MINNEAPOLIS — Faced with a stubborn slide in sales at its U.S. stores, Best Buy on Thursday announced its steepest round of cuts: closing 50 big-box stores and eliminating 400 positions at its corporate headquarters in Richfield, Minn. Officials did not reveal which stores are on the chopping block.
The company also didn't disclose how many store employees would lose their jobs, but the number probably will be in the thousands because each store employs roughly 100 workers.
Best Buy, once known as the undisputed discount king of consumer electronics, has been struggling to find its place in a world dominated by flashy high-end brand temples like Apple Stores and low-cost Internet retailers like Amazon. Customers have been increasingly migrating online where they often find better deals, forcing Best Buy to figure out a reason shoppers would need to visit an actual store.
Last year, Best Buy lost a staggering $1.2 billion as it deeply discounted merchandise to keep pace with rivals Amazon and Wal-Mart.
All in all, Best Buy hopes to shed $800 million during the next three years, savings the company plans to use to fund its new "connected" store remodels, international expansion and digital services. But even CEO Brian Dunn admits the company's efforts to remake itself are fraught with frustration and uncertainty.
"I'm not satisfied," Dunn told the Star Tribune in Minneapolis.
"We have a long (history) of transforming ourselves to be where the customers need to be," he said. However, "I need more information."
For example, the company plans to reduce its retail square footage in the Minneapolis-St. Paul area and in San Antonio by 20 percent this year. Instead, Best Buy will remodel its big boxes with smaller "connected stores" that focus more on high-level service. Will Best Buy customers like the new format, shop more online, or simply go to Wal-Mart or Target? Dunn wants to know.
Given the severity of Best Buy's problems, however, some experts wonder how long it will take for Best Buy's strategies to work, if they do.
Things are not going to get any easier in 2012, said Jeremy Brunelli, an analyst with Consumer Edge Research, a firm based in Stamford, Conn. He noted Best Buy now expects sales at stores open for at least a year, a key growth number for retailers, to fall 2 percent to 4 percent this year, compared to its earlier estimate of a 1 percent decline.
Instead of so many big-box stores, the retailer wants to build more of its highly successful Best Buy Mobile stores and test its "Connected Store" concept.
In developing the format, Best Buy appears to be borrowing heavily from Apple's playbook. The connected store features a "Central Knowledge Desk," similar to Apple's Genius Bar where customers can receive technical support and even take classes.
But Best Buy will face a daunting challenge replicating Apple's retail success, said Flora Delaney, a retail consultant and former Best Buy executive.
"Best Buy can't drive that enthusiastic loyalty" that Apple commands, she said.