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File photo of patrons looking at television sets at a Best Buy outlet in Montreal. (Christinne Muschi/The Globe and Mail)
File photo of patrons looking at television sets at a Best Buy outlet in Montreal. (Christinne Muschi/The Globe and Mail)

retail

Best Buy scales back as tablets take over and Target looms Add to ...

Best Buy Canada has seen better times.

The chain is closing 15 of its almost 230 big-box stores and cutting roughly 900 employees, a dramatic step for the retailer as it faces growing pressure from discount rivals and a fast-changing market.

The shutting of eight Future Shop and seven Best Buy big-box stores across the country comes as electronics retailers feel the squeeze of the burgeoning business at online retailers such as Amazon.com Inc. and Wal-Mart Stores Inc. and their cut-rate prices. The cuts follow a similar move last March in the United States, where the parent company said it was closing 50 stores.

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The steps taken by Best Buy on Thursday highlight how quickly the red-hot market for smartphones and tablets is overtaking what was the chain’s bread and butter not so long ago: big-screen televisions and computers.

On the same day the company announced it was reducing its work force by roughly 5 per cent, it also said it was moving toward smaller stores. Consumers are increasingly heading to smaller shops – or the Internet – rather than superstores with products packed to the ceilings. The move reflects the urgency among retailers to slash costs amid strengthening competition from savvy U.S. low-cost leaders. By next month, another one – Target Corp. – will start opening stores here.

“Best Buy has been under pressure from several sources,” said Scot Ciccarelli, retail analyst at RBC in New York. “You’re going to see more cost cuts. Store closures – I wouldn’t be surprised if you saw more of them, whether it’s Canada, the U.S., Europe, etc.”

Best Buy Canada is betting its cutbacks will pay off as it prepares to expand into smaller outlets under its Future Shop and Best Buy Mobile banners, while moving to profit from its own e-commerce as it ties it more closely to its stores.

But Christopher Bennett, a spokesman for Best Buy Canada, said the cuts aren’t a result of the “show-rooming” phenomenon, in which consumers check out products in physical stores but purchase them at low-cost online sellers. Rather, the moves were prompted by consumers’ growing preference for smaller stores, he said.

The new, smaller Future Shop stores will be roughly one-fifth the size of its big-box outlets. “This is the first phase of a larger transformational strategy,” Mr. Bennett said.

“There’s going to be much larger multichannel component,” which includes online and mobile shopping.

“It’s really setting in motion pro-actively how we stay healthy and how we enable us to grow five years out.”

Last year, Best Buy Canada started to aggressively fight off competitive forces by pledging to customers that it would beat rivals’ prices.

It also branched out into more goods beyond electronics, including baby and home products, on its e-commerce site.

Kaan Yigit, president of Solutions Research Group, said Best Buy is suffering from the cooling off of once-popular categories such as flat-screen televisions, resulting in lower prices and margins.

Consumers are buying tablets or smart phones, but companies such as Best Buy are competing with others for the same items, leading to lower margins. “Consumers can quickly price-compare and go for the best deal whether in brick-and-mortar stores or online,” Mr. Yigit said.

In its third quarter, Best Buy Co. Inc. reported a weaker-than-expected profit and its ninth same-store sales decline in 10 quarters, underlining the challenges of its new chief executive officer, Hubert Joly, at the world’s largest consumer electronics retailer. In the meantime, founder Richard Schulze is working on a buyout proposal for the company.

It posted a third-quarter loss of $13-million (U.S.), or 4 cents a share, compared with profit of $173-million, or 47 cents a share, a year earlier.

Excluding restructuring charges, the company earned 3 cents a share, far below the analysts’ average estimate of 12 cents, according to Thomson Reuters I/B/E/S. Sales fell to $10.75-billion from $11.15-billion.

Sales at stores open at least 14 months fell 4.3 per cent, including a 4 per cent decline at the company’s U.S. unit.

Best Buy’s domestic business suffered from higher selling, general and administrative costs, falling sales and customers’ holding back on some purchases in anticipation of major product launches.

While demand was strong for mobile phones, appliances, tablet computers and e-readers, it was weaker for notebook computers, gaming products and televisions.

Same-store sales fell 5.2 per cent at the company’s international unit, hurt by weak sales in Canada and China.

The company performed better in the holiday period, reporting flat U.S. same-store sales although international sales fell 6.4 per cent and were weak in Canada, Best Buy said.

Follow on Twitter: @MarinaStrauss

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