Best Buy to Expand Connected World Format

Best Buy will add its Connected World format to another 40 locations this year as it slowly rolls out a concept giving more play to Internet-connected products, executives said Thursday during an Analyst Day conference at the chain’s Richfield, Minn., headquarters.

The format, first tested at eight stores in the Pittsburgh market and six in the Las Vegas area (CED Nov 17 p1), still needs fine-tuning, said Shari Ballard, executive vice president of retail channel management. Some of the concept’s components, including a career sales track for store staffers, will be expand to other stores, company officials said. But the entire format, which ties together six to seven retail businesses via an in-store network, will take longer to implement, Ballard said. “We still don’t fully like what we show customers,” Ballard said. “We don’t want to touch 1,000 stores until we have all the things right."

In the locations tested last fall, about 8,000 square feet were trimmed from the showroom and given over to storage and a hallway. The standard race track was replaced by a “runway” that crosses the middle of the stores and features three so-called “Experience” new technology tables, where content is rotated. Gadget and gizmo and Best Buy Mobile sections were pushed to the side and Connect Demonstration Stations were created to demonstrate Internet-connected CE products. In general, the Connected World format operates with 10 percent less floor space than a standard Best Buy store, but generates the same or more revenue, company officials said. When connection services like Napster, CinemaNow, DirecTV and cable are added to a store, the outlet produces six to 12 times better gross profit than one without them, the company said. “These are easy to shop and show what’s possible,” Ballard said.

To expand its business, Best Buy will open 150 Best Buy Mobile locations this year, to have a total of 300 outlets by February 2012. About 200 Best Buy Mobile stores will be in place by July, Best Buy CEO Brian Dunn said. Best Buy will open 30 Pacific Sales Kitchen and Bath store-within-a-store locations this year, building on a concept that launched in California in 2010, said Michael Vitelli, executive vice president of Americas. In Best Buy stores where the high-end appliance concept was added, annual major appliance sales rose to $10 million from $3.5 million in the first year. Best Buy major appliance staffers will adopt the Pacific Sales operating model at the “largest performing” stores, Best Buy executives said.

Best Buy also will adapt a format for the tablet category to one it uses in selling cellphones, executives said. Tablets merchandised alongside standard PCs and entertainment products will be placed in a single location, which will be staffed with employees trained to sell connection services as well, Vitelli said. The tablets will be sold alongside e-readers, he said.

As it revamps stores, Best Buy will “vigorously defend” its position in selling CE, adding 1,000 SKUs to its online assortment, including about 300 TVs, company officials said. Best Buy’s online business produced $2.5 billion in global sales in the fiscal year ended in February, including $2 billion in the U.S., Dunn said. While Best Buy suffered a low double-digit decline in TV Q4 same-store sales (CED March 25 p2), the category remains “vibrant and exciting” in the U.S., Vitelli said.

While Best Buy expands some formats, it’s moving to reduce the size of its stores, about 50 percent of which come up for new leases during the next five years, Chief Financial Officer Jim Muehlbauer said. The goal is to sublease, relocate and close some “select” larger locations to produce $70 million to $80 million in annual savings, he said. While Best Buy is limiting store growth in the U.S., it expects to increase the number of Five Star stores in China from 166 to 500 during the next five years, and sees room for “at least” 1,000 locations there, Muehlbauer said.