The sudden closing of 131 Future Shop electronics stores on Saturday, with 65 of them set to re-open as sister chain Best Buy in a week, underscores the difficulties of running dual banners as more business shifts online.
U.S.-based Best Buy Co., which has operated both banners since it acquired Burnaby, B.C.-based Future Shop in 2001, acknowledged on Saturday that it had too many bricks-and-mortar stores – 258 – and one too many store names. Stores were overlapping, sitting across from each other and even sharing parking lots, stealing customers from one another and adding to corporate marketing and other costs.
"Currently 80 per cent of our customers are within a 15-minute drive to a store and this won't change," said Ron Wilson, president of Best Buy Canada.
Rising competition, especially online, has finally forced Best Buy to do what many in the industry thought was inevitable. In an era when retailers need to invest more in their e-commerce to respond to changing customer demands, a dual – or multibanner – strategy is a luxury that many mainstream companies can no longer afford.
"To be honest, I'm only surprised it took this long – always seemed a needless redundancy to me," said Doug Stephens, founder of Retail Prophet Consulting and author of The Retail Revival: Re-Imagining Business for the New Age of Consumerism.
Best Buy has said in the past its dual-banner strategy helped lure more consumers, who weren't necessarily aware the two chains were owned by the same company. Two banners gave shoppers the perception of choice in the market, observers said.
But with the proliferation of online competition, including U.S. titan Amazon.com Inc., retailers can get distracted managing dual banners rather than focusing on more pressing priorities.
"What has changed is that the market is not growing and consumers are shopping across channels," said Best Buy spokesman Elliott Chun, referring to online and physical store shopping channels. "So what we need now is fewer but better stores and a single brand that we can invest in."
Best Buy differentiated the two banners in some ways. Future Shop paid its salespeople commissions, and some shoppers say the staff there were pushier than employees at Best Buy. The commissioned sales staff attracted new Canadians who were more used to haggling. Future Shop, which carried some higher-end products, stocked large appliances while Best Buy did not (except online, starting last year). Soon its stores will start carrying those products, the company said Saturday.
Still, in more recent times, distinctions between the two banners seemed less clear, industry observers said.
Other multibanner retailers have closed some weaker chains, such as fashion specialist Reitmans (Canada) Ltd., which is shutting Smart Set, and the owner of home-goods retailer Bowring, which shut Benix.
Grocer Sobeys, which acquired Safeway Canada more than a year ago, may consider dropping that banner, observers suggest. Sobeys has already put its namesake on some of its regional stores.
Rival Metro Inc. replaced the Dominion banner with its name.
Retailers such as Loblaw Cos. Ltd. still keep many banners, partly to distinguish discount chains, such as No Frills.
South of the border, U.S. department-store retailer Macy's Inc. rebranded to its namesake an array of its regional chains over past years, including Marshall Field's.
For Best Buy, "this is the right move, as hard a decision as it is – less confusion for consumers and one brand to manage," said Bruce Winder, senior adviser at retail consultancy J.C. Williams Group. "The electronics industry is low margin and cost reduction was a must to survive."
Best Buy needed to make changes. In its fourth quarter of 2014, its same-store sales dropped 4 per cent in Canada while foreign currency shifts left U.S. parent Best Buy with a 12.4-per-cent sales decline in its international division, Sharon McCollam, chief financial officer, said this month. Sales at stores open a year or more – a key retail measure – grew in the mobile phone category, but "was more than offset" by declines in tablets, gaming and digital imaging, she said.
After the company acquired Future Shop, the Canadian executives persuaded their new bosses to try the dual-banner strategy. They argued that Future Shop was an established name in Canada with loyal customers who liked the idea of more than one big-box store. It worked so well that the company considered the dual-brand strategy for the U.S. market.
Now, Best Buy joins other retailers that are feeling the pinch of more shoppers making purchases online and heading to physical stores less. The shift to cyberbuying is particularly acute in the electronics and computer field.
Among all online shopping categories, electronics saw the biggest increase in spending in the fourth quarter of 2014, according to J. C. Williams research. It found of Canadians who bought electronics, 36 per cent of their spending was online in that period. Consumers who bought electronics spent $198 a person during the fourth quarter of last year, up 16 per cent from a year earlier.
Best Buy's Mr. Chun noted that while traditional electronics categories are not growing, new emerging ones – such as wearable technology – are picking up. He added the retailer will begin shipping online orders directly from stores in a few months.
He said Best Buy's research found its name enjoyed greater "top-of-mind awareness" among consumers. The retailer also benefits from significant spillover of U.S. advertising, he said.
The Future Shop store closings come as U.S. discounter Target Corp. shuts all its 133 stores in Canada, while other failing retailers, such as fashion chains Mexx and Jacob, also are closing outlets, leaving a lot of retail space to fill in the coming months.
After the Future Shop closings, the company will have a total of 192 stores across the country under the Best Buy name, including 136 large ones and 56 smaller Best Buy Mobile stores.
As a result of the consolidation, about 500 full-time and 1,000 part-time jobs will be lost, the company said. The affected employees will receive severance and help with outplacement support, it said.
Best Buy expects to post restructuring charges and non-restructuring impairments of between $250-million and $350-million, or 41 cents a share (U.S.) to 58 cents a share, it said. This includes $175-million (Canadian) to $225-million of cash charges, mostly tied to future rent obligations and severance, that will be paid over the next five years.
The company said it expects diluted earnings per share to be negatively affected in fiscal 2016 in the range of 10 cents (U.S.) to 20 cents a share, primarily because of a temporary increase in operational expenses related to the consolidation and store disruptions. But it doesn't expect the negative earnings impact to continue into future years, it said.
The company said it will invest up to $200-million (Canadian) in Best Buy stores and its website. It said it will launch major home appliances in all stores while increasing staff levels.
"Any decisions that impact our people are never taken lightly," Mr. Wilson said. "Our first priority is to support them through this change."
Best Buy had already closed stores and let go staff in Canada over the past couple of years.
It cut 950 jobs at its namesake and Future Shop stores in early 2014 as it streamlined its business to take on tougher competition. The restructuring entailed consolidating sales departments and reducing management layers in Future Shop and Best Buy stores.
A year earlier, in 2013, Best Buy closed 15 of its then almost 230 big-box stores and cut roughly 900 employees.
The streamlining underscores the increasingly competitive retail landscape as U.S. discount giants Wal-Mart Stores Inc. and Costco Wholesale expand in Canada while online players bolster their business here.
Best Buy Canada has tried to fight back, carrying out its own transformation plan under Mr. Wilson, who took over the top job in Canada in 2013. He opened 176 "stores-within-a-store" concepts, working with high-profile suppliers such as Microsoft and Samsung to give their fast-growing products more prominent space in the big-box Best Buy stores.
The company has also expanded its online offerings, introducing new categories and products including baby goods.
(Editor's note: An earlier online version of this story incorrectly stated the percentage increase of online spending by Canadians on electronics in the fourth quarter of 2014.)