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 12:39PM
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jrhoh,

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.

Mar 29, 2012 12:39PM
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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.

 

Mar 29, 2012 12:38PM
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Best Buy is overpriced, and their store employees think they know more than you do. That is their demise, snobbish employees for snobbish people who like wasting money. I wish they would have sank instead of Circuit City, at least they weren't rude and condescending towards customers.
Mar 29, 2012 12:37PM
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Not sure what you all are whining and crying about. I have had nothing but excellent service at BB. The staff has been helpful every time I ask a question, and I never get far into a department w/o someone asking me if I need help. The one or two returns in the last 15 years have been accepted w/o question. Perhaps some of the blame rests with you all, perhaps YOU treat the staff like they own you $$, or act like they are your slaves/servants to jump at your beck and call. Yes, they work there, but they are not there to lick your a**. (How would you feel if your kid worked there, and was treated like you treat the staff?) And if you are so ignorant that you stumble in and expect them to hold your hand, get a clue and educate yourself on your choices before you hit the store. Or go shop at Amazon. I love the rewards I get, I was able to pay for much of Xmas last year with them.
Mar 29, 2012 12:37PM
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I hate Best Buy.  I had purchased a microwave to be delivered and installed for my mom. It was her 80th bday and it was a surprise. They showed up with a mangled box and dented microwave and took away her old microwave. They kept telling me they would deliver her a new microwave on a certain day and it never happened. They screwed me time after time. I took the day off work 4 times so that I could be home for the delivery. It never happened. Either the warehouse was out of stock or the delivery team couldn't make it. WEEKS WENT BY. My mom was without a microwave for WEEKS!!!!!! They didn't care and they did nothing but make excuses. I finally cancelled my order and went to Sears! I placed my order on Monday and it was delivered on Wednesday for a fraction of the cost of Best Buy. Thank you Sears!!!!!!!
Mar 29, 2012 12:37PM
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just think abuot the huge sales that will take place......
Mar 29, 2012 12:37PM
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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

Mar 29, 2012 12:37PM
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Best Buy is hit or miss, in my opinion.  Here in the Denver Metro area, the stores are all pretty busy no matter what time of day or day of the week.  I have purchased 3 TV's at BB over the past 3 years, and all of them work fine and were easy to purchase, but I don't necessarily think I got a great "deal" on any of them.  Their prices were average - not too high but definitely not lower than other places.  I did it because of the Rewards program, which probably isn't one of the best Rewards programs out there, but I earned enough to buy several DVD's and CD's in the end.  I can take it or leave it.  The customer service I've experienced is good, no complaints.  But I've never had to return anything or deal with them on the phone so I can't relate to what many here seem to be posting.
Mar 29, 2012 12:36PM
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Same story as the rest of the reviews. Stop bye BB to purchase a 3-D TV, none of the clerks waited on me. One guy did come over and ask me if I had any questions, told him what I wanted, but I did want to see the TV's first. None were avaible, 3-D demo's did not work (same demo's I had seen in 6 month period). The employee did have some knowledge, but found out he work for Direct TV, not BB. The mgr. was too BZ to ans. any of my questions except that he would give me a good deal on TV's that were hanging on the wall. Great, half the life was used up. Costco and Sam's club no help. All they have are secondary TV's like Vizo's and off brands that I have never heard of and would never buy. Looks like I won't be buying a TV, eventhough I'm  ready with cash in hand.
Mar 29, 2012 12:36PM
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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.

Mar 29, 2012 12:35PM
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This is what happens when Corporations pay nothing to people who know nothing.
Mar 29, 2012 12:34PM
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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!!!

Mar 29, 2012 12:33PM
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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. 

Mar 29, 2012 12:33PM
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Here's hoping Best Bums....er....Buy closes all their stores. I feel sorry for the workers that will suffer, but not for the Dumb A$$'s that ran all those mean spirited commercials last Christmas. Karma folks. I for one will never spend a dime in their store.
Mar 29, 2012 12:32PM
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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.

Mar 29, 2012 12:31PM
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well when you have a  best buy rewards card you earn money back BUT only if you buy something in two month I spent $5000.00 and because I did not buy more in three month my rewards were gone $5.00 dollars for every hundred I spend THAT'S $250.00 gone plus other things I boght so its just a gimmick  so now I buy from FRYS
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 12:30PM
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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.

Mar 29, 2012 12:29PM
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Couple months back, I made an online "pick-up in store" purchase.  After getting the "item ready for pickup" email, the same day, I went in to pick it up.  There were 2 lines, one for store pick-up, one for checkout.  There was nobody in either line, so I was the first person in line.  There were 4, yes FOUR, employees helping the only customer at the counter, while I stood in line.  More people started funneling in the lines.  After 20 minutes of helping that one customer, the 4 employees just walked away, not helping anyone else.  2 OTHER employees started checking out everyone else, about 4 or 5 couples, mind you, I'm still standing at the front of the "pick-up" line.  A couple, BEHIND me, were taken before me because they were making an in-store purchase.  Forty-five, yes 45, minutes later a guy from the check out line asks, are you here for store pick-up, I said "yes, I am", he said, "ok, somebody will be right with you.", and he walked back to his checkout line.  Five minutes later somebody finally waits on me.  So, it took 50 MINUTES, just to pick up something I ALREADY PAID FOR, that I can visibly see sitting on the back shelf!!!  This isn't the only bad experience I had at BB, just the most recent.  I will never, ever, shop at BB again.  Online stores, and Amazon, are much better.  This store was in Monaca, Pennsylvania.  They need to work on their customer service and staff.
Mar 29, 2012 12:28PM
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Was in BB two weeks ago comparing the NOOK and KINDLE.  When I asked the salesman about the constant rumors about their stock and potential store closures, he chuckled and told me how the "tale" got started.  Guess it's not a 'tale' after all!
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