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TK's MORNING BUZZ: Best Buy's Plans for Musicland's Mall Stores Are Intriguing

8 Dec, 2000 By: Thomas K. Arnold

Best Buy's plans for Musicland's mall stores are intriguing. I'm sure by now all of you know that Best Buy, the nation's No. 1 consumer electronics chain, is buying Musicland Stores Corp., the country's top music retailer, for $685 million.

Best Buy's objective, in acquiring more than 1,300 additional storefronts to add to its own 400-plus, is to beef up its presence and avenues for selling cutting-edge digital electronics like DVD players, satellite systems and assorted wireless gadgetry.

Best Buy's immediate target are Musicland's 680 Sam Goody mall stores, as well as another 200 On Cue locations in rural areas. These stores in the coming year will be converted into mini-Best Buys, with their music and video software mix augmented by hardware.

Analysts question whether the transformation will work, maintaining that costs are higher in smaller stores and Best Buy may not be able to carry over its trademark deep-discount pricing and promotions. They also wonder whether Best Buy will have the cash to carry through with its plans, since its own earnings for the second half of this year are off and music sales are flattening after several years of slow but steady growth.

If Best Buy can pull it off, however, then we will see the birth of a truly revolutionary chain of multimedia stores that carry just about everything, albeit in limited quantities, having to do with home entertainment.

This could be a very smart move, in my mind. Best Buy has already established itself as a destination for home entertainment enthusiasts. I personally shop there for CDs and hardware, and I know many video specialty retailers routinely pick up their DVDs and VHS sellthrough cassettes at prices a lot lower than their distributors charge.

If Best Buy can successfully bring its product mix into the malls and thus capture the impulse buyer as well as the destination shopper, then we're looking at something that could truly be big. But as the analysts say, there are compelling questions about whether all of this is even possible.

The home entertainment store of the future just might not fit into a cookie cutter, after all.

Comments? Contact TK directly at:TKArnold@aol.com

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