Best Buy plans to trim $800 million off its costs by 2015, starting by slashing… (David Paul Morris, Bloomberg )
After a disappointing holiday season, electronics big-box giant Best Buy Co.is paring operations, closing 50 of its superstores and shrinking the size of others.
Reporting losses for the fourth quarter and last fiscal year, the struggling firm laid out plans Thursday to focus on opening smaller-format stores and revamped superstores that are 20% smaller.
The downsizing effort has been underway for months. Last year, the giant retailer, which has about 1,400 stores nationwide, launched plans to wall off parts of its enormous stores and sublet space to smaller retailers such as beauty salons and grocery stores.
Best Buy plans to trim $800 million off its costs by 2015, starting by slashing $250 million in the current fiscal year. The company's plans include cutting 400 jobs.
Next year, the company said, it will open 100 small-scale Best Buy Mobile stores, which are devoted to selling smartphones and tablets, on top of the 305 already open. By 2016, the store total will rise to as many as 800.
Best Buy is also revamping its big-box model by rolling out more petite Connected Stores in San Antonio; St. Paul, Minn.; and Best Buy's hometown of Minneapolis this year. Employees will focus on selling e-readers, tablet computers, cellphones and service plans, with expanded services from its Geek Squad repair teams.
"Our intention is to leverage our square footage and have more distribution points for our customers," Chief Executive Brian Dunn said during a teleconference call with analysts Thursday. "We're clearly going to have more doors and less square footage."
The shrinking of Best Buy, which survived the consumer electronics shake-up that killed former rivals such as Circuit City, is yet another symptom of a retail landscape that's fast changing, analysts said.
The rise of online shopping, a fading market for DVDs and CDs and the popularity of price-comparison apps on smartphones have forced traditional retailers to go nimble and small.
"As the Internet has become a bigger part of the retail business, stores must shrink," said David Strasser, a retail analyst at Janney Montgomery Scott. "Ideally, stores can be smaller, carry less product and can still have a bigger market share."
Strasser called it "the hub and spoke strategy." That means fewer hubs, or big-box stores, and more spokes, or small-format stores that can be plunked into more diverse neighborhoods.
For retailers, smaller stores reduce cost, require less capital investment and usually pull in higher sales per square foot, analysts said.
"Right-sizing the fleet of stores and pursuing a smaller format to a greater degree is just better economics," said Matt Arnold, a consumer analyst at Edward Jones & Co. "It has to be done."
Some analysts predicted that Best Buy will target even more stores for closure in the future and redirect savings into keeping prices competitive with rivals such as Amazon.
Compared with groceries and apparel, consumer electronics are "more exposed" to online competition, Arnold said. "It's the harsh reality that the way you go about addressing online competitors is make sure you are price competitive."
For the quarter that ended March 3, Best Buy reported a $1.7-billion loss, or a loss of $4.89 a share, compared with a $651-million profit, or $1.62, a year earlier. But without the company's $2.6 billion in one-time charges, adjusted earnings for the quarter were $2.47 a share.
Revenue was up 3% to $16.6 billion, but analysts had expected more than $1billion on top of that. Same-store sales at locations open more than a year tumbled 2.4%.
Over the full fiscal year, Best Buy lost $1.2 billion, or $3.36 a share. That compares with a $1.3-billion profit, or $3.08, a year earlier. Revenue increased 2% to $50.7 billion, although same-store sales were down 1.7%.
Shares of Best Buy fell $1.85, or 6.95%, to $24.77 on Thursday.
Best Buy spokeswoman Kelly Groehler said that store closures had not been finalized, and that specific locations and timing will be released at a later date.