Bye, Bye, Best Buy
Best Buy has gotten out of the music business.
In the last few months the Minneapolis-based big box electronics and entertainment retailer instituted key changes within the organization and effectively gave up on music retailing.
It’s been a tough year for the mass merchant. Their stock price has fallen about 30 percent. The purchase of Napster has not worked out and sales and earnings have fallen over the last 12 months.
They are struggling to find a strategy in music retailing. Continuity in their music department is one problem. I serve on a music industry board (NARM) representing the indie retail sector and four different faces have represented Best Buy on the board in the last four years.
Return on investment is another. After two decades of scorched-earth policy, selling aggressively below-cost to drive out the competition and gain market share resulting in the closure of hundreds of indie stores and mall-based music stores, Best Buy is now having a hard time figuring out how to generate profit from their music departments. Ironic, huh?
After stocking super large selections from the mid-’90s to mid-aughts, they have radically pulled back the size of selection to generate more inventory turns (the number of times inventory is sold in a year) in hopes of boosting profits and reducing inventory investment costs.
The problem isn’t all that different from what Wal-Mart has struggled with over the last five years. Wal-Mart sales stopped growing at the beginning of the century so they decided to bring in groceries and gas pumps to boost same store sales.
Which is why Best Buy just announced they would begin leasing up to one-fifth of floor space to other retailers since they no longer have enough active selling items to fill their on-average 45,000-square-foot stores. Cosmetics? Diapers? School supplies? Sporting Goods?
Will we see the Body Shop inside Best Buy? Abercrombie & Fitch? Trader Joe’s? Gap Kids?
On a side note, the Nebraska Furniture Mart is experiencing some of these same trends and that’s why they have added kitchen utensils and exercise equipment and are branching out into toys. I predict within two years they will be in the grocery or apparel business. I would say jewelry but Warren already owns Borsheims.
CDs won’t disappear from Best Buy. Not yet. They have purged their internal music division and handed over managing the music department to the same company that manages Wal-Mart’s music department, a company called Anderson Merchandisers out of Amarillo, Texas.
Wal-Mart never managed CDs, DVDs or video games. Anderson has always supplied this for Wal-Mart with the superstore providing direction and objective for the Texas-based supplier.
Anderson also has a seat on the board I serve on and this means Best Buy will relinquish their seat and membership in the premier music retailing trade association.
How will this impact selection at Best Buy? It’s been pretty spotty for the last year. Maybe you have gone in on street week only to find new releases out of stock. So, in the short term, this may remedy this problem.
Wal-Mart stocks a lot of budget product, so even though Best Buy had begun to move into the budget category (like what you see on endcaps at Walgreens or at check out) they may beef this up.
Wal-Mart does Country and Latin music really well so I expect to see more of this. Locally Best Buy has been doing in-stores with radio personalities from the local Latin radio station, 97.7fm.
And the newest racket in the music industry to make money off of music without having to actually invest in it is the cloud service. Charge people to store their digital music. Best Buy just soft-launched their own cloud service and debuted a cell-phone app for it.
Had I been managing Best Buy I would have reached out to Radio Shack a couple years ago when the Shack was struggling to develop a mutually beneficial relationship. It would add natural compatibility to BB without the inventory investment. Or Guitar Center. Or Office Depot.
Instead, Best Buy is developing small footprint mall-based stores devoted to mobile phones. No music. No refrigerators. No flat screen televisions.
What are we gonna do in a few years with all these super large empty store fronts once Best Buy, Wal-Mart and all the others begin reducing store counts?
Maybe we could give them to the school systems who are currently stuck with crumbling outdated, unwired, poorly-infrastructed buildings so they could convert to high-tech classrooms.
Mike is the General Manager of Homer’s Records and has been active in the music industry for more than three decades as a retailer, writer, musician and radio deejay. He currently hosts “Sunday Morning” on 89.7 the River, and serves as a board member for the National Association of Recording Merchandisers and the Coalition of Independent Music Stores.