Best Buy Turns Over a New Leaf; Is It Enough?
For quite some time, Best Buy's (NAS: BBY) lunch has been eaten away by leading online retailers such as Amazon.com (NAS: AMZN) . "Showrooming" -- where customers visit a brick-and-mortar store to see whether they like a particular item and then go buy it at a cheaper price from an online retailer -- has hurt Best Buy dearly.
Best Buy slid to a loss of $1.7 billion in its fourth quarter and saw a 2.4% fall in same-store sales, following a 4.7% drop in comps a year ago. Results were so ugly that Best Buy started its earnings conference call with a detailed four-pronged strategy with which it plans to revive sales and move away from its "big-box" business model. Let's take a look at its multichannel "shop anywhere, anytime, any way" initiative.
Approach No. 1: Cut the flab
The first strategy is to cut costs by up to $800 million. This will include laying off workers and shutting down 50 of its big-box stores.
Approach No. 2: Work up the muscle
The next step is to roll out 100 Best Buy mobile stores across the U.S. this year. The company is trying to reduce the size of its stores, and at the same time increase the number of locations. This is logical given that the demand for smartphones, tablets, and e-readers has gone up. But can it really bank on just handhelds to bail it out? Maybe, maybe not.
However, Best Buy isn't the first big-box retailer to try out the smaller store format. The world's largest retailer, Wal-Mart (NYS: WMT) , is set to roll out 100 smaller stores this year. Peer Target (NYS: TGT) will also open five smaller stores, which it calls CityTarget. Interestingly, Target sought the help of suppliers to shield its stores against showrooming, something Best Buy could consider doing.
Approach No. 3: New look and feel
Best Buy also plans to test a new store format, "connected store," in the twin cities of Minneapolis and Saint Paul and in San Antonio. This strategy is borrowed from Apple's famed Genius Bars concept. The stores will include services such as tech support and dedicated hubs to aid shoppers. Best Buy said its trial of such a concept in Las Vegas and certain other places delivered positive results. Will it be able to imitate Apple's success? We'll have to wait and watch. Apple has delivered the largest sales per square foot in the retailing segment, so it won't be easy.
Approach No. 4: Pamper them
Best Buy's last initiative revolves around improving the customers' shopping experience. It will look to woo customers by enhancing its loyalty program, which will include free and quick shipping, together with a 60-day price-match guarantee. It also plans to increase staff training and offer worker incentives to help improve shoppers' experience.
Along with changing the format of its stores, Best Buy will look to grow its e-commerce business. It has increased its online offerings and is looking to add a better online shopping experience with a speedy pickup of products bought online. It expects its e-commerce sales to rise by almost 15%. This is one place where Best Buy may stand to gain, as other big-box retailers are also resorting to the online sphere. We've seen Wal-Mart experimenting in this field. It bought the social-media firm Kosmix to help increase its understanding of the sphere.
Will it work?
It's good to see Best Buy's elaborate plans, although I'm not completely sold on the retailer just yet. I'd rather wait and see how it implements these plans, and whether it'll actually help reverse its same-store sales trend.
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At the time this article was published Fool contributor Shubh Datta doesn't own shares in the companies listed above. The Motley Fool owns shares of Best Buy, Wal-Mart Stores, Apple, and Amazon.com.Motley Fool newsletter serviceshave recommended buying shares of Wal-Mart Stores, Apple, and Amazon.com.Motley Fool newsletter serviceshave also recommended creating a diagonal call position in Wal-Mart Stores and a bull call spread position in Apple. The Motley Fool has adisclosure policy.We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.