Why Best Buy Might Be the Wal-Mart of Consumer Electronics

Is it time for Best Buy to rethink the superstore? A least one analyst thinks so.

Best Buy
Reed Saxon
Best Buy

"Best Buy is becoming in some ways, the Wal-Mart of consumer electronics," said Craig Johnson, president of Customer Growth Partners.

Just as Wal-Mart is having to rethink the size of its stores as its customer has changed, so too must Best Buy. The electronics retailer's latest earningsoffered more proof, according to Johnson.

Best Buy's productivity is shrinking at its US stores, he said. By his calculations, the retailer's operating earnings per square foot have fallen to about $36.52 per square foot in 2010 from $39.88 per square foot in 2009. And that's without stripping out the company's online sales.

Best Buy's stores average more than 38,000 square feet each, but the retailer is no longer fighting it out in the strip malls against other Big Box rivals, such as Circuit City. Instead, it is increasingly competing against rivals that have very little store space to support such as Verizon and AT&T , or even none at all, in the case of Amazon.com .

Best Buy has already begun to experiment—just as Wal-Mart has—with smaller formats, but in the interim, the retailer will be burdened with a lot of large stores with long leases that may not be as productive as they once were.

There are some positive signs. Best Buy plans to double the number of stand-alone Best Buy mobile stores this year, bringing the number to more than 300. The company also operates kiosks in airports.

But neither of these efforts will shrink its existing superstore footprint, Johnson said.

"The need to shrink the fleet—not the number of ships—but their size," he said.

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