In what is being seen as a response to Wal-Mart's price matching some of Best Buy's Black Friday prices on Friday, Nov. 22, Richfield-based Best Buy announced late Thursday that it will offer a number of doorbusters of its own. The sale runs through Saturday, Nov. 23.
Model numbers weren't provided but the deals include:
The items listed are offered online and in the store, according to Best Buy spokesman Jeff Shelman.
How do they compare to other deals next week on Gray Thursday/Black Friday? Target will have an Element 50-inch TV for $229, but the cheapest 50-inch Vizio on Amazon Thursday was about $650, so the Vizio for $449 isn't bad. The Samsung Galaxy S3 deal isn't quite as good as Best Buy's similar deal for a free S4 with two-year activation on Black Friday.
Target Corp. thinks its smaller format CityTargets can get even smaller.
During a recent conference call with analysts to discuss second quarter earnings, CEO Gregg Steinhafel said the company was looking at ways to reduce the size of the urban centric store.
“We are building the capability to operate stores in smaller spaces, particularly in urban markets,” Steinhafel said. “We are analyzing results in our [existing CityTargets] to understand where in the stores we have the ability to reduce space even more allowing us to further shrink the size of this store format.”
Launched last year in cities like Chicago, San Francisco, and Seattle, CityTargets are typically 80,000 to 100,000 square feet compared to the regular big boxes, which typically 150,000 square feet or larger.
For Target, the obvious advantage of the format is that you can find more places to stick one in a dense urban core.
Target was pretty lucky to find the urban real estate to accommodate the seven CityTargets it currently operates, said Amy Koo, an analyst with Kantar Retail consulting firm in Boston.
“It’s really hard to find these spaces,” she said.
Going smaller will presumably give Target more options as it scouts future locations for the format.
Thinking even further ahead, Target’s experimentation might allow it to figure out ways to shrink the size of its regular big box stores to make them more productive, Koo said.
With U.S. sales weak, big boxes like Best Buy and Sears have adopted strategies to make the most of its space. Best Buy has partnered with vendors like Microsoft and Samsung to create store-within-a-store concepts while Sears has leased excess space to outside companies.
Big boxes over the next decade will realize that they don’t need nearly all of the space they currently own or lease, Koo said.
“People just don’t go to the general box to stock up anymore,” she said.
Target Corp. CEO Gregg Steinhafel acknowledges that the retailer suffers from a “price perception” problem in Canada. Consumers readily buy Target’s “discretionary” merchandise like clothes and home.
But when it comes to “non discretionary” items – such as food and healthcare – shoppers assume Target’s prices are much higher than that of Wal-Mart or Loblaws.
For that reason, Target’s Canadian sales have fallen below the company’s original projections. Still, the company’s price perception woes are not exclusive to Canadians.
Over the past three years, Target has struggled with weak U.S. sales during the crucial holiday shopping period. Part of Target’s problem is that the company has not cut prices as aggressively as its competitors, analysts say. Holiday is largely about discounting, but Target has refused to chase what it calls “temporary market share” at the expense of profit margins.
In any case, Target’s prices are probably not materially more expensive than rivals. The company already offers 5 percent off each individual purchase with a REDcard. And Target recently decided to match online and in-store prices of competitors like Wal-Mart and Best Buy, and offer free shipping.
“There isn’t going to be a meaningful change in our [holiday] strategy, because day-in and day ... our prices are competitive,” Steinhafel told analysts during a recent conference call. “We have a very strong value proposition and our circular pricing is even more aggressive than that and we take market leading positions.”
But perception doesn’t always match reality. Target’s prices may be competitive, but Americans looking for deals will likely assume Wal-Mart and Amazon have lower prices, analysts say.
“For the last three holiday seasons, [Target] has performed poorly,” Daniel Binder, a retail analyst with Jefferies & Co., wrote in a recent research note. “This appears to reflect its less aggressive pricing message even as its everyday low prices competitive.”
“We do remain concerned that its less aggressive promotional posture during the biggest quarter may contribute to a loss of mind share with its core customers,” Binder wrote.
In other words, for all of its marketing prowess, Target doesn’t effectively communicate to consumers its holiday prices are just as good if not better than everyone else’s.
To address soft sales in Canada, Steinhafel promised to take quick action to educate consumers.
“We’re going to make sure that our prices get more notice than they have been up to this point,” Steinhafel said. “Part of that was a conscious plan on our part to make sure that we really won in home and apparel and we feel real good about where we’re in those two businesses today, so we’re proud of that fact.”
“Now we have to just turn on the gas a little bit on the other side of the equation to make sure that we’re getting the Canadian guest to understand what great values we offer,” he said.
Steinhafel could easily apply that same logic to American consumers come November and December.
As if competing against Amazon and Wal-Mart wasn’t hard enough, Best Buy apparently faces another upstart rival that doesn’t even sell smartphones and televisions.
That would be Spirit Airlines, the ultra cheap airline that notoriously charges passengers for overhead baggage and water.
In a recent interview with the Los Angeles Times, Spirit CEO Ben Baldanza said his company’s business model is so unique that he doesn’t even consider Delta or even JetBlue to be real competition.
“Our competition is Amazon.com and Best Buy and other places you will spend your discretionary funds,” Baldanza said.
On the surface, Baldanza’s argument seems odd. Retail and airlines are completely different businesses.
But are they? In today’s weak economy, consumers have a limited amount of money to spend. So companies as varied as Spirit and Best Buy must offer consumers a compelling reason to buy their goods or services. The way Spirit sees it, the company wants buyers to choose a cheap flight to Vegas over that 20-inch flat screen.
Spirit has clearly established its niche in price. The company offers really cheap fares because they charge customers for everything else. They also pack more people into their plans by offering less leg room than other airlines.
Not surprisingly, some flyers are peeved about Spirit's perceived lack of quality customer service. That's akin to complaining that the $20 bus fare you paid for Megabus didn’t include a facial and massage. You get what you pay for and Spirit has prospered handsomely from that philosophy.
Best Buy, on the other hand, is betting on customer service. Consumer electronics aren’t simple products and what will separate Best Buy from the rest of the pack knowledge and expertise.
But that’s hardly a neat marketing slogan. Customers respond more easily to price than the relatively abstract idea of expertise. Compounding the challenge is that Best Buy carries everything from $10 DVDs and $15,000 televisions. Such an eclectic range of products makes it hard to tell customers what you’re really good at.
Can Best Buy develop a similarly simple yet compelling identity like Spirit? That remains to be seen.
Paired together, “tornado” and “Best Buy” are usually in reference to the retailer’s legendary turnaround when it held a tent sale at the State Fairgrounds in St. Paul after a tornado destroyed the flagship store in Roseville in 1982.
Today, the words carry a different meaning for corporate employees at Best Buy’s headquarters in Richfield.
Over the past several months, Best Buy has been laying off groups of employees on Tuesdays, a tactic that has prompted the rank and file to nickname the second day of the work week as “Tornado Tuesdays” or “Termination Tuesdays.”
Multiple sources say the layoffs vary wildly across all departments, ranging anywhere from a handful of workers to as high as 25.
It’s no secret that Best Buy needs to trim its corporate headcount. Under Best Buy’s Renew Blue strategy, the company has been working to shave $700 million of the company’s balance sheet over the next few years.
Since CEO Hubert Joly has ruled out cutting stores, Best Buy’s corporate employees will bear the brunt of any cuts focused on its work force.
“When we committed to reducing costs as part of our Renew Blue transformation efforts, we said our first priority was to identify savings in non-salary expenses,” spokeswoman Amy von Walter said Monday. “But we have also had to make some difficult decisions involving headcount which ultimately allow us to accelerate our work to transform our business.
In February, Best Buy laid off about 400 employees, stage one of its cost cutting effort. So far, the company has shaved about $295 million in costs, though not all of that has come from job cuts.
Since then, there has been a steady drip of layoffs week to week. Employees say such a piecemeal approach has damaged morale. Large corporations tend to announce in one larger move so to minimize distractions over time.
But stretching small numbers of layoffs over several months means employees who survive one week still must worry whether they will make it through the next.
Employees say it makes coming to work on Tuesdays especially difficult.
“Whenever someone leaves their desk, we think that person just got laid off even he or she might just be going to the bathroom,” said one employee who requested anonymity because the worker was not authorized to speak to the news media.
Some employees suspect that Best Buy prefers this approach because they don’t want to report larger layoffs as required by the federal WARN act. But the law requires a company to report cumulative layoffs under certain situations over a 90-day period.
Best Buy may be retreating a bit from the music business. But the Richfield-based consumer electronics retailer is still finding ways to stay in the game.
A recent innovative deal between Jay-Z and Samsung could wind up helping Best Buy. The rap/hip hop artist recently struck a deal with Samsung in which the Korean electronics maker purchased one million copies of Magna Carta for $5 million and distribute it free to owners of Galaxy S III, Galaxy S4 and Galaxy Note II devices via a special app three days before the album’s early July release date.
So if Jay-Z album give away leads to additional sales of Galaxy smartphones and tablets, Best Buy, which hosts 1,000 Samsung Experience shops in its stores, also benefits from those sales. That’s probably why you see Best Buy’s logo appear at the very end of commercials that promote the Jay-Z and Samsung partnership.
Under CEO Hubert Joly, Best Buy plans to reduce the amount of space it devotes to CDs and DVDs in favor of higher growth merchandise like appliances, mobile device, and store-within-a-store concepts like Samsung Experience.
Not only does Samsung lease the store space from Best Buy but the retailer also likely takes a cut of any sale the originates in the store-within-a-store.
In short, the deal allows Best Buy to continue to position itself as a music destination without having to get its hands dirty in the relative thankless task of directly selling music.
It’s just as well since Best Buy hasn’t had much luck with music in recent years. The retailer bought Napster for $121 million in 2008 only to sell it to Rhapsody three years later. Best Buy also tried to market itself as a seller of musical instruments. But it seems like the company is phasing out that business, according to the redesigned store space Joly showed to investors.
Interestingly enough, Samsung may have borrowed a page out of Best Buy’s playbook a few years ago. In 2008, Best Buy reportedly paid $14 million to exclusively sell 1.2 million copies of Guns ‘N Roses’ “Chinese Democracy” but actually budged over 600,000 units.
Samsung probably hopes it will get more bang out of its $5 million investment with Jay-Z.
Instead of selling music through the usual channels like iTunes, Jay-Z has chosen a maker of electronics devices to distribute the album. At $5 a pop, Jay-Z probably earned a much higher royalty for his music than any deal he could strike with iTunes.
Unlike Best Buy, Target Corp. continues to invest in its music section.
Earlier this year, Justin Timberlake partnered with Target to exclusively release an extended version of 20/20 in stores, backed by a well-received commercial that aired immediately after JT’s performance during the Grammy Awards.
Despite booming digital sales of music and movies, the Minneapolis-based retailer continues to stock its shelves with the old fashioned CDs and DVDs, hoping its exclusive partnerships with Taylor Swift, Beyonce, and JT can still drive traffic to its stores.