---

---

---

---

---

3/29/2012 @ 1:42PM |54,999 views

Best Buy Cutting 50 Stores To Get Profitable. Good Luck With That.

Best Buy is closing 50 superstores and focusing on mobile in an effort to reduce expenses. But since when is cost cutting to profitability a successful retail strategy?

Since never.

The electronics chain announced it would shutter 50 stores and concentrate on smaller stores selling mobile electronics. There will be 100 more of these locations by the end of this year and two markets — San Antonio, Texas and the Twin Cities — will receive remodeled superstores dubbed “Connected Stores.”

"In order to help make technology work for every one of our customers and transform our business as the consumer electronics industry continues to evolve, we are taking major actions to improve our operating performance,” said Brian J. Dunn, CEO of Best Buy. “As part of our multi-channel strategy, we intend to strengthen our portfolio of store formats and footprints — closing some big box stores, modifying others to our enhanced Connected Store format, and adding Best Buy Mobile stand-alone locations — all to provide a better shopping environment for our customers across multiple channels while increasing points of presence, and to improve performance and profitability.

In so many ways, it feels like a shell game. The kind that companies use to deflect negative attention by waving their arms and yelling, “look over here!” Changing things up, reducing its footprint and getting out of too large or otherwise unfavorable locations is important and probably needed to be done long ago. But these changes look more like an olive branch to the financial community: a restructuring to reduce costs.

In order to be more efficient and align the company with the opportunities that will provide the greatest returns, the company is taking significant actions to lower its cost base (via) $800 million in cost reductions by fiscal 2015; including approximately $250 million in fiscal 2013.

Management estimates a $300 million savings from the store closures and another $300 million in corporate reductions — Best Buy is also laying off 400 people at its Minneapolis headquarters.

Cost cutting its way to profitability.

The store changes seem mild and hardly innovative enough or broad enough to jump start a flailing retail model. Nor is it a new cycle for Best Buy.

In the late 1990′s as it was eagerly nipping at Circuit City’s heels, Best Buy downsized its stores from 55,000 sq. ft. to 45,000 sq. ft. The older and larger stores were merchandising exercise equipment, long runs of magazine racks and gas grills, as management tried to boost sales per sq. ft.

It wasn’t long after that management began investing in smaller formats. Best Buy even bought Musicland, ostensibly for its many small store locations in markets that couldn’t support a Best Buy superstore. That was a big disaster, as management later admitted.

Analysts believe Best Buy is doing the right thing. Right or wrong, at least Best Buy is doing something. Sometimes the bigger thing to do is go small, but a retailer still has to sell more stuff, not just jettison the people and locations that are supposed to help it do just that.

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---