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.
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 email@example.com or follow him on Twitter via @JeffReevesIP. As of this writing, Jeff did not hold a position in any of the aforementioned securities.
Read my post prior to yours. I stood in line and waited patiently, not saying a word. I wasn't whining to them. I was standing in line waiting to pick up an order, already paid for. And that is what happened to me. They are horrible.
Yes buying on line is cheaper, but returning a product, or exchanging one is a bloody nightmare. Oh but there is come good news. The economy is picking up and unemployment is getting better. Yeah, and my name is Santa.
i would definitly agree with sept17 that their emplloyees are useless and they stand around and act like they are doing you a favor. i went in to look for something small and the one kid acted like he was doing me a favor but the rest of his group of buddies were just hanging around talking, i was told to look busy even if we weren't
also i had to wait in line for about 15 minutes because they had 2 cashiers available and it was early in the morning
i think amazon is great
Best Buy is in the business of selling credit, not stuff. They just sell stuff as a sideline any more. That is why their clerks don't know anything about the products.
If the clerks don't get enough people to fill out the credit apps they are terminated, no matter how much stuff they sell.
One of their problems is that the employees ignore customers. I refuse to beg a sales person to help me to even find something.
For years their only plan was to drive all the other electronic stores out of business. They didnt care about anything else, not even their own customers.
So their are going to quit giving this wonderful service to their customers so they can save money??? Good luck!!!
I used to work for Circuit City, I left when I saw the writing on the wall when they started cutting Customer Service Manager jobs and closing stores. Circuit City when Bankrupt and were completely out of business for some time, I see today that they are back with a website. This must be completely different ownership, because after they closed all the stores, the website was unavailable and out of service. Trust me folks, like I told my wife months ago, Best Buy is circling the drain, QUICKLY. This is only the 1st step until they are out of business. There sales tactics and bigger is better beliefs are dinosaurs. NOONE cares about customer service anymore until they get REALY BAD service. And THAT is why we all shop online or at the hell hole evil empire Wal Mart. NOONE expects ANY kind of service at Wal Mart, but people still go there looking for a products a buck or two cheaper than places like Best Buy. I give best buy 2-3 years, TOPS, then they will be bankrupt. They haven't learned the leason that Circuit City has taught everyone, they are still to busy trying to be the big cheese in the electronics industry, well as we all know, king of the mountain is a temp position at best.
How come it is usually whinners that post ? Maybe they didn't give you all good service because you all started whinning as soon as you started talking ?
Just saying, several stores, dozens of items, never poor service.
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.
customer service? employees always gathered in groups of 2 or 3 or watching tv or reading instructions.
you feel like you're interrupting them. However, GeekSquad desk checked my computer while I looked on. Said there was nothing basic wrong; I could use a "tune up", but the problem was probably my desk modem. It was...I purchased one there & replaced it when I got home.
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The solid report comes a month after the retailer closed all of its Canadian operations.
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