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Best Buy gives big boxes the boot

Small is beautiful

Best Buy has put its "big box" strategy under review worldwide, with management braced for considerable shrinkage.

The US retailer set up shop in the UK last year - it has ten megastores with another on the way in Enfield - but has shelved plans to set up another 80 as hard-pressed shoppers spend cash on food and utility bills rather than helping to massage its sales figures.

Losses from the firm's European joint venture with Carphone Warehouse tripled to £62m on a year ago - £12m more than the business predicted - according to recently filed results for CPW.

However, last night Best Buy corp disclosed worldwide numbers for fiscal first quarter 2012 showing a one per cent rise in turnover to $10.9bn (£6.7bn), but a 10 per cent slide in operating income to $282m.

Tactical pricing to win retail market share, a weaker margin mix, higher logistics costs and non-repeatable vendor rebates from the same period a year earlier were all blamed for top line slippage.

The "customer is stretched thin in the current environment. So we would be fluid and purposeful with our plans," said Best Buy CFO James Muehlbauer in a conference call with analysts.

Those plans include a rethink of its big box yellow stores... "We have to reduce square footage with our existing stores by shrinking the footprint."

Best Buy is talking to landlords about inviting sub-tenants to take up residence in stores and has a large number of leases up for renewal in the next three to four years.

Closer to home, Best Buy has 2,400 small box CPW stores across Europe as part of the tie-in with the phone retailer, which now looks the likely way forward for the joint venture.

CEO Brian Dunn told analysts it was aware of reports on its stalling store strategy but argued it managed outlets "as a portfolio of brands and businesses… we don't have any imminent announcement about our business in the UK".

A report late last night speculated Best Buy may actually shelve all UK stores, with an estimated cost of £40m to end property leases, and penning new agreements had been suspended for a quarter as management assess the lie of the land.

In a statement sent to the The Register, a Best Buy spokeswoman said: "We said we'd open 11 stores and then conduct a strategy review… We are now conducting our evaluation with our partners." ®

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