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Best Buy’s ‘Red Friday’

Despite the margin hit on Black Friday, which executives more accurately referred to as “Red Friday,” Best Buy had the busiest shopping day in its history, with about 3 million customers visiting its flagship stores. Of those, said president Brian Dunn, 1.5 million were among the chain’s most profitable customers, 270,000 were new customers and 250,000 were members of Best Buy’s Reward Zone loyalty program.

CEO Brad Anderson acknowledged that engaging in the post-Thanksgiving promotions “made no economic sense,” but determined from a customer-centric perspective that “losing the weekend would have an elongated impact.” To ensure a positive experience for its early-bird shoppers, the company prepared for Black Friday by investing in its store personnel and infrastructure, said executive VP Tim McGeehan. Measures included increased incentives and vendor training for sales associates, supply chain improvements that resulted in Black Friday in-stocks of 99 percent, posting holiday circulars online and improving the site’s search engine.

Also easing the early morning crush was the use of store maps, color-coded balloons, on-time openings and product tickets that guaranteed a purchase for those waiting in line, plus an e-commerce site that held up to quadruple spikes in traffic. “Customers said it made it worth camping out,” McGeehan said.

Dunn, who visited the Eden Prairie, Minn., headquarters store at 4:30 a.m. along with 2,000 customers, said that instead of pandemonium, “the shelves were stacked, the store looked great, the checkout line moved with amazing speed and the execution hummed,” in a scenario that was repeated across the country.

As a result, noted chief financial officer Darren Jackson, comp-store sales grew by the double digits Thanksgiving weekend, on top of last year’s double-digit gain. Despite the earnings “speed bump,” which was caused in part by “a more intense promotional environment in home theater and notebook computers than last year, CE is the focus on the holidays,” he said, “and we had to respond to steep promotions because of the name that’s over our doors.”

On the product front, flat-panel TVs experienced a “very strong” double-digit comp-store sales gain for the quarter due to higher unit volume as prices declined, improved assortment in larger screen sizes, and the addition of 136 more Magnolia Home Theater shops and 89 remodeled TV departments, the company said. At the same time, comp sales of direct-view and rear-projection TVs declined.

Comp sales for the home office category were flat, with double-digit gains in notebook sales, and added lift from Geek Squad services, offset by low double-digit declines in desktop computers.

Video gaming saw a “solid double-digit” gain on strong sales of new (PlayStation3 and Wii) and existing platforms, but was partially offset by declines in CD and DVD sales.

Comps declined 4.6 percent in major appliances amid industrywide weakness, although increases in average selling prices (ASPs) helped boost majaps to 8 percent of Best Buy’s revenue mix, up from 6 percent last year. Best Buy believes its white-good market share increased in the third quarter.