Best Buy Preparing to Test Health and Wellness Store
In a major departure from its core CE business, Best Buy is preparing a health, wellness and beauty store in Richfield, Minn. The company hopes to open the test store in early 2005 under the EQ-Life banner, an EQ-Life spokeswoman said. The 18,000-sq.-ft. store, which will be located in a shopping center, will merchandise personal care and exercise products, nutritional supplements along with related CE gear such as digital audio players and exercise VHS and DVD titles.
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EQ-Life, which will operate as a limited liability company under Best Buy, is headed by former Best Buy executive Michael Marolt. EQ-Life will staff the stores and make product buying decisions, a spokeswoman said. It also has forged “strategic” partnerships with Park Nicollet Health Services and PrairieStone Pharmacy. Park Nicollet will train employees and run special events, while PrairieStone operates the pharmacy.
Best Buy has been developing the retail format for this test store for 18 months. An EQ-Life spokeswoman declined comment on the size of the investment Best Buy has made in the company and the length of the proposed test. The spokesman also declined to release details of the product mix, but sources said Best Buy likely will draw on its CE connections for some items. Philips’ Medical Systems Group, for example, received FDA clearance in Sept. to sell its HeartStart home defibrillator ($1,995) without a prescription.
“Many of these products have been sold at individual stores, but we will blend them together under one roof,” the EQ-Life spokeswoman said. “It’s a natural extension of what Best Buy has been doing already in making life easier for its customers.”
The test is unrelated to Best Buy’s “consumer centricity” strategy, the EQ-Life spokeswoman said. Best Buy is expected to bring the consumer centricity concept to 70 stores in Cal. this year as part of an effort to identify and build a product mix that caters to the chain’s customers. “This is a one store test of the concept,” which was located in Minn. because of the health consciousness of the region, the EQ-Life spokeswoman said.
In testing concepts outside a core business, retailers risk losing focus on the central operations, industry officials said. Circuit City had the upper hand in the mid-1990s as Best Buy struggled financially, but the chain’s fortunes reversed as Circuit launched the CarMax used car chain and championed Divx technology. Circuit spun off CarMax and closed down the Divx operations. Among Best Buy’s other tests this year has been the Magnolia Audio/Video store-within-a-store format that’s been installed in several Cal. stores. “There’s a team within Best Buy that’s designed to look at new business opportunities and tests are fine as long as they don’t cause you to take your eye off your core business,” a source close to the chain said.
Meanwhile, Best Buy will increase the amount its Reward Zone members have to spend to get a $5 gift certificate from $125 to $150, effective this month. Best Buy, which launched the program a year ago, had 4 million Reward Zone members as of the end of the 2nd quarter on Aug. 28. Best Buy also disclosed in its quarterly report filed with the SEC that the 0.3% increase in 2nd quarter selling, general and administrative expenses to 21.2% of revenues from 20.9% a year earlier was due to charges for the preliminary settlement of a lawsuit. Best Buy also logged assets impairment expenses and costs tied to the 7- year outsourcing agreement it signed with Accenture for IT services.
The agreement with Accenture is expected to result in a “new and easier to use” operating platform that will “reduce our cost structure,” including ownership of IT systems, Best Buy said. The agreement is expected to enable Best Buy to improve its annual operating income rate by 0.5% in fiscal 2007.
Best Buy reported 2nd-quarter domestic revenues rose to $5.5 billion from $4.9 billion a year earlier on a 4.4% gain in same-store sales against 6.9% a year earlier. Same-store sales at Best Buy’s U.S. outlets increased 4.4%, down from 7% a year earlier, while those at subsidiary Magnolia Audio Video rose 6.8% vs. a 5.2% decline. Revenues from international operations including Best Buy and Future Shop stores in Canada, jumped 18% to $574 million from $486 million on a 3% rise in same-store sales. International same-store sales increased 4.6% a year earlier. Best Buy had a $12 million liability as of Aug. 28 related to extended service contracts it acquired in buying Future Shop. The contracts extend through 2007, it said.