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MINNEAPOLIS-Best Buy will shrink in both store size and employees to save about $800 million, the company announced today in its fourth-quarter report. The large electronics firm said it plans to close 50 big box stores, and reduce 400 corporate and support positions, while it increases smaller footprint stores.
The company reported a net loss of $1.7 billion in the fourth quarter, compared with a net income of $651 million in Q4 2010. The loss can be attributed to $2.6 billion of charges related to the purchase of Carphone Warehouse Group’s share of the Best Buy Mobile profit share agreement, the write-off of Best Buy Europe goodwill and restructuring charges from UK big box pilot store closures. Comparable store sales for the quarter declined 2.4%.
Brian Dunn, CEO, said in a statement that the company is taking major actions to improve operating performance. Along with the store closures, Best Buy will increase efforts in its Mobile and Connected store formats, he said. “"These changes will also help lower our overall cost structure,” Dunn said. “We intend to invest some of these cost savings into offering new and improved customer experiences and competitive prices --- which will help drive revenue. And, over time, we expect some of the savings will fall to the bottom line. At the same time, we will continue to accelerate our key initiatives – growing connections and services, expanding our digital capabilities and growing our business in China.”
The company plans $800 million in cost reductions by 2015, including $250 million in 2013. These are broken up into $300 million in savings in retail stores, $300 million in corporate and support structure savings and $200 million in reducing cost of goods sold. The strategy is to “increase points of presence, while decreasing overall square footage,” according to the Q4 report. The locations for the 50 stores to be closed has not yet been announced.
Scale market tests of the new Connected Store format will be introduced in the Twin Cities and San Antonio metro areas before the end-of-year holiday shopping season, the company said. These stores Connected Stores are remodeled big box stores that focus on connections, services and multi-channel experience through a total transformation of both the store and the operating environment. The company expects total big box square footage in these combined test markets to be reduced by almost 20% through store downsizing and closures, while points of presence will increase by more than 20 percent.
In another pilot project, the company expects to open another 100 Best Buy Mobile small format stores in the United States in fiscal 2013 and continues to expect to have a total of 600 to 800 such stores by fiscal 2016 (from 305 today), according to the Q4 statement. The company will host a conference call regarding these results at 10:30 a.m. Eastern Time.
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