Glentel Inc.'s (TSX:GLN) successful expansion of its 130- location Wireless Wave store chain has prompted Best Buy Canada to follow suit as analysts muse that the business model is needed to save its troubled parent, Minnesota-based Best Buy Co. (NYSE:BBY), from collapse.
Wireless Wave stores sell mobile devices and data plans through six carriers out of small locations, primarily in malls.
Best Buy Canada launched Best Buy Mobile (BBM) stores a couple years ago and now has 33 locations, including one in Nanaimo, which opened last week. Stores in Vernon and Burnaby and Kingston, Ontario, are set to open within the next month, BBM director Eric Park told Business in Vancouver.
"It's probably safe to say we'll open 15 more of those stores in the next 12 months," Park said. "That's not finite. As long as we find good mall locations and have people to run the stores, we can open up more of the stores."
Demand for smartphones and tablet computers is driving the growth.
Comscorerevealed in February that 9.1 million Canadians have smartphones and that 49.9% of Canadian mobile phone users are using smartphones.
Glentel generated a $28.7 million profit in 2011 from its Wireless Wave and other divisions. No one from the company was available for comment by press time.
But Best Buy Canada's move comes as Best Buy Co. wades in red ink, lays off workers, closes stores and adjusts to being run by interim CEO Mike Mikan.
Former Best Buy Co. CEO Brian Dunn resigned April 10, two weeks after he vowed to close 50 stores and lay off 400 staff to cut US$800 million in annual costs to counter a US$1.7 billion loss in 2011's fourth quarter.
Dunn had started to morph toward stand-alone, small-footprint mall stores since he assumed the retail giant's top job in 2009.
Best Buy Co. had 74 BBM Stores in the U.S. at the end of 2010. That jumped to 177 stores by the end of 2011.
The drive toward small stores is a huge strategic shift from the company's past desire to expand by being the world's foremost big box electronics retailer.
Back in 2001, Best Buy Co. paid $580 million for Vancouver entrepreneur Hassan Khosrowshahi's Future Shop and entered the Canadian retail scene. By 2007, it opened its first of eight now-closed big box electronics stores in China.
Failing to reverse losses, however, would put Best Buy Co. on the same path that former rival and big box electronics giant Circuit City trod before it was forced to liquidate in 2009.
Following Dunn's sudden departure, Credit Suisse analyst Gary Balter told media that Best Buy Co. has not moved fast enough to reduce the size of its stores.
He noted that the retailer generated nearly one-third of its profits from its BBM division, which also includes the mobile departments of big box stores. Still, Balter said those departments accounted for only about 10% of overall Best Buy Co. square footage.
"It takes a lot less of a footprint, either in a separate area of a big box store or in a mall store, to sell mobile devices as opposed to selling TVs and appliances," Park countered.
He added that BBM mall stores will be able to compete effectively with Wireless Wave stores because they:
•offer phone plans with Telus Corp.'s main brand and its discount Koodo brand whereas Wireless Wave does not;
•offer gift certificates to customers who purchase phones that are redeemable at Best Buy's big box stores for a much wider range of products than would be available at Wireless Wave; and
•sell iPads, unlike Wireless Wave.
Park added that Canadian Best Buy big box stores, at between 25,000 and 36,000 square feet, are smaller than their U.S. counterparts. He said those smaller footprints are "more realistic to each market's potential and hence more profitable."
Best Buy Canada opened six new big box stores last year and plans to open another one, on Marine Drive near Oak Street, by year's end. •
