Best Buy’s Psychological Death From Store Closures (BBY)

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Best Buy Co. Inc. (NYSE: BBY) is not just down because the company’s earnings and guidance were unenthusiastic.  The stock is not just down because it is cutting 400 management positions and it is not down just because the company is closing 50 big box stores.  The problem is the strategy is going to create even further brand damage.

Best Buy is about to irreparable harm to its brand.  The company noted that it is transforming some stores to its new Connected Store format.  Rather than closing these 50 big box stores, Best Buy should have just cut the size of the stores.  By closing these stores permanently, the company is managing to clearly send a mental blow that the company is dying and those customers which could have been won back in the years ahead are going to shop online or elsewhere for sure now.

After looking at analyst comments, the one that stood out was “too little too late” on the store closures.  Some wanted to see even more store closures.  The company expects to continue expanding on its small format Best Buy Mobile small store formats.  If Best Buy would convert those big box stores closer down to something larger than the mobile stores but smaller than the big box stores it may accomplish some of its goals without killing a brand.

What happens mentally when customers drive by and see large retail stores that close down?  They just assume that the company is dying or has died.  Those customers are now going to be forced to do more business online and elsewhere at competitors.  The company is targeting 15% online sales growth for this year and it hopes to reach $4 billion in online sales by 2016.

Best Buy can probably kiss the online sales goodbye from the markets where it is closing its big box stores.  Those customers will worry about the company’s viability and are almost certain to go elsewhere.

JON C. OGG