best buy store closing
Revenue in the three months ended March 3 rose to $16.6 billion, Richfield, Minnesota-based Best Buy said today in a statement. The average estimate of 19 analysts surveyed by Bloomberg was $17.1 billion.
Chief Executive Officer Brian Dunn trimmed discounts after the holiday shopping season, sacrificing sales to maintain profitability, and is now accelerating efforts to spur growth. He’s closing large stores, cutting jobs and adding 100 smaller- format Best Buy Mobile stores in the U.S. in this fiscal year.
“I believe I absolutely am the right person to lead the company forward,” said Dunn, 52, in a telephone interview. “I’m really not spending a lot of time looking in my rearview mirror. I believe wholeheartedly in what we are doing. I know that we can create an experience that is second to none for our customers.”
Investor discontent may increase if Dunn can’t revive financial results in time for the upcoming holiday season, according to Matt Arnold, an analyst at Edward Jones & Co. in Des Peres, Missouri. He recommends buying Best Buy shares.
“There is discontent among investors, no doubt about that,” Arnold said in a telephone interview. “If the company doesn’t demonstrate progress, that conversation becomes more real. Investors will definitely be watching most closely come holiday time given its seasonal importance and the realistic time frame that a lot of these things won’t be fully in place before then.”
Shares Fall
Excluding some items, fourth-quarter profit was $2.47 a share. That topped the $2.15 average estimate (BBY) of 24 analysts surveyed by Bloomberg.
Best Buy fell 6.9 percent to $24.77 at the close in New York. The shares (BBY) have gained 6 percent this year.
The company incurred charges of $2.6 billion in the fourth quarter related to the writeoff of Best Buy Europe’s goodwill and costs from its purchase of Carphone Warehouse Group Plc (CPW)’s share of their U.S. mobile-phone joint venture. As a result, Best Buy posted a net loss of $1.7 billion, or $4.89 a share, compared with net income of $651 million, or $1.62 a share, a year earlier.
The closing of the 50 big-box stores in the U.S., where Best Buy operates about 1,100, is part of planned cost cuts totaling $800 million in the next three years, including $250 million this year. The retailer closed 11 big-box stores in the U.K. last year as well as outlets in Turkey and Shanghai, Dunn said today on a conference call with analysts.
Job Cuts
Best Buy also said it is cutting about 400 jobs in its corporate and support areas and reducing the use of outside consulting services. The savings will go toward a 40 percent increase in employee training and other steps to boost growth such as opening more mobile-phone outlets, Dunn said on the call.
The retailer will expand its Best Buy Mobile stores to 600 to 800 outlets by its fiscal 2016 from 305 now as part of Dunn’s plan to generate revenue from warranties, accessories and connections between phones, tablets and other electronics.
The retailer projected full-year profit (BBY) excluding some items of $3.50 a share to $3.80 a share. Analysts’ average estimate was $3.70.
In an email to the Orlando Sentinel, Best Buy officials said he company will "announce details about specific store locations and timing for closings once they are finalized."Faced with a stubborn slide in sales at its U.S. stores, Best Buy Co. Inc. on Thursday announced its steepest round of cuts: closure of 50 big box stores and elimination of 400 positions at its corporate headquarters in Richfield, Minn. Officials did not reveal which stores are on the chopping block.The company also didn't disclose how many store employees will lose their jobs, but that number will likely be in the thousands since each store employs roughly 100 workers, including so-called Blue Shirts and Geek Squad technicians.
Best Buy, once known as the undisputed discount king of consumer electronics, has been struggling to find its place in a world dominated by flashy high-end brand temples like Apple Stores and low-cost Internet retailers like Amazon. Customers have been increasingly migrating online where they often find better deals, forcing Best Buy to figure out a reason why shoppers would need to visit an actual store.The company also didn't disclose how many store employees will lose their jobs, but that number will likely be in the thousands since each store employs roughly 100 workers, including so-called Blue Shirts and Geek Squad technicians.
Best Buy, once known as the undisputed discount king of consumer electronics, has been struggling to find its place in a world dominated by flashy high-end brand temples like Apple Stores and low-cost Internet retailers like Amazon. Customers have been increasingly migrating online where they often find better deals, forcing Best Buy to figure out a reason why shoppers would need to visit an actual store.Last year, Best Buy lost a staggering $1.2 billion as it deeply discounted merchandise to keep pace with rivals Amazon and Wal-Mart.
All in all, the company hopes Best Buy closings will save $800 million over the next three years, savings the company plans to use to fund its new "connected" store remodels, international expansion and digital services. But even CEO Brian Dunn admits the company's efforts to remake itself are fraught with frustration and uncertainty.
"I'm not satisfied," Dunn told the Star Tribune in Minneapolis.
"We have a long (history) of transforming ourselves to be where the customers need to be," he said. However, "I need more information."
For example, the company plans to reduce its retail square footage in the Minneapolis-St. Paul area and San Antonio by 20 percent this year. Instead, Best Buy will remodel its big boxes with smaller "connected stores" that focus more on high-level service. Will Best Buy customers like the new format, shop more online, or simply go to Wal-Mart or Target? Dunn wants to know.
Given the severity of Best Buy's problems, however, some experts wonder how long it will take for Best Buy's strategies to work, if they do.
Things are not going to get any easier in 2012, said Jeremy Brunelli, an analyst with Consumer Edge Research, a firm based in Stamford, Conn. He noted Best Buy now expects sales at stores open for at least a year, a key growth number for retailers, to fall between 2 and 4 percent this year, compared to its earlier estimate of a 1 percent decline.
Brunelli said he believes there is a growing disconnect between Wall Street and Best Buy. While Dunn believes the company should prepare for the future, investors believe Best Buy is better off just returning that $800 million in cost savings to shareholders, not exactly a vote of confidence in the company's prospects, he said.
Indeed, Best Buy stock fell nearly 7 percent, or $1.85, to close Thursday at $24.77.
But Dunn remains optimistic, noting Best Buy still boasts plenty of cash and a highly trained workforce.
"When I see our Blue Shirts talking to customers, I like our chances very much," he said.
What Best Buy needs to figure out is how those Blue Shirts will operate in the fast changing retail environment Dunn calls the "new normal."
In truth, Best Buy's plan to close 50 big box stores this year is probably only the beginning. The company operates about 1,100 stores in North America. Most of them debuted in the mid 1990s when Best Buy went on its growth spurt, said Flora Delaney, a retail consultant and former Best Buy executive. Since leases typically run 15 to 20 years, Best Buy could simply let those leases expire, she said.
In their place, the retailer wants to build more of its highly successful Best Buy Mobile stores and test its "Connected Store" concept.
In developing the format, Best Buy appears to be borrowing heavily from Apple's playbook. The connected store features a "Central Knowledge Desk," similar to Apple's Genius Bar where customers can receive technical support and even take classes.
But Best Buy will face a daunting challenge replicating Apple's retail success, Delaney said. The company must shift its store employees away from a number-driven sales culture to one that offers patient, high-level service.
Whereas Apple can afford to wait for customers to eventually buy an iPad or iPhone, Best Buy faces relentless pressure to generate quarterly sales, Delaney said.
"Best Buy can't drive that enthusiastic loyalty" that Apple commands, she said.
But the company has no choice but to try. Its stores generate most of its $50 billion in annual sales soBest Buy must find ways to reinvent them, experts say.
Best Buy also wants to speed up its digital sales, one of the company's fastest-growing businesses, but a relatively small unit compared to revenue from the company's physical stores. Earlier this month, the retailer hired former Starbucks chief information officer Stephen Gillett to oversee its digital operations, including online and mobile offerings.
But in the end, Best Buy's fate rests with its stores.
"They can't walk away from the brick and mortar business because it's so important to them," Delaney said.