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Best Buy Beginning Store-Tailored Assortments

With new system-wide strategic initiatives starting to gain traction as reflected in solid first-quarter results (see p. 1), Best Buy is pressing its lead by laying in further refinements to its business plan.

The new efforts include tailored market assortments that are edited on the store level to suit the demographics of individual markets, plus a renewed focus on employee retention, which ultimately impacts customer loyalty and the in-store experience.

In a conference call that followed the release of Best Buy’s first-quarter earnings earlier this month, retail sales president Brian Dunn said that up to 20 percent of product categories could be differentiated by local market by year’s end. The plan, which began this quarter, will give individual stores control over between 10 percent and 30 percent of the products they pull. The tailored assortments would allow individual stores to better meet the needs of their customers, while further empowering employees by driving key decision-making processes down to the regional and local levels.

Any quantifiable impact from tailored assortments would be 12 months to 18 months away, added CFO Darren Jackson.

“Meeting customer needs is a phenomenal opportunity, and the size of the prize is much larger than simply selling consumer electronics,” Dunn said.

The corollary of Best Buy’s customer centricity initiative is employee empowerment, as the company seeks to promote a “higher level of engagement of employees with their stores and customers,” said CEO Brad Anderson. To help retain associates — and recoup its investment in added training at segmented stores — the retailer is rethinking its incentive system, Anderson said.

These performance incentives could take the form of new job opportunities, the development of new skill sets, and more varied career paths within the company as Best Buy embarks on new service offerings, Anderson noted.

The store-level emphasis is having a palpable impact on results, allowing Best Buy to lessen its dependence on promotional pricing thanks to higher close rates and “better sales,” said general merchandise manager Ron Boire. The enhanced store-level execution, combined with sharper forecasting, improved in-stocks (particularly of high-margin accessories), more direct-sourced and private label goods, and the use of price-optimization software is allowing the chain to make “more rational [pricing] decisions,” Boire said. “We’re leading it in retail.”

Boire added that he still expects to see increased pricing pressure in the back half of the year, particularly in flat-panel displays, although projected price declines are easing from earlier estimates of 35 percent.

Business metrics are even more promising at the company’s first wave of customer centric stores in California, where comp sales of 9 percent or better are double those of non-segmented stores. The early results have spurred Best Buy to expedite the changeover to the new model: all U.S. stores will focus on at least one customer segment this year, and all Best Buy stores will be converted by the beginning of 2008.