Best Buy Plans "Big" Trims and Mobile Move

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Best Buy (NYSE: BBY) has revealed its new game plan and it involves trimming "big" fat while becoming more Mobile.

The company reported a mixed fourth quarter and FY 2011 on Thursday morning. The reports featured non-GAAP profits of $2.47 for the quarter and $3.64 for the year, up 25% and 6% respectively. GAAP losses were $4.89 for the quarter and $3.36 for the year. Revenues were reported at $16.6 billion,  3% lower than analyst estimates. Shares closed down 6.95% to $24.77 after a day of lukewarm reactions from analysts and journalists.

The company is at a transitional crossroads where it could either adapt and survive or lose out to "click and mortar" competitors such as Amazon (NASDAQ: AMZN). Amazon can afford the diversity of selling goods, creating bestselling devices, and offering cloud storage all while patting its head and rubbing its belly. Best Buy's survival will come to its ability to narrow its focus...and its square footage. 

The primary Best Buy domestic properties are the large "big box" stores, which sell a wide range of products, and the freestanding Best Buy Mobile stores, which are smaller often mall-based affairs dedicated solely to mobile devices and accessories. Best Buy hopes to save $300 million in FY 2013 by closing 50 big boxes and opening 100 Mobile stores, ostensibly to increase sales-per-square feet.The Mobile locations are much smaller and have a narrower focus almost entirely comprised of higher end merchandise.

At the end of FY 2011, there were 1,099 total big boxes and 177 Mobiles. Big boxes averaged 36,000 sq. ft. after several trims from their 55,000 sq. ft. average in the late 1990s. Mobile stores were far more economical at 1,140 sq. ft. Openings in 2012 brought the total Mobile stores up to 305 and Best Buy hopes to have that total hit 600 to 800 before 2016.

Best Buy's mobile plans have at least a toehold on logic. General Best Buy mobile sales have been so strong recently that AllThingsD reported the company sold 13% of all iPhones purchased between December 2011 and February 2012. That's only 2% lower than sales from Apple (NASDAQ: AAPL). There is the risk that the expanded Mobile stores won't be able to hold their own against freestanding stores from mobile providers including AT&T (NYSE: T) and Verizon (NYSE: VZ). In that same iPhone survey, AT&T and Verizon comprised 32% and 30% of total sales, respectively. The simple truth of the matter is that many consumers are in the habit of turning to the name on the monthly bill when it comes to mobile matters. 

Getting "Connected"

Beyond the 50 big boxes that will meet their doom, Best Buy plans to modify additional stores into its Connected Store format that debuted in 2010. Connected Stores are essentially the middle child between big boxes and Mobiles. Sales emphasis is placed on tablets, eReaders, mobile phones, computers, and game consoles. The stores have expansive demo areas, interactive displays, and free workshops. There's a much stronger focus than the big boxes. Pilot versions of the Connected stores, some with the interactive displays, are currently open in 11 states. Newly streamlined versions will get test runs in Minneapolis-St. Paul and San Antonio in the coming months before rolling out more widely prior to the 2012 holiday season.

Connected Stores have greater square footage than Mobile but the former also have a wider range of high end devices, including the increasingly popular e-readers and tablets. Thursday's earnings report stated that domestic comparable store sales on these devices had an increase in the "low triple digits". The recent launch of a new iPad model, and speculated future releases of new Kindle Fire models, could push those sales even higher.


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