Best Buy Co.’s days as a big-box dynamo are ending. The company already has shuttered six big stores in metro Chicago this year; for many more, this may well be the final holiday season. Depending on how many go dark after the year-end spendathon, Chicago-area shopping centers could be left with hundreds of thousands of empty square feet, even as some still struggle to refill space abandoned by other dying or dead chain stores.
In place of its conventional stores, Best Buy is opening 100 smaller “mobile” stores with an emphasis on smartphones and tablets. Fifteen are in Illinois, including 10 in the suburbs. Elsewhere, the company is testing a reinvention of current stores approximating an Apple Store experience by showcasing its software-savvy Geek Squad technicians. Best Buy has invested 50,000 hours in training employees on Microsoft Corp.’s new Windows 8 operating system alone, a spokesman says.
And to boost holiday sales—though at the expense of profits—the retailer will match competitors’ prices on electronics and appliances, reducing “showrooming,” in which customers browse in real life at Best Buy but purchase from cheaper online outlets.
‘FLAILING’
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Analysts and consultants say the moves will help Best Buy make it into 2013. But many say that in the longer run, the money-losing company has less and less reason to exist. Consumers can find whatever Best Buy stocks at other brick-and-mortar locations or e-tailers like Amazon.com Inc. Its web revenue lags behind not only Wal-Mart Stores Inc. but Sears Holdings Corp.
“They’re going to survive the holiday season only because the holiday season is a gimme,” says James Schrager, a professor of entrepreneurship and strategy at the University of Chicago’s Booth School of Business. “You can’t go to a restaurant on a Saturday night to decide if it’s doing well, and you can’t judge a retailer on the holiday period. You have to visit the restaurant on a Tuesday, and you have to look at the retailer in January, February and March.”
“The company,” says Larry Downes, a technology strategy expert in Menlo Park, Calif., and author who has written critically of Best Buy, “is flailing.”
Investors agree. Best Buy’s shares hit a multiyear low of $14.69 on Friday, down 75 percent from their all-time high of $58.72 in April 2006.
Best Buy, based outside Minneapolis in Richfield, Minn., has been a corporate soap opera lately. Twenty-eight-year company veteran Brian Dunn resigned as CEO in April after an investigation into his personal relationship with a 20-something subordinate. He was succeeded by Hubert Joly, regarded as a turnaround artist. Now founder and former CEO Richard Schulze, who quit as chairman in the scandal’s aftermath, is trying to buy his company back.
The C-suite drama overshadows the $50.7 billion retailer’s real problems. Best Buy was the nation’s undisputed top outlet for electronics, especially after its nearest rival, Circuit City Inc., went out of business in 2009. Instead of evolving into an Internet retailer, however, Best Buy continued to construct more big boxes, hitting 1,100 this year. The building binge included Illinois. From fiscal 2006 to 2012, which ended March 3, the company boosted its Illinois store count to 58 from 42, the fourth-biggest total in the U.S.
BAND-AIDS
The company finally faced the music last spring, announcing it would shutter 50 big stores, including six in Illinois, and lay off 400 employees to cut costs by $800 million after posting a $1.2 billion annual loss.
But the closings and store reconfigurations are half-measures, says R.J. Hottovy, director of global consumer equity research at Chicago-based Morningstar Inc. “At one point, CDs and DVDs were 20 to 30 percent of its square footage, so it should look at reducing its overall square footage by at least that much, take those savings and invest them in (creating) more price parity with some of the online merchants,” he says.
Best Buy also must figure out how to win back leverage with electronics manufacturers. The makers of this year’s hottest items—smartphones and tab-lets—have turned into Best Buy competitors by selling the goods themselves. Apple Inc. barely gave any iPhone 5s to Best Buy, while Microsoft is offering its new Surface tablet only through its own stores and website.
Last year, local landlords got stuck with 30 empty stores as book retailer Borders Group Inc. went belly up. Some still are vacant. They should ready more “for lease” signs for Best Buy properties.