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Best Buy High On DTV, Pilot Stores, Private Label

Best Buy’s long-term growth will be buoyed by advanced TVs, the Customer Centricity store format, private-label programs, innovative marketing and streamlined operations, the company’s senior managers said during a conference call.

CEO Brad Anderson described the mass adoption of advanced TVs — which will be fueled by price declines of 20 percent to 30 percent this year — as a watershed event in consumer electronics, and said the chain is well-positioned to take advantage of the sea change.

The company is also jazzed over the performance of its 32 demographically targeted Customer Centricity stores, whose second-quarter comparable store sales were more than double that of regular Best Buy stores. An additional 70 locations, all in California, will be converted to the Customer Centricity model by October, including 24 targeted toward small businesses, 16 each for the “family man” and high-end customers, 12 for suburban moms, and 11 for “young, active early adopters,” said Best Buy Stores president Mike Keskey.

Differentiations include an enhanced Geek Squad presence in the Best Buy For Business stores, more interactive product demonstrations in the early adopter stores, an emphasis on personal shoppers and inviting signage in the suburban mom stores, and the presence of Magnolia Audio Video home theater shops within the big spenders’ stores.

Based on the results of the rollout, Best Buy will determine where and how many conversions it will perform next year. The company is also introducing the Customer Centricity strategy in Canada, and is maintaining 18 lab stores in the United States, where it will continue to tinker with the business model, which it described as a work in progress.

Best Buy also announced plans to direct-source a private label Geek Squad program that it will use as a defensive measure in the commodity goods arena to “disintermediate the middleman,” said VP/general merchandise manager Ron Boire. He added that the Geek Squad PC repair service, which was rolled out nationwide last month, has had a direct impact on sales, margin and attachment rates of notebook computers.

Best Buy has also introduced a private-label Insignia brand of direct imported PCs, monitors, LCD TVs and portable DVD players designed to provide a unique value at a price, Boire said.

On the marketing front, the company is targeting customers at the national level, the store level and by customer segment, said chief marketing officer Mike Linton. Planned initiatives include producing differentiated circulars whose pages vary by ZIP Code, while the company is currently experimenting with “putting marketers in the field” at the store level, he said. The latter includes manned Geek Squad booths that have popped up in public areas in several cities.

Linton added that the company’s Reward Zone customer loyalty program is succeeding in spurring sales, increasing attachment rates and endearing the chain to shoppers as a preferred CE destination.

At the same time, Best Buy is lowering costs by outsourcing its IT functions, sharpening its forecasting, and streamlining its supply chain through such measures as receiving floor-ready inventory, said president/chief operating officer Al Lenzmeier.

Lenzmeier noted that the company had completed its “Big Three” reset of the video, home office and digital imaging departments, which now feature expanded assortments of advanced TVs, notebooks and cameras; more solution selling; and “serpentine displays and signage” to increase traffic. Results are promising: Sales of home theater systems and computer and digital imaging products, which he described as “critical growth drivers,” were both up 17 percent in the second quarter, soundly outpacing industry averages.

Looking ahead to the fourth quarter, Boire said that the company is “placing bets” on its “Big Six” core categories: home theater, notebooks, DTV, digital imaging, entertainment and MP3 players.