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Best Buy Looks To Expand Outlet Offerings While Holding Store Count Steady

Retailer Also Wants To Expand on 'Experiential' Model, Stores as Fulfillment Centers

Photo Courtesy of wolterke.

Best Buy has a plan to open more outlet stores catering to bargain hunters looking for deals on TVs, appliances and other consumer electronics. What it does not plan to do is take more real estate to house those outlets.

In a Thursday call with investors, company executives laid out plans to double the number of outlet stores Best Buy operates while thinning the herd elsewhere, though executives were quick to emphasize the value of brick-and-mortar retail. The company has 16 outlet stores and expects to double that number by the end of its upcoming fiscal year, and Chief Financial Officer Matt Bilunas estimated that the company would close 20 to 30 stores in that time, which he said was a pattern consistent with Best Buy's last five years.

The Minneapolis-based company has been experimenting with outlets since at least 2016 and now has locations in 13 states.

The discount operation yields several distinctive benefits, explained Damien Harmon, executive vice president of omnichannel for Best Buy. They alleviate space and capacity bottlenecks at the retailer's core stores and attract "new and reengaged customers." He estimated that about 16% of Best Buy's outlet shoppers come from outside the company's established base.

Over the next 12 months, Harmon said, Best Buy also intends to renovate 50 stores along a new "experiential" model debuted in Houston in 2020. The Houston prototype has more showcase space for product categories Best Buy is sinking its teeth into: health and fitness technology, e-transportation, and outdoor furniture and devices. Like Target Corp., its hometown peer, Best Buy's experiential model also makes heavy use of the "store-within-a-store" concept for brands such as Microsoft and Apple.

Best Buy is also following Target's lead by making its retail locations double as hubs for fulfillment of online orders. Company executives touted the success of a pilot project the company rolled out in the fall in Charlotte, North Carolina, that used this more "holistic" approach, which views stores as cogs in a single local logistics network rather than individual shops.

"The ways people are shopping today are entirely different than how they shopped two years ago. And our stores and the way they operate need to change and adjust accordingly," Harmon said. "This work in Charlotte is a manifestation of the shopping evolution and this pilot leverages all of our assets in a full portfolio strategy across stores, fulfillment, services, outlets, consultation labor, and we bring it all together with our digital app."

Changes Best Buy made in the Charlotte market are a bellwether for how it may tweak its broader store count in the years to come. According to the company's Thursday presentation to investors, Best Buy began 2021 with 12 locations in and around Charlotte, ranging in size from 20,000 to 45,000 square feet. Over the last six months it closed one location, turned another into an outlet store and renovated the remaining 10.

The remodeled stores have less retail area — in aggregate their sales floor area shrank by about 24% — and twice as much space for behind-the-scenes order fulfillment operations such as warehousing, shipping and packing. In the process, Best Buy pared down its total footprint in Charlotte by about 5%. The stores' retail area now ranges from 15,000 square feet to 35,000.

Best Buy expects the system will optimize its workforce, maximize efficiency and bump up customer engagement and spending, Harmon said. It will use this market experiment "to learn" over the next 12 months and then decide whether such a system can — and should — be scaled across the rest of its portfolio.

The company reported revenue of $16.4 billion in the quarter ended Jan. 29, compared to $16.9 billion for the year-earlier period. It had net income of $626 million in the latest quarter, down from $816 million the previous year. Profit for the full year was $2.5 billion, up from $1.8 billion the year earlier, on sales of $51.8 billion and $47.3 billion, respectively.

Source: 2022 CoStar News.

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