(Photo credit: Wikipedia)Best Buy will shift toward mobile sales and smaller stores in an effort to boost sagging revenue and compete with rivals like Amazon and Wal-Mart. Best Buy’s signature big box stores will be dialed back, and 50 will close in 2012, the company said this morning.
The world’s largest consumer-electronics retailer will test the new store models in San Antonio, Texas and St. Paul, Minneapolis. The renovation would reduce store square footage by 20%, and should be finished by next Christmas. Those new so-called “Connected Stores” will focus on selling cell phones, tablet computers and e-readers, as well as service plans not offered by Amazon and Wal-Mart.? Best Buy employees in these new stores are expected to show customers how to connect electronics in the home.
Meanwhile, Best Buy will open another 100 smaller mobile-only stores in fiscal 2013. By 2016, the retailer expects to operate some 600 to 800 mobile-only stores, up from 305 today.
The retailer will make $800 million in cost reductions by fiscal 2015, including some $250 million in the next fiscal year. This will mean $300 million from domestic retail stores. It will also try to trim its corporate structure, cutting 400 positions, to hopefully save another $300 million.
“We intend to invest some of these cost savings into offering new and improved customer experiences and competitive prices — which will help drive revenue,” CEO Brian Dunn says in a statement this morning. “And, over time, we expect some of the savings will fall to the bottom line.”
Best Buy shares tumbled 6.3% to $24.95 in early morning trading today.
Best Buy is locked in a tight race for costumers and has seen sales slip in recent years. Critics have noted that its expansive, attractive stores have essentially become showrooms for online retailers like Amazon: Customers go to Best Buy to see a product, and can quickly use a smartphone to find a cheaper price online. This has led to six straight quarterly declines at stores open at least 14 months, including a 2.4% dip last quarter.
Other rivals include retailers like Target and eBay.
Its first move toward a new mobile-sales emphasis came last fall, buying out U.K.-based Carphone Warhouse’s stake in a joint mobile-store venture for $2.6 billion.
That acquisition, along with a write-off of Best Buy Europe’s goodwill and charges from shuttering 11 U.K. big box stores, weighed on Best Buy’s profit last quarter. It lost $1.7 billion or $4.89 a share.
Excluding those charges, Best Buy easily beat Wall Street expectations. It earned $2.47 per share, a 25% increase from a year ago.
Reach Abram Brown at abrown@forbes.com. Or follow him @abebrown716.
See Also: Why Best Buy Is Going Out Of Business…Gradually
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