Best Buy gives product mix a workout; exercise equipment latest line to replace losing CDs

Discount Store News, Nov 17, 1997 by Laura Heller

MINNEAPOLIS -- Once again, Best Buy is extending its reach beyond the traditional CE stock. Now, the company is adding exercise equipment as it continues to reset its larger stores.

The chain has been going through some changes of late, re-evaluating product mix, more tightly managing inventory, using 0% financing promotions less frequently and shedding thousands of money-losing CDs from the center of the store.

As reported in DSN on Oct. 6, Best Buy is eliminating 20,000 CD skus in stores of 45,000 sq. ft. to 58,000 sq. ft. Filling that space will be a discount magazine and book section and a new cellular and satellite systems department. In addition, the company now reports it will add a selection of high-margin exercise equipment in the center of the store.

Fitness equipment offers attractive margins for the chain -- higher than the company average of 16.1% in the second quarter of 1997, according to Laurie Bauer, Best Buy public relations manager. Also, senior buyer Kathy Jones said Best Buy's demographic matches that of consumers who purchase fitness products. If they are already buying them someplace else, "we might as well maximize the amount of money that is being spent in our stores," she said.

Fitness is indeed a growing business, with consumers spending approximately $3.23 million in 1996 on such equipment, according to the National Sporting Goods Association.

Stores of 45,000 sq. ft. and bigger will carry between seven and 11 skus depending on available space. The assortment will include treadmills, a recumbent bike, an air walker, a bun and ab toner and an ab shaper.

Although air hockey and foosball don't exactly fall into the "fitness" category, Best Buy intends to carry table games at some stores. According to Jones, product mix will vary.

The new department will be located in or near the center of the store where until recently a deep catalog of CD titles were stocked.

In all, said Jones, 188 stores will carry the new items, and allocated space will range between 200 sq. ft. and 1,600 sq. ft.

Best Buy will promote the new products in its regular circular, and "we will use financing, as a promotional tool," said Bauer. The chain considers the items to be seasonal, with the strongest selling time between December and February. No decision has been made on maintaining the stock beyond that time period.

Stores will continue to be reset through the middle of November, and the department will be studied as to its long-term viability.

All of Best Buy's recent changes, many of them the result of initiatives developed with Andersen Consulting, have been viewed favorably by analysts.

According to David Childe of Salomon Brothers, Best Buy is currently on an upswing, focusing its attention on all the right things. Pursuing high margin items such as fitness equipment is the correct trend.