They are the Odd Couple of retailing: two banners owned by one company battling for much the same customer with many of the same products. In many places across Canada, Best Buy and Future Shop are across the street from one another. Odd or not, the strategy has been a huge success and the company is now wondering how to take it on the road.
The split personality approach wasn't a unanimous decision. Even after U.S. electronics retail giant Best Buy Co. Inc. scooped up B.C.-based Future Shop in 2001, company executives strongly debated whether to hang on to both names. Richard Schulze, chairman and founder of Best Buy, was among the naysayers. "I'm not saying it can't be done; I'm just saying it has never been done," he reflected at the time.
Takeovers are driven by a desire to slash costs and boost the bottom line. Operating two banners piles on expenses: more marketing, more payroll. But one-time Future Shop executives managed to persuade their new bosses to try the dual-banner strategy. They argued that Future Shop was an established name in Canada with an established following, and that consumers would like the idea of more than one big-box store in the market.
It worked. Next stop: figuring out whether the dual-brand strategy could take off elsewhere, especially if the company pulls the trigger on launching it in the ultra-competitive U.S. market.
In Canada, consumers liked the idea of shopping at Best Buy, the new kid on the block that opened its first Canadian store in 2002. Future Shop had commissioned sales people, drawing many new Canadians who were used to haggling; Best Buy's less pushy, non-commissioned sales people and interactive displays went over well with women.
The dual banners have helped the company more than double - to 38 per cent - its share of the $16-billion electronics market in Canada, from 17 per cent in 2002, according to Solutions Research Group estimates. The twin brands also helped keep U.S.-based archrival Circuit City from entering Canada with its big-box format.
"Not too many companies would agree to do what we did to begin with," said Kevin Layden, architect of the strategy who is now chief operating officer of Best Buy International and previously headed the Canadian division. "What kind of company buys another company, then leaves the existing management team in charge and then says, 'Go ahead and open up our brand and keep your existing company and experiment with two brands?'"
Still, the retailer's market share is starting to flatten as rivals add more electronics to their shelves. After focusing on expanding the Best Buy chain, the company is now turning its attention to Future Shop.
Increasingly, customers want help in figuring out how to connect their array of tech gadgets. This summer, Future Shop will unveil a new prototype store aimed at assisting these customers. It will have a hub at the centre showing how the computer in the bedroom links up to the television in the living room and the sound system throughout the house. Its commissioned sales people are being trained to provide more personalized service, taking a page from luxury men's clothier Harry Rosen.
If the pilot works, the company wants to export Future Shop internationally, and is thinking about taking it to the United States. Circuit City has been struggling, and has let go some of its most experienced U.S. sales people. It might be a good time to launch Future Shop there with its seasoned, commissioned staff.
"We believe the brand can go beyond Canada," Mr. Layden said.
Best Buy isn't alone among retailers to operate under more than one banner. Indigo Books & Music snapped up rival Chapters in 2001 and continues to use both names. Hudson's Bay Co. runs the Bay department store and discounter Zellers. Loblaw Cos. Ltd. has discount stores under the Real Canadian Superstore and No Frills names as well as the mainstream Loblaws outlets.
Retailers like a multibanner approach because they can target different customers with the various banners' offerings. HBC's Zellers carries low-priced apparel while the Bay has $2,500 Giorgio Armani suits. A few years ago the company tried to mix and match its products at the two banners. But consumers got confused. Under new ownership, HBC has returned to a more differentiated approach.
Some retailers' banners perform better than others. Loblaw's No Frills chain is among its strongest, and is now being expanded into Western Canada. A franchised operation, its store owners have a vested interest in getting to know their customers' preferences, and stock their shelves accordingly.
DUAL BRANDS AT BEST BUY
It wasn't apparent at first that Best Buy stores were all that different from Future Shop. They both ran big-box stores filled with television sets and video games.
But the impact of placing a Best Buy close to an existing Future Shop quickly became apparent to the company. The new stores cannibalized sales of existing Future Shops, but not to the extent that the company had initially anticipated. The net effect bolstered the company's overall market share, rather than handing new business to another rival.
For example, when the retailer opened a Best Buy down the street from a Future Shop in suburban Toronto about five years ago, annual sales at the Future Shop slipped by only $4-million to $48-million; the new Best Buy generated $42-million in sales. For the company, it meant a total of $90-million of sales on the same block.
Today, sales at Future Shop stores drop about 8 per cent after a Best Buy launches nearby, company officials said. But the Future Shop subsequently recovers the volume and continues to grow, they said.
The retailer still maintains subtle differences between the banners. Future Shop carries appliances - as it has for 17 years - while Best Buy doesn't. With 133 stores across the country, Future Shop outlets are located in more diverse communities than Best Buy's 51 outlets. Future Shop recruits heavily among ethnic minorities in a bid to better serve its increasingly diverse customer base.
Best Buy appeals more to women who don't like to be buttonholed by sales staff. Its customers prefer to take control of the shopping experience, rather than let sales people get the upper hand.
At Future Shop, the top 10 per cent of staff generate about 30 to 40 per cent of its sales. These employees are key to the chain's marketing efforts, and will become even more important under the new prototype.
THE NEXT GENERATION
The new Future Shop prototype, to open this summer in West Vancouver and a few months later in Edmonton, is an effort to broaden the customer base, especially among women and young people.
Staff are being trained, for example, to help customers figure out what the heck the five remote controls on the coffee table do - and how to reduce them to just one. They'll be equipped with personal digital assistants to promptly reply to customers' tech questions, and alert them to new products.
Like Harry Rosen sales people, they'll keep in touch with their best customers. They'll call them, for instance, if a hot new video game is coming in.