Big-Box Retailer Goes Little Best Buy Expands With Mobile-Phone ...

Big-Box Retailer Goes Little
Best Buy Expands With Mobile-Phone Shops in Malls
By Miguel Bustillo
FEBRUARY 12, 2009
At a time when many retailers are settling into a recession crouch, Best Buy Co. is expanding with smaller
stores selling mobile phones -- a crucial shift for the big-box electronics retailer.
The Best Buy Mobile stores leverage a costly partnership with Carphone Warehouse Group PLC, Britain's
largest independent phone retailer. The up to 3,000-square-foot stores, are going up in shopping malls and
urban downtowns -- unlike its 40,000-square-foot warehouse-style stores.
Best Buy's Walter Mack, in Vernon Hills, Ill., helps Sandra Adams set up email on her phone at one of the
retailer's new mobile-products stores.
Retail and phone industry analysts are mixed on whether the concept will work in the U.S. But most agree
that Best Buy has little choice. "They have to sell those devices to protect their basic franchise," says
Stephen Baker, vice president of industry analysis at researcher NPD Group.
Smartphones are "one of the few growth areas in the market," he said. Apple Inc.'s iPhone and Research in
Motion Ltd.'s BlackBerry are other smartphones are the ultimate convergence devices, combining
computers, digital cameras and music players. Best Buy's same-store sales of digital cameras and MP3
players fell in the five week period ended Jan. 3, it recently reported.
Earnings for the fiscal year ending Feb. 28 are projected to be down 16%, to $2.61 a share on sales of $44.94
billion, according to ThomsonReuters. It earned $3.12 a share on $40.02 billion last year.
Best Buy has opened 41 Best Buy Mobile stores in the U.S. and three in Canada so far. The company also
has added store-within-a-store Best Buy Mobile sections to its nearly 1,000 U.S. warehouse stores. The
stores sell 90 different phones and services from nine carriers. The stores will help set up e-mail and other
functions on new phones before the customer walks out the door.
Best Buy declined to detail how many Mobile stores it planned to open in 2009, but said the format should
get support even as the company tightens capital expenditures in expectation that the bad economy will
linger. The Richfield, Minn., retailer estimates its U.S. mobile phone share over the last quarter of 2008 grew
to 3.2%, compared with 1.9% a year earlier, largely due to the Best Buy Mobile sections in its big-box
stores. It aims for a 10% share within a few years, the company said.
"We know we are providing a service that is making life easier for people," Best Buy president Brian Dunn,
who will become chief executive in June, said in an interview.

One avenue for rapid expansion is Canada, where Circuit City Stores Inc. is auctioning more than 700
smaller locations as it goes out of business. Mr. Dunn declined to discuss interest in the Canadian Circuit
City stores, but industry sources said Best Buy has examined the possibility of acquiring some for Best Buy
Mobile locations.
Best Buy paid nearly $2.2 billion last year for half of Carphone Warehouse's retail operation to create the
Best Buy Mobile joint venture. As part of their partnership, Carphone Warehouse assists Best Buy on
opening new mobile stores and Best Buy gives Carphone Warehouse insights from its Geek Squad computer
service.
"When you look at what Best Buy learned from Carphone Warehouse -- how to show off the products and
offer a broader selection in one place -- it is a powerful leverage that Best Buy can use against competition
like RadioShack," said Bradley Thomas, an analyst with KeyBanc Capital Markets.
RadioShack Corp. and service providers' stores are clearly among Best Buy Mobile's rivals. But Best Buy's
biggest competitor in cell phones, and in all of electronics, is Wal-Mart Stores Inc. The largest mobile phone
seller among retailers, Wal-Mart offers services from all four nationwide contract carriers, as well as a
growing phone selection that includes the Blackberry Storm and iPhone.
Some analysts worry that Best Buy may be overextending. "They are still figuring out how to build the
mousetrap, and I worry about them opening too many," said Joseph Feldman of Telsey Advisory
Group. He said an early Best Buy Mobile in Manhattan looked "empty all the time."
Mobile industry experts believe Best Buy has a solid chance to become a bigger player. But they cautioned
that the U.S. market is still dominated by carriers, who run their own stores, package steep phone discounts
with contract commitments, and hoard the trendiest phones for months before sharing them with traditional
retailers.
As he sized up BlackBerries at a Best Buy store in Houston last month, Leonel Campoverde declared he was
impressed with the mix of selection and service.
"It's a good idea. They have someone who can answer all the questions about phones and plans in one place
so I don't have to drive all over town," Mr. Campoverde, 27, said. But apparently not enough -- he left
without buying a BlackBerry, saying he wanted to check out Wal-Mart.