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Best Buy CEO: Physical Media Space Shrinking for a Reason

30 May, 2013 By: Chris Tribbey

Long ago, Best Buy dedicated about 20% of its floor space to physical discs (DVDs, CDs and video games). No longer.

“I love these categories … but that was 10 years ago,” company CEO and president Hubert Joly said during the Sanford C. Bernstein Strategic Decisions Conference May 29. “And of course the Tuesday release is not a factor anymore, is not a driver anymore. So the floor space optimization project again is to shrink these categories and emphasis the categories where we can grow.”

Smartphones, tablets and appliances are all getting more floor space at the expense of home entertainment, Joly said, and that’s just a reflection of the times.

“We have huge traffic in our stores, 600 million visits to our physical stores, 1 million visits to our website. I think we can do better in these categories,” Joly said. “So the consumer electronic space is a dynamic space, it’s up to us to catch the ways and catch the opportunity.”

Approximately 92% of Best Buy’s sales come from the brick-and-mortar stores, and Joly said the retailer needs to beef up its online presence.

“We said that showrooming actually starts on the Web, and we have to do much better from that standpoint, which is then a key driver of traffic to the stores,” he said. “So we cannot think of both competition between the Web and the stores. It’s a very holistic, synergistic approach, so investments there are very important.”

Joly estimates that 50% of people who fill their online baskets at Best Buy stores never check out.

“Our checkout process has got seven steps. We can agree that this is too many,” he said.

For the first quarter, Best Buy grew its online business 16% year-over-year, though the retailer’s online market share for consumer electronics is only 7%, compared with 18% for physical brick and mortar.

“There is no reason why it should be lower,” Joly said. “We’ve improved.”

Best Buy needs to do better with its online performance, Joly admitted, saying 2% to 4% of the visits to its sites represent people who wanted to buy a product, but were told the item was out of stock.

“In 80% of the cases we actually have it in stock in one of our stores,” Joly said.

Best Buy has deployed Samsung Stores in 600 of its big box locations, 400 of its smaller stores, “and by the middle of August we will have touched all of our stores, shrinking what’s not working so well in physical media and expanding growing profitable categories where we have the opportunity to gain share — mobile accessories, tablets and appliances, small appliances in particular,” Joly said.

“We are the only place of scale in the U.S, where they can showcase the billions of dollars, the fruit of the billions of dollars of [research and development] investment they make every year, and this is the only place where it can be showcased in a real way with advice and so forth,” he added.

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