices of product stabilized.

In major appliances, the chain reported flat sales for the first quarter, but it remains enthusiastic about the potential for increasing its white goods share in coming quarters.

There is concern about the commodity situation in the category, said the retailer. But because of new technology, such as a kitchen portal and the tie-in of major appliances to the Internet, Best Buy said there also is a huge opportunity. This would allow the chain to add value and raise average price points in a year or two by differentiating its product offering, which would give it a competitive advantage in its markets, Best Buy said.

The evolution at Best Buy from brick & mortar to e-commerce, and the opening of its website in mid-June, stems in part from the fact that 75 percent of the retailer’s customers are connected to the Internet, about two times the number in the general public, the retailer said.

There is real opportunity for to give access to certain categories, and to attract consumers who don’t purchase through retail stores, the company said. The volume accounted for by these customers should help the chain gain market share.

Initially, consumer electronics and entertainment software will be the primary products sold online, but with Best Buy’s recent alliance with Microsoft, the two will be working closely, looking at the market for new devices that could be available this fall or next spring. This includes wireless and PC products.

The retailer is also exploring overseas growth and the possibility of expanding globally in the long term, Schulze said.

Back home, Best Buy said it plans to open 40 new stores in the third quarter – 14 new units in the New York City market alone. Two stores announced for a fall opening will be located in the Seattle area, the first for Best Buy in this market.