Best Buy’s northern oasis

In crisis mode south of the border, the chain is booming in Canada, selling everything from TVs to diaper bags
20071227;ONT;News;A6 -- Bargain hunters looking for deals on electronics flock to a Best Buy store at Dufferin St. and Highway 401 yesterday.
Best Buy’s northern oasis
Aaron Lynett/Toronto Star/GetStcok

Canada has become a safe haven for U.S. retailers struggling to find growth in sluggish domestic and European markets. But none more so than Best Buy, the world’s largest consumer electronics company.

The Minnesota chain has experienced an endless stream of bad news south of the border, where it has been hard hit by both a drop in consumer spending and the rise of online discount competitors like Amazon.

It announced it was closing 50 stores after losing US$1.2-billion in the last fiscal year. It shut its U.K. stores in January. CEO Brian Dunn resigned after an ethics probe into an alleged relationship with a female subordinate. The scandal forced the chain’s founder and chairman, Richard Schulze, to resign and he has since been locked in a battle with directors over his plans to buy the firm and take it private. Last month, Best Buy announced it would stop issuing earnings forecasts.

But all the while, the company has been opening new stores in Canada. It launched 25 Best Buy Mobile stores across the country this year, including four in the last month, along with two small-scale outlet stores. Its Canadian revenues were a bright spot in 2011, up about $40 million to $5.5 billion.

Its most significant development may be the firm’s recent promise to match the prices of its online competition, something the company has yet to offer in the U.S. It’s a move the company hopes will cut down on “showrooming,” where customers go to a store to play with a product, and then go home and buy it for a cheaper price online.

Best Buy can make such promises in Canada, where online retailers like Amazon haven’t offered nearly the selection of discount goods as in the U.S. and where Best Buy happens to own its chief competitor, Future Shop, which it bought in 2001. “There’s no question that the competitive landscape online is different by comparison,” Best Buy Canada president and COO Mike Pratt said in an email to Maclean’s. “But we’ve definitely seen an uptick in competitors in Canada as well in the last year.” The retailer’s Canadian operations are “coming off a record year in terms of profitability,” Pratt said, while its website has seen “high double digit” growth over the past year.

Its success in Canada has emboldened Best Buy to experiment with selling lifestyle items—such as luggage and kitchenware—to Canadians over the Internet. It recently launched an online-only suite of baby products. Diaper bags and TVs might seem like an unlikely marriage for Best Buy, but the company has been desperate to expand its business in Canada to counter sliding sales of products like video games and notebook computers, according to company financial statements.

Moving away from electronics and into the unknown territory of baby furniture is a huge gamble for the company, said retail consultant John Williams of J.C. Williams Group. “It’s a slippery slope because they make more margin on some of this stuff, but it detracts from their strength as a specialty store,” he said. “I don’t think it’s a wise strategy.”

Still, it just may be the retail giant’s best shot at getting ahead of the pack in Canada, even as it struggles to hang on everywhere else.