Best Buy rekindles upscale housewares venture - Best Buy Company Inc

Discount Store News, March 4, 1996 by Pete Hisey

EDEN PRAIRIE, MINN. -- For the second time in two years, Best Buy will attempt to enter the upscale housewares market. The chain tested the idea in 1994, but the initiative lost steam during a massive shakeup in its core appliance merchandising group.

The company will expand its appliance department by about 40% (by relocating its music video department to the music area), increase staff and training and include a new manager of sales and training, as well as add gourmet cookware, spices, cookbooks, cutlery and gadgets to its mix and upmarket small appliance brands like KitchenAid, Braun and Cuisinart.

Best Buy intends to grow its appliance sales from 7% of total sales (or just under $500 million) to 10% of sales (or nearly $800 million) over the next 12 months, according to chairman Dick Schulze. The growth is expected to come from both the sales of the new category and stimulation of the company's lagging major appliance business.

As was the case with the company's recent foray into office products, which rolled out to all larger stores six months ago, the appliance category is expected to add margin (anywhere from 20% to 50% gross margin on most of the 200 items being added) to the company's industry-low margin structure.

According to senior vp, marketing Phil Schoonover, the new category also meets the needs of a large portion of Best Buy's customer base, which is 48% female, compared to under 30% at many competitors. "We had a profile of our female customers worked out, and we found that they're highly educated, have an average household income of $53,000 and are relatively young, 36 years old on average." These demographics match those of the "gourmet enthusiast," who is looking for professional-level kitchenware and who often looks at cooking and entertaining as a hobby.

At present, all Best Buy stores are being retrofitted, and the revamped department should be completely on line by May 1. However, many stores will be up and running by the end March.

In related news, Schulze said that the company is negotiating with an unnamed vendor to boost its mix of major appliances. Best Buy lost the rights to sell Whirlpool products about a year ago. Despite the addition of Maytag, Best Buy had never recovered from that blow. Formerly, sales help from other departments often drifted over to appliances, which was generally unmanned. The addition of a dedicated sales staff. advanced training and the presence of prestige products like Braun, KitchenAid and Frigidaire's semi-professional Gallery series of kitchen appliances may be enough to change Whirlpool's mind or attract another top vendor.

According to Schoonover, Best Buy will treat the new subcategory as a fashion business, adding new products to the base of 200 skus on a seasonal and promotional basis to keep the look fresh.

The enlarged department will grow to 6,000 sq. ft. from about 4,500 sq. ft. at most larger Best Buy stores (and 4,000 sq. ft. on average chainwide), with improved signage, presentation and sight lines. Music videos will move to the music department to give additional space for appliances.

According to Schulze, the company's recent moves into non-traditional businesses particularly office products, won't confuse core CE customers. "It goes back to when we changed our name from Sound of Music to Best Buy," he said. "When we changed the name, we diversified our product offering, offering diverse name brands around several categories." These new businesses are just an extension of that concept, he added.

On the subject of reported demands to vendors for extended credit terms to allow the chain to pay off $50 million in debt, Schulze called the situation a "one-time occurrence," which he doesn't expect to see repeated. "We'll have more to say on that subject on March 7," he said, referring to the company's year-end report.

He added that the move into high-end housewares is typical of the chain's strategy. "In several categories, particularly video products, we've been shifting to more fully featured, higher-end products for the past year," Schulze said. He noted that the average ticket for camcorders and big-screen televisions soared over the past year.

Storewide, the strategy is to concentrate on fully featured products that deliver added value, higher margins and more customer satisfaction at the expense of entry level skus. In computers, for instance, the company is now far heavier in upper-level Pentium models than in Pentium 75 models, which are now commodities and sometimes loss leaders.

An issue that wasn't addressed was how high Best Buy is prepared to an. During the Holiday sales period, the real growth was in the ultrahigh end, with professional level cookware from vendors like All-Clad, which retails a single saute pan for as much as $200, rocketing off shelves at specialty stores.

By contrast, some of the brands Best Buy plans to carry, like KitchenAid and T-Fal, are widely available at outlets as varied as Service If Merchandise, Incredible Universe, Lechmere and Brands Mart USA. Even Wal-Mart is upgrading its mix and adding some prestige brands. These brands may not be special enough to differentiate Best Buy from its competitors.