Best Buy rethinks big-box strategy as it records a loss

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On March 29, US-based electronics specialist Best Buy reported staggeringly poor profits for its 2011 financial year.

Charges of $2.6bn (£1.62bn) in the retailer’s fourth quarter were primarily linked to activities with Best Buy Europe – including its UK big-box store failures and the subsequent closure of that business. These activities hit full-year profits as the retailer reported a net loss of $1.23bn (£768.2m) compared with a profit of $1.28bn (£799.2m) in 2010.

Its performance in the past few years has led the retailer to formulate a turnaround strategy for 2012. The company has said it aims to drive sales via the web while improving customer service in its stores in order to create a successful multichannel operation in all markets.

In Best Buy’s domestic market, the retailer is to step away from its traditional big-box format and embrace smaller stores and the online channel.

The company conceded that current consumer trends – such as an increasing proportion of purchases being made online – will make the retailer’s traditional big-box style of retailing uneconomical in the future.

To tackle its profitability woes, Best Buy is planning $800m (£500m) in cost reductions by 2014. As a result, the retailer is to close 50 of its domestic, eponymous big-box stores in the US before March 2013.

It also intends to increase its points of store presence while reducing overall square footage for “increased flexibility in a multichannel environment”.

The retailer therefore aims to remodel key shops under a new concept called Connected Store.

“These changes will also help lower our overall cost structure. We intend to invest some of these cost savings into offering new and improved customer experiences and competitive prices – which will help drive revenue,” said chief executive Brian Dunn.

Fully embracing the step away from a big-box focus strategy, the company also expects to open another 100 US Best Buy Mobile small-format stores and have a total of 600 to 800 such stores by 2015.

By outlining a strategy that focuses on smaller store footprints, more points of presence and a push for ecommerce, Best Buy has highlighted its weaknesses and the struggle its sees ahead for its store network.