Struggling Best Buy Aims to Cut $800 Million in Costs by Closing 50 Retail Stores

For you nostalgic types out there, you may want to head over to your local Best Buy electronics store and take a stroll through nerd nirvana, it could end up being the last time you do so. In reporting its fourth quarter and full year 2012 financial results, the mega electronics chain outlined a new transformation strategy that includes the closure of 50 big-box brick-and-mortar stores. It's part of a larger cost cutting initiative that Best Buy hopes will save the company $800 million by fiscal 2015.

Closing 50 retail stores is expected to cut costs by $300 million. Best Buy says it will save another $300 million by reducing its outside consultant services and eliminating 400 positions in its corporate and support areas, and pocket another $200 million by reducing production transition costs and lowering product return and exchange expenses.


While all this is going on, Best Buy plans to open 100 mobile format stores in the U.S. by the end of next year. These are cheaper to maintain, and by the end of 2016, Best Buy hopes to have anywhere from 600 to 800 mobile store fronts, up from 305 today.

"In order to help make technology work for every one of our customers and transform our business as the consumer electronics industry continues to evolve, we are taking major actions to improve our operating performance," said Brian J. Dunn, CEO of Best Buy. "As part of our multi-channel strategy, we intend to strengthen our portfolio of store formats and footprints --- closing some big box stores, modifying others to our enhanced Connected Store format, and adding Best Buy Mobile stand-alone locations --- all to provide a better shopping environment for our customers across multiple channels while increasing points of presence, and to improve performance and profitability.

"These changes will also help lower our overall cost structure. We intend to invest some of these cost savings into offering new and improved customer experiences and competitive prices --- which will help drive revenue. And, over time, we expect some of the savings will fall to the bottom line."

One can't help but remember the rapid fall of Circuit City, once a strong competitor to Best Buy up until bankruptcy forced the company to close shop. It was later picked up by Systemax, which also owns Tiger Direct and CompUSA. Where Best Buy may be able to avoid a similar fate, however, is in recognizing the growing trend towards mobile devices, and adjusting its strategy accordingly.