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Best Buy Launching Programs To Grow Share

Best Buy’s newly appointed CEO Brian Dunn wasn’t kidding when he called the company “restless” during last month’s annual shareholders meeting (see p. 16).

Plans are underway to radically alter the layout of the chain’s stores in order to emphasize services and make room for new product categories.

At the same time, the retailer has taken an aggressive new tack in its advertising, has added a mobile element to its marketing, and will open 40 freestanding Best Buy Mobile stores this fiscal year.

The initiatives are designed to tighten Best Buy’s grip on the CE marketplace. According to chief financial officer Jim Muehlbauer, the retailer’s market share currently stands at 21 percent to 22 percent overall — up 2 percentage points in the last quarter — while it controls approximately one-third of U.S. sell-through in the flat-panel, notebook and digital imaging categories.

According to a report by Credit Suisse retail analyst Gary Balter based on discussions with management, Best Buy plans to move its Geek Squad stations to the center of the sales floor and surround them with room vignettes that demonstrate the capabilities of converged products.

The new store model could also accommodate new product categories that are currently being tested, including exercise equipment, motorized bikes, musical instruments and, most recently, used videos.

The company is also re-evaluating its current space allocations, Balter noted.

Best Buy is expected to test the new layout later this year and begin rolling it out in 2010.

The new store design underscores the retailer’s intention to emphasize service- and subscription-based revenue, as reflected in its recent investments in Napster and a venture fund called Fuse that will bankroll the development of digital content applications.

“We have become a service business that has retail stores, not a retailer that provides service,” Balter quoted Bob Willett, CEO of Best Buy International and former chief information officer.

On the product front, used video game software is the latest category to be tested by the company, which launched a pilot program late last month in Texas.

According to a blog post by Best Buy chief marketing officer Barry Judge, several stores in Dallas and Austin have begun selling used games and have installed automated kiosks that accept used titles. Consumers can insert their games into the machines, which will scan them for functionality and issue vouchers that can be immediately redeemed for Best Buy gift cards.

Some of the kiosks, which are supplied by Columbus, Ohio-based E-Play, will also dispense rental games and movies.

Walmart began testing a similar self-serve program with E-Play in 77 New England stores in May, according to TWICE sister publication Video Business.

Best Buy hopes to tap into the popular video game trade-in market while boosting sales of new products — a model that was successfully developed by GameStop and later emulated by RadioShack. The latter accepts used cellphones, MP3 players, digital cameras and other devices in addition to gaming hardware and software in exchange for RadioShack gift cards.

Meanwhile, Judge has turned up the heat in Best Buy’s advertising by taking direct aim at Walmart in the latest installment of its True Stories series of Blue Shirt testimonials.

In it, sales associate Rachel Munoz from store No. 1473 in McAllen, Texas, recounts the time a shopper called from a Walmart with questions about flat-panel TVs.

“You’re obviously calling us because we’re knowledgeable,” she tells him — the unspoken corollary being that Walmart is not. “And we’ve got the price match guarantee. So why don’t you come on in and we’ll get you set up with exactly what you need?”

Judge downplayed the challenge, noting that “It’s just part of the True Stories campaign and a great way to show, in a very humble way, that our prices are just as good as Walmart’s.”

Indeed, of the 90 SKUs that both retailers carry, Best Buy matched or bested Walmart’s prices on 70, and later readjusted the remaining 20, Judge told TWICE.

The bigger message, he explained, is one of support and service. “It’s all about how we can help consumers get their technology dreams fulfilled.”

Best Buy made that even easier last month by adding SMS codes to its Sunday circulars, enabling customers to text and receive additional product information on their mobile phones. “The mobile channel is a big opportunity for marketers,” Judge said. “Every ad can be a response ad.”