New, potentially tougher, chapter for Best Buy

It's consumers like Gary Brooks of South Minneapolis who'll help decide when Best Buy's fortunes improve. Whenever he's looking to buy a phone, DVD player, TV or some other electronic gadget, he most always heads to Best Buy, usually one in Richfield.

"We've gone to other places sometimes. But mostly we come to Best Buy," he said. "And a lot of times we start here."

Best Buy is the first retailer many, if not most, consumers think of when they're shopping for electronics. That's especially the case now that Circuit City is kaput.

The problem is the recession has really stifled spending by consumers like Brooks, especially on many of the electronic toys Best Buy sells.

Longer term, that's going to be a huge positive for Best Buy -- the fact that their number-one competitor is out of business.

But Brooks, at least, has been feeling somewhat encouraged about his finances lately. And he's contemplating a big purchase at Best Buy.

"We're interested in getting one of the big TVs because it seems like the prices are about as good as they're going to get," he said.

Best Buy is indeed trying to spike its sales with enticing prices and credit offers. This week, for instance, the company's offering 18 months of interest-free financing on purchases of $499 or more.

But Best Buy has also been aggressively slashing costs; 500 employees recently took buyouts and dozens more were laid off.

"Best Buy is positioning themselves well for a tougher economy," said retail consultant Howard Davidowitz. He thinks Best Buy faces a stiff challenge selling its nice-to-have but not necessary tech toys in this economy. Still, Davidowitz likes the moves Best Buy has made.

"They've reorganized their stores," Davidowitz said. "They've re-looked at their whole assortment in the stores. They've cut back their expansion. They've taken the steps you can take, properly, in a tough economy."

Circuit City shut its last 567 stores this month. And retail analysts expect Best Buy -- which already has about $40 billion in annual sales -- will pick up a big chunk of Circuit City's business. Morningstar analyst Brady Lemos said Best Buy could benefit more than any other retailer.

"Longer term, that's going to be a huge positive for Best Buy -- the fact that their number-one competitor is out of business," Lemos said.

But retail consultant Howard Davidowitz said Best Buy's new nemesis is the biggest, most powerful retailer on the planet.

"Wal-Mart has been expanding their space in electronics and doing more business," he said. "And, of course, Wal-Mart is a very tough competitor on price."

But Best Buy's selection is much wider than Wal-Mart's in many categories, including musical instruments, cell phones, TVs and audio systems.

Best Buy, with its army of Geek Squad tech experts offers customers more hand-holding and help than Wal-Mart does. That's important for many technologically-challenged consumers.

Best Buy also plans to revamp its stores to provide what it said will be an even more customer-focused shopping experience.

Analysts hope to hear more about that and other efforts during Best Buy's conference call Thursday to discuss earnings. They'll also be looking to learn more about incoming CEO Brian Dunn's vision for Best Buy. Dunn is currently Best Buy's president and he'll take the CEO post in June, succeeding retiring CEO Brad Anderson.

Back at the Richfield Best Buy, Gary Brooks muses that laying out more than $1,000 for a big TV could be a smart money move, no matter what happens with the economy.

"It's still hard to say which way it's going to go," he said. "But we figure if we get a nice big TV, we can sit at home and not go out to the movies, I guess."

For the quarter that ended March 1, analysts predict Best Buy's profits may be down about 20 percent from a year before, and they forecast a key measure of sales falling 5 to 10 percent, perhaps more.

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