Roulston Retail Real Estate Partner Jean Schlemmer on Best Buy’s Strategy to Reduce its Domestic Big Box Footprint

July 11, 2011

Best Buy’s recent announcement that it plans to reduce its domestic bricks and mortar by 10 percent over the next 3-5 years should be no surprise, given the closing/liquidation of Circuit City and Ultimate Electronics, and the continuing pressure on retailers that sell commodities, i.e., books and media, office products, home furnishings, from both online competition and Wall Street growth expectations. BBY’s new stores will be around 36,000 square feet (down from earlier 45,000sf prototypes), and it is exploring subleasing parts of its existing stores. (Sears is also actively pursuing the latter strategy.) At the same time as it downsizes its boxes, BBY also plans to roll out several hundred Best Buy Mobile stand-alone stores and has a stated goal of doubling its $2 billion in online sales over the same time period. Today it’s multi-channel or die; single distribution channels no longer work; bricks and clicks must be integrated.

Consumers today are the most informed buyers in history, thanks to the Internet. Consumers today are among the most frugal buyers in history, thanks to the economy. Consumers today think they’re the most time-starved individuals in history, thanks to 24/7 connectivity and Sudoku. So what gets them into an electronics store? One need only walk into an Apple store for the answers: best in class customer service and customer experience.

Best Buy may save $70-80 million with its pared down real estate footprint, and it’s already leaned out its inventories. Providing great service and customer experience is too important, however, to look at well-trained employees as a luxury. hhgregg, perhaps the only real national big-box competitor to BBY (180 stores, primarily in the eastern half of the U.S.), states it “distinguishes itself from its competitors by employing an extensively trained, commissioned sales force that serves its customers with a consultative and educational sales approach.”

Fortunately, BBY has a real opportunity to enhance both service and experience through Geek Squad, its tech support group. Inculcate the Geek Squad’s 5-point pledge (www.geeksquad.com) throughout the rest of the company.

No industry is as Darwinian as retail; only those most able to adapt will survive.

Jean Schlemmer is a commercial real estate consultant with more than thirty years of experience at public and private real estate development and management companies. Her most recent clients include Edgemark Development LLC, Urban Traveler, Blackstone Real Estate Partners, Kraus Anderson Realty, and EPN Group. She formerly was the Executive Vice President and Chief Corporate Development Officer for General Growth Properties (GGP). Jean will be participating in our July 27th Retail Real Estate Roundtable in San Francisco at 10 AM Pacific with Principal of Customer Growth Partners Craig Johnson.

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