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Best Buy Proceeding With Plans For No-Inventory Majap Model

NAPLES, FLA. -Best Buy is pushing ahead with plans to move its major appliance business to an inventory-free model.

The approach would mirror elements of GE’s arrangements with The Home Depot and Wal-Mart, in which the manufacturer has assumed responsibility for warehousing the retailers’ white-goods inventories.

According to Allen Lenzmeier, president of Best Buy retail stores, the chain is pursuing a just-in-time inventory plan with its majap vendors, including Maytag and Whirlpool.

Speaking at a 2001 Consumer Growth Conference sponsored here last month by investment banker Deutsche Banc Alex. Brown, Lenzmeier said, “We’re going to be working with our major vendors on the back end in terms of rationalizing the distribution system and eventually going to a just-in-time inventory, where we hope to do away with a lot of our distribution infrastructure and really improve the inventory turns.”

Best Buy began exploring its white-goods warehousing options last year with an eye toward the GE/Home Depot model after Circuit City exited the category, citing its excessive overhead.

As Wade Fenn, then executive VP/marketing, told TWICE last fall, “There are partnering opportunities between us and suppliers and carriers to contain the cost of warehousing and deliveries, to do it more efficiently. All of the manufacturers have the logistical capabilities. There are ways to cooperate there to drive better asset leverage.” (See TWICE, Oct. 9, 2000, p. 16.)

Lenzmeier said the inventory effort would take about two years to fully implement and was designed to increase profitability on what for Best Buy remains a low-margin category. “It’s the lowest profit contributor,” he told investors, adding nevertheless, “We do intend to stay in the business.”

Best Buy maintains 16 warehouses nationwide that house its major appliance inventory and employ approximately 800 workers. Lenzmeier added that Best Buy is now neck-and-neck in majap market share with Lowe’s. The home-improvement chain continues to lay claim to the No. 2 spot behind Sears, although the appliance departures of Circuit City, Wards and Roberds have clearly stirred the white-goods pot at retail.