Best Buy Canada And Future Shop To Be Consolidated In An Effort To Cut Costs

Best Buy (NYSE: BBY) Canada announced consolidation of its Future Shop stores and website under the Best Buy brand.  While 66 Future Shop locations will be closed (with immediate effect), an additional 65 Future Shop stores will be temporarily closed for one week as they begin their transition to the Best Buy brand. Post-consolidation, the company will have a total of 192 locations across Canada, including 136 large-format stores and 56 Best Buy Mobile stores. This is a part of the company’s efforts to build a compelling omni-channel customer experience and reduce costs.

Fewer But Better Stores

Currently, 80 per cent of Best Buy’s customers are within a 15 minute drive to a store ^[1]. However, the company found that a significant number of its Future Shop and Best Buy stores are located adjacent to each other, often in the same parking lot. The fact that Best Buy and Future Shop have their own dedicated websites is conflicted as well. As the company continues to transform its retail stores to also serve as distribution centers for online sales, it will need to bring all of its customer touch points under a single banner. While the net result of this consolidation is that half of the Future Shop stores will be closed, Best Buy stated that there will be no affect on its presence in the market due to the existing redundancies (multiple stores in the same locality). As the number of stores declines and most (if not all) of the sales are retained by the nearby Best Buy stores, the company’s sales per square foot metric might improve.

Furthermore,  the company announced that investments of up to $200 million dollars will be made in Best Buy (Canada) stores and BestBuy.ca, to build a leading multi-channel customer experience. This multi-faceted strategy will include: (1) launching major home appliances in all stores; (2) working with vendor partners to bring their products to life in a more compelling way (stores-within-a-store); (3) increasing staffing levels to better serve customers; and, (4) investing in the online shopping experience.

Lower Marketing And Advertising Costs

Rising competition from online retailers has resulted in increased costs for brick-and-mortar stores as they compete with each other on prices. Since the latter’s business model is much more capital intensive, many traditional retailers were led to cut costs in areas where they could. Abandoning dual or multi-banner strategy is one way some companies could achieve cost reductions. For example, Macy’s Inc. over the past few years, re-branded to its namesake an array of its regional chains, including Marshall Field’s.

As a part of its Renew Blue initiative (second phase), Best Buy has set itself a target of approximately $400 million in cost reductions and gross profit optimization, over the next three years. With all of the company’s stores in Canada coming under one banner, it will save on marketing and advertising costs in the region. In fact, the company’s research found that Best Buy enjoyed greater “top-of-mind awareness” among consumers and also benefits from significant spillover of U.S. advertising.

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