Best Buy to Restructure Store Staff by Fall, CFO Says

The reorganization will take place market by market and is expected to be complete by the peak fall selling season, Muehlbauer said. The chain is said to be cutting the jobs of up to 1,000 assistant store managers and shifting 8,000 sales staff to positions paying 25 to 50 less than they've been making (CED April 17 p3). Muehlbauer conceded that Best Buy may lose senior staffers as a result, but said the changes would be made in consultation with store general managers and at the behest of customers.

Best Buy has found other ways to reduce costs, such as cutting its capital budget to $600 million, Muehlbauer said. The company also may reduce its spending on newspaper ad circulars and rely more on promotions such as those targeted to its more than 30 million Rewards Zone members, he said. “We were not putting enough people in true supervisory roles to get that level of training and support,” Muehlbauer said. “We were asking supervisors to do more selling than training. For the benefit of our customers, our model and our employees, we wanted our supervisors spending more time on training of our staff, so that they could be better sales advocates for our customers.” Some assistant store managers were spending more time selling than “becoming good general manager candidates down the road,” Muehlbauer said. Store general managers were “actively involved in advising us in what was the best way to make these changes,” he said.

Any savings from the reorganization will be “minuscule,” Muehlbauer said. Best Buy also has doubled to 12 the “revenue bands” it uses in setting store staffing levels and labor hours, Muehlbauer said. The bands are based on store sales and designed to increase staffing at outlets with more customers and cutting back “where there isn’t a need for the same level” of staff, Muehlbauer said. Best Buy moved its restructuring to its stores in the U.S. after cutting 700 jobs at its Minnesota headquarters, largely through voluntary severance packages. The company’s selling, general and administrative expenses, including from a joint venture with Carphone Warehouse, are expected to rise 7 to 8 percent this year, Muehlbauer said. In Best Buy’s core business, those expenses will increase 1 percent, he said.

Circuit City’s demise sparked “better conversations around product category management” between Best Buy and its vendors, Muehlbauer said. “If they did something for us in the past, they felt obliged to match it with Circuit in some respects. Now they're more willing to take some risks with us involving our call centers and Reward Zones information.” With Circuit City gone, vendors seem more willing to try short-term financing programs with Best Buy targeting specific products, he said.

Wal-Mart and Best Buy together account for half the U.S. CE retail market, Muehlbauer said. To go after the other half -- held by competitors including discount chains, regional and local dealers -- Best Buy store general managers are devising strategies for product mixes tailored to their markets, he said. “If I'm a store manager, I'm really planning what are my key growth drivers and what am I going to focus on in my market based on what my customer is telling me,” Muehlbauer said. “General managers see things differently in their market.”

Best Buy’s venture with Carphone Warehouse remains on target to open 100 to 200 “big box” stores in Europe the next five years, despite having postponed the first store to spring 2010 from September, Muehlbauer said. Carphone Warehouse has more than 2,400 outlets in Europe. Best Buy Europe postponed the store opening in the U.K. to take advantage of rent and labor costs there that are “on par” with those in the U.S., Muehlbauer said. Rent and labor are typically more expensive in the U.K., he said. “There is a lot of real estate available, but the way Best Buy was successful domestically wasn’t through a land grab,” Muehlbauer said. “Best Buy worked through market by market. We intend to do the same thing in Europe.”

Best Buy also will expand its presence in Mexico to four to five stores from the outlet that opened there in December, Muehlbauer said. “Clearly one of the markets that has the greatest potential for high growth and return on invested capital is Mexico,” Muehlbauer said. Entering Mexico, Best Buy will likely draw on experienced store staffers in outlets in the bordering U.S. states, he said.

Best Buy also plans to expand in China, where it owns 160-store Five Star Electronics and operates two stores under its own banner, he said. “We're focused on growth there, but it’s going to be a while as far as meaningful return on invested capital,” Muehlbauer said. The chain will add its first store in Turkey in the fall, taking advantage of the country’s CE manufacturing base, which supplies product for Europe.