Will store closures help save Best Buy?

The ailing electronics retailer's plan to shut 50 US locations may be wise financially, but giving up on 'customer experience' is very risky.

By InvestorPlace Mar 29, 2012 10:19AM
By Jeff Reeves

Retailer Best Buy (BBY) was at the heart of the home electronics revolution that swept America in the 1990s. Computers became staples of businesses, video games became big business, and TVs boasted bigger and better pictures.


But the technological revolution that delivered tremendous sales to Best Buy kept churning along after Y2K and ultimately left the brick-and-mortar retailer behind. A failure to adapt to online competitors that sold more at lower prices has been weighing on the big-box store's sales for some time.


Thursday, Best Buy made its biggest admission yet of its failure to remain relevant, and it's looking to get back in the game. The company announced the closure of 50 larger stores and plans to open 100 smaller ones, amid mixed earnings results that might signal BBY is turning around at long last -- if it doesn't tick off customers in the process.


Admittedly, the earnings numbers are pretty ugly. Best Buy lost $1.7 billion in its latest quarter, thanks to some big one-time charges. Adjusted earnings actually beat expectations, but that's after the retail giant had missed Wall Street's estimates in its past two reports. Best Buy had also posted four straight quarters of year-over-year earnings declines before the most recent report.


But if you back out the charges this time around, there are reasons for optimism. Holiday sales were impressive and were a huge improvement over those of previous years. Best Buy tallied earnings per share of $2.47 in the fourth quarter, up 25% from 2011, and full-year EPS were up 6% over the previous year.


So is the retailer really turning around? It's hard to say. At the very least, Best Buy has admitted the need to change, with moves such as:

  • $250 million in planned cost reductions in the next year and $800 million in cuts by fiscal 2015
  • Closing 50 big-box stores in the next year
  • Opening 100 U.S. Best Buy Mobile small-format stores in the next year

In short, Best Buy is getting smaller, both in its big-box operations and in its physical store sizes.

 

But there's a huge risk here. Buried in Thursday's report is a plan to save money through "reductions to fund investments in enhanced customer experience and growth initiatives." In short, Best Buy is going to give up on some efforts to improve customer service and create a more welcoming store environment in favor of cutting costs.

 

That's a huge gamble. Most consumers shop online because of the price benefits, but surely many shoppers also turn to the Web because they hate waiting in long lines or dealing with unhelpful employees in big-box stores.

 

Best Buy certainly may be showing signs of a turnaround on some metrics, but Wall Street appears to be clearly in the wait-and-see camp.

 

But if Best Buy cuts costs at the expense of its customers, no amount of right-sizing is going to save this company.

 


Jeff Reeves is the editor of InvestorPlace.com, and the author of The Frugal Investor's Guide to Finding Great Stocks. Write him at editor@investorplace​.com or follow him on Twitter via @JeffReevesIP. As of this writing, Jeff did not hold a position in any of the aforementioned securities.



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328Comments
Mar 29, 2012 11:15AM
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The reason Best Buy is failing is because they are horrible. I've seen both sides of the coin, as I worked there for a while and I also shopped there. This place was the worst place I've ever worked. They use up their employees and when they are done with them, instead of laying them off, they cut their hours down to 4 a month so the person just quits so they can't collect unemployment. They threatened my job once because I was scheduled to stay until 10pm. I had classes in the morning that started at 8am. They said that I had to stay to finish unloading the trucks until they were finished and that if I left I shouldn't come back. They forced me to stay until 4am. They rip off customers by pushing them into protection plans, unnecessary accessories and unknowledgeable staff. Good riddance, they did themselves in.

Also, if you hear one of their employees say the word "depo" to another employee, they are calling you an a-hole. They have a whole secrete language to refer to different types of customers they are dealing with. 
Mar 29, 2012 1:14PM
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Its their "Shitty" Attitude with Customer Support that's doing them In...
Mar 29, 2012 12:00PM
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I believe Best Buy's poor customer service and rotten return policy  is finally paying them back.
Mar 29, 2012 1:07PM
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I do not like there customer service. There are always a group of employees huddled in the middle of the store and when you approach them for help they scatter like the wind. Once you do track down someone long enough to ask them a question, you find out very quickly that you should have just looked for it yourself. No customer service at all. Never stock what you need. Good riddance to the local cheyyenne social club.
Mar 29, 2012 1:45PM
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The outcome of Best Buy is a perfect example of what is wrong with Corporate America today.

In Best Buys case, you had a new company providing exceptional service with knowledgable staff and a goal of providing customer service and satisfaction. Enter CEO's wanting a HIGHER stock return so that they can justify their millions of dollars bonus and they start messing around with the formula for success that initially made Best Bys one of the most profitable companies ever. They implement a plan that  "lays-off" all the knowledgable staff earning a decent wage and then hire back, (at a lot lower wage) employees that know absolutely nothing about Best Buy or it's products. Factor in sales tactics that over promise and under deliver (Christmas 2011) and what you have is a new formula for failure. Corporate greed IS what is wrong with Corporate America. CEO's getting paid millions of dollars for  running viable companies into the ground IS what is wrong with Corporate America. What does a CEO do for a company anyway besides rake in millions of dollars? Sit on their fat pink asses raking in millions of dollars, sucking up caviar and single malt scotch  while running the company into the ground then moving on to the next company. I call them parasites because that's exactly what they are.

Mar 29, 2012 11:57AM
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Best buy is an overpriced whorehouse for people that don't know any better about computers and electronics. Their computers are full of spamware and their accesories are 30 times the price they should be. For example, I needed a HDMI cable and a SATA hard drive cable for a couple of projects I was working on. $29.99 for a 6' HDMI cable!?? $21.99 for a 12" sata cable!!!?? What planet are you on? I ordered them off amazon for a couple of bucks. I know a guy that took his computer to "Geek Squad" to get fixed and payed almost as much as the computer cost. Shop amazon or New egg for computer hardware and if you want a big box computer (Gateway, Dell) just buy it factory direct or better yet, build your own, its really easy.(literally) New tv? I see better deals at Wal*mart and Target, and yes they carry the same brands and they are brand new and no different then Best buy. Best buy sucks and you always have to wait an hour for help or even to get checked out. Good riddance!

Mar 29, 2012 1:15PM
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It is definitely the total lack of customer service and sometimes just rude employees causing the closures of Best Buy. I have written to the corporate office and my complaint is posted on yelp and on their site. Even the corporate agreed I was treated badly but even they offered no incentive to intice me to ever to return to one of their stores. Sure they are going to talk to the manager - Big Deal! I will NEVER walk into one of their stores again even if they are giving the stuff away. And YES - the day I was treated badly, I went right home and bought the items online from another retailer. I sincerely hope the Best Buy I was in is one of the first to close.

Mar 29, 2012 1:14PM
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Bye bye Best Buy.  You lost me as a customer this year.  Horrible customer service & terrible return / exchange policy.  Not shopping there anymore anyways!!
Mar 29, 2012 2:00PM
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My son calls Best Buy the show room for Amazon.
Mar 29, 2012 12:30PM
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Best Buy has also lost many customers due to its absolutely terrible customer service.  Even managers stand around talking about trivialites while customers are waiting for help.  Many of the workers are rude and not at all helpful or knowledgeable.

 

Mar 29, 2012 4:18PM
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To echo some of the other sentiments and to impart some wisdom Wink

 

If you have a job in this economy, consider yourself lucky.  When I worked at McD's, I started out at $3.35 an hour and it was hard work; I also had to deal with irate customers and managers that were about as useful as a rubber crutch. But I never, ever took it out on a customer. It was not theri fault. They came in to the store willing to spend their money and provide us with business. They deserved service and repsect and that's what I gave them, even at my crappy wage. 

 

I've held many jobs since then, put myself through college and have worked my way up over the years to become a white-collar professional. No matter what I've done or where I've worked, whether it was a desk job, a restaurant, or a print shop, my mantra has always been: A satisfied customer made my paycheck possible.

Mar 29, 2012 11:32AM
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Terrible experience getting service on a washer/dryer combo I bought there.  I'll never buy anything there again.  And closing stores didn't help Circuit City very much did it?
Mar 29, 2012 11:39AM
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One of the reasons Best Buy is failing....very poor customer service. They hire inexperienced sales people; who unfortunately, do not know how to answer customer's questions correctly.

I have been to the Clearwater, Florida, Best Buy on several different occasions.

It took the salesperson over 90 minutes to register and activate a cell phone; if I didn't need to have the phone that day...I would have left. I had to return the following day; because there was a problem with the cell phone. That took almost ANOTHER 90 minutes. As I waited for this matter to be corrected; I noticed how other customers were having to wait just as long; not only in that particular department; but also in other departments as well. Two of the employees where I was waiting; never had an answer for their customers; they had to constantly ask the one young lady,  (who WAS helping her customers), then also having to call for assistant managers from other departments. I asked the young lady if these employees were new.....she said no....actually they had been hired before her. Best Buy took advantage of their customers for years; over-charging on low-quality products, pushing service agreements that were costly, and not giving the "great" customer service they would boast upon having. Greed from these corporate companies is usually what does them in at the end......honestly, couldn't happen to a more deserving company.

Mar 29, 2012 1:14PM
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I think they suck, the customer service here in Lr is pitiful, and prices are way to hi. I wont shop there again
Mar 29, 2012 12:21PM
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I don't even bother going to best buy any more, their customer service is horrible, their prices are ridiculous, and what's with the Wal-Mart greeters at the door. staff isn't even knowledgeable. those are the reasons they are headed the same way as circuit city. my kid went to one not long ago to buy a new computer for business. he ended up going to the apple store in either the springs or denver. the truth is BB has been swirling around in the bowl for years, won't be long before they flush themselves down
Mar 29, 2012 1:20PM
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My husband and I were in Best Buy about three weeks ago. We were shopping for a new TV. Anyway to make a long story short, after about 20 minutes of this guy talking to us about the difference between this one and that one, the guy says to us, oh I can't help you with that, I don't work for Best Buy, I work for Comcast!!.  We were shocked, he knew what he was talking about, and the sales people that should have been helping us all along were hanging out joking with one another...We didn't buy anything that day, but did make sure the people up front knew all about the wonderful Comcast guy in the back helping customers ... We will never go back to Best Buy..
Mar 29, 2012 11:32AM
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I did a secret shooper in a few weeks ago and the shopping experience was terrible. I also have shopped many in the past and have had terrible experiences in the past. Nothing good has come out of any of them. Over priced and terrible.
Mar 29, 2012 11:18AM
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Worst Buy, I stopped shopping there years ago, prices too high, customer service a joke.

Mar 29, 2012 12:27PM
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Good! Their customer service is atrocious. I haven't shopped there in years.
Mar 29, 2012 12:26PM
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About time their lousy customer service and return policies started choking these idiots. Lousy store!!!! I would never buy from them again no matter what measures they take.
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