Best Buy consumer focus subtly shifts back to core

DSN Retailing Today, Nov 10, 2003 by Laura Heller

NATIONWIDE DSNRT REPORT -- Not one to rest on its laurels, Best Buy, the nation's leading consumer electronics specialty retailer, has been testing new prototypes meant to expand its reach into existing customer segments and increase sales to the chain's most profitable customers without the risk and expense of new acquisitions or brand extensions.

It's a strategy borne of trial and error. After the company's failed attempt to court new demographics via the acquisition of Musicland stores, management outlined plans in June to segment its customer base into groups, dubbing the effort "Customer Centricity."

"Today, Best Buy has 14% of the marketplace," said ceo Brad Anderson, at the time. "That leaves 86% of the business in categories we already serve. Our primary emphasis is to reinvent and use existing assets versus looking for new ones."

Best Buy has been identifying its best customers and tailoring assortments to individual markets. Four such units are currently in test and initial results are apparently positive as the company plans to expand the program to 32 stores by the end of this year.

The company has been uncharacteristically closedmouthed about the initiative since a June analyst meeting, where it outlined the new strategy. Elements of the program have appeared in various stores, including a 20,000-square-foot test unit in Texas, but Goldman Sachs equity analyst Matt Fassler happened upon a Customer Centricity test unit outside of Baltimore last month and issued a detailed report on the effort.

The store appears to be targeted at the upper-income shopper, with sleek new signage and a geometric logo, in-store advertising of a personal shopper program, signage around the store periphery blocking stacked inventory and a heightened emphasis on high-end product such as flat screen display technology.

"Two elements of the video sale in the Customer Centricity store differed from our observations elsewhere," commented Fassler. "First, the store featured several home theater rooms with the newest big screen technologies, including projection LCD and DLP units.

"Second, the store featured a circular counter in the heart of the video section similar to the walled-off desk area in Concept 5 stores, for coordinating and processing service-intensive sales of big ticket, high-end video products."

The appliance department offers significant changes from other Best Buy stores with colorful signage brightening up the area and a model kitchen setup that features a drop-down LCD TV screen, "highlighting the connection between the company's electronics and appliances offerings," said Fassler. It's a connection the company has long been trying to make in the minds of consumers as it strives to improve what is the company's most lackluster category.

Another less-than-optimal category receives a facelift in the new test, as a large portion of the music department near the front of the store has been reallocated to a children's area complete with child-oriented PCs and learning devices surrounded by educational and entertainment software designed for children, observed Fassler.

"Management recently alluded to adding areas for children, particularly in or near the stores' appliances display, to cater to families shopping with children who were otherwise unoccupied or restless," said Fassler. "Presumably, its research revealed an underexploited profit opportunity selling to young families. We were surprised the company chose such a prominent space for this move and are unclear on its outcome, though if any category can stand to lose space it's music, which has been in a secular decline."

But the Customer Centricity prototype isn't the only effort the company is testing. Two "Digital Life" stores are now in operation, and CIBC World Markets analyst Dan Wewer toured one such 45,000-square-foot unit in the Minneapolis market after meeting with Best Buy management.

It is unclear just how many elements of this program overlap with the Customer Centricity effort, but here "digital life specialists" are dressed differently than store associates and assigned tasks similar to a personal shopper, including identifying a customer's lifestyle needs and selling bundles of products across categories. According to Wewer, they will also provide in-home consultations for $139, with the fee waived following a purchase of a comparable or higher-priced product package. Same-day delivery and installation are also being offered at this location.

Appliances get a boost here as well, as Best Buy has recruited appliance sales specialists from other retailers to staff the department and provide follow-up assistance and sales. Genesis employees are identifiable by different uniforms than Best Buy's regular "blue shirts," as the company refers to its store associates, and unlike regular associates, these specialists will be paid a bonus, said Wewer.

Project Living Room is part of this test; a program previously detailed in the Sept. 22 issue of DSN Retailing Today as part of the company's 20,000-square-foot small market prototype and includes several living room style arrangements to promote sales of high-end home theater equipment. The computer department includes more interactive PC centers for consumers to try out digital programs and the store also features a photo lab in the center of the store as well as seven additional locations in Minneapolis and Phoenix. Smaller photo labs are being tested at 15 other locations in these same markets, according to Wewer.