Issue of the week: Thinking outside the big box

The era of big-box stores “is coming to an end,” as big chains are being pushed to rethink their business model.

The era of big-box stores “is coming to an end,” said David Welch in Bloomberg Businessweek. The rise of online shopping, the slow economy, the high cost of real estate, and the popularity of price-comparison apps on smartphones have run large chains like Borders and Circuit City out of business and are now pushing other big chains to rethink their business model. Best Buy announced last week that it would close 50 of its 1,400 large stores this year, and open hundreds of smaller stores by 2016. Walmart and Target have similar plans to shift emphasis toward smaller outlets. Where sprawling showrooms were once the draw, retailers’ “new mantra is small box.”

Best Buy is doing more than just shrinking stores, said Miguel Bustillo in The Wall Street Journal. It is dramatically shifting tactics in the face of competition from Apple and Amazon. Its planned small stores will sell smartphones and tablets, and new “Knowledge Desks” in some of its remaining bigger stores will cater to customers looking for tech support and advice, echoing Apple’s in-store Genius Bars. To counter “showrooming”—when customers inspect items in stores but buy them elsewhere—the company plans to “substantially increase” staff training and bonuses to move merchandise, and offer consumers price guarantees, loyalty rewards, and more free shipping on online orders.

That’s a good start, said Kit Eaton in Having lost $1.7 billion last quarter, Best Buy clearly understands that “something dramatic has to change” with the way it does business. Focusing on phones is a wise move; the devices offer higher profit margins than computers and appliances, and people still like to buy them in person. Apple has also shown that brick-and-mortar stores can succeed, and if Best Buy can mimic that model—with smart salespeople in smartly designed, smaller stores—it might just become a place where people want to shop again.

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I’m not convinced, said Beth Carter in Best Buy’s plans to imitate Apple’s lauded tech support could fall flat, since it remains “just a middleman, selling things other companies make,” whereas Apple’s advice comes straight from the source. And as long as Best Buy has to pay premiums for real estate and salaries, online retailers like Amazon will always have an advantage on pricing. It’s admirable that the company is making these overdue moves. But unless it can start selling more stuff, it still risks becoming just another “showroom for shoppers.”

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