Why Best Buy Shuttered Future Shop: Industry Expert Q&A

Photo: Wikipedia

Photo: Wikipedia

We spoke with retail industry expert Antony Karabus, CEO of HRC Advisory, to get his opinion on why Best Buy shuttered Canada's Future Shop locations. We also asked him about Best Buy's strategy to close stores without warning, as well as the future for electronics retailers in Canada. 

As a background, on Saturday, March 28, Best Buy closed all Future Shop locations, announcing that 65 of the chain's 131 Canadian locations would be converted to Best Buy nameplates. The other 66 locations will remain closed, resulting in about 1,500 job losses.

We asked Mr. Karabus why Best Buy closed Future Shop's stores. He explained the inefficiencies of operating two nameplates carrying essentially the same product, sometimes within close proximity. He believes that when Best Buy bought Future Shop, operating both brands was a strategic opportunity to gain market share. As Best Buy became increasingly familiar to Canadians, maintaining both became irrelevant. Closing Future Shop will likely free up significant capital for Best Buy, according to Mr. Karabus.

Screenshot from Future Shop's website

Screenshot from Future Shop's website

Furthermore, Future Shop sales consultants were paid on commission (according to the www.futureshop.ca website), as opposed to Best Buy's hourly staff. Mr Karabus believes that as Canadians increasingly research potential electronics online prior to purchasing, commission-driven sales staff will generally become unnecessary. 

Mr. Karabus explained that electronics retailers have increased competition from both e-commerce as well as hybrid brick-and-mortar competitors. Furthermore, there is also increasing competition from bricks-and-mortar retailers such as WalmartCostcoLondon DrugsThe Source, as well as Tech departments at Chapters/IndigoApple Stores are also increasingly becoming competitors, as the brand becomes more popular and continues to open new and larger Canadian stores. 

Photo: loyalty360.org

Mr. Karabus notes that electronics purchases are down, generally, as there haven't been significant product innovations recently. Anything new has primarily involved upgraded or modified technology. As a result of the above challenges, Best Buy was best served to streamline its operations. 

We asked Mr. Karabus' opinion on Best Buy's without-notice Future Shop closure. He explained that it may have been a good financial decision for Best Buy to immediately shutter Future Shop's operations to concentrate on one brand. On a human resources level, however, Mr. Karabus notes that Best Buy's actions were "harsh", as many lost their jobs with no advance warning. Recent job losses from TargetSmart Set, Jacob and others have already caused considerable grief. We asked him if Best Buy's actions will hurt its brand and Mr. Karabus felt that while some may be disappointed, customers are generally quick to forget. Given that Best Buy is now Canada's only Big Box specialist electronics-focused retailer, it will likely not suffer from this decision, according to Mr. Karabus. 

Photo: Best Buy

Photo: Best Buy

We asked Mr. Karabus about the future of consumer electronics retailers in Canada, given increased online price transparency and the ease of buying online. He feels strongly that there is still a meaningful role for brick-and-mortar consumer electronics retailers in Canada, especially well-stocked locations providing "advice and consultation", building trust by suggesting the "right" product. After sales service, in particular Best Buy's Geek Squad, is a brilliant weapon to fight pure-play online retailers, further enhancing trust in Best Buy's brick-and-mortar operations and related in-store customer service, according to Mr. Karabus.  

About Our Expert: 

Mr. Karabus became CEO of HRC Advisory in January of 2013. He has been a trusted and passionate advisor to retailers on strategic and financial performance issues for over 25 years. He has assisted numerous North American retailers to create significant shareholder value during this time. He has worked with numerous well known retail chains in key sectors such as department store, specialty apparel and hard lines, big box chains and food and convenience.

Antony began his career at Arthur Andersen in Cape Town, South Africa and moved with the firm to Toronto, where he founded Karabus Management as a Canadian retail advisory firm in 1990. In 2001, Karabus Management expanded into the United States, where the firm became a leading North American specialist retail consulting firm. In 2008 he sold the firm to an International Accounting/Consulting firm where he served as the leader of that firm’s Retail Consulting Services practice until he left the firm in December 2011.

Antony conducts annual surveys of Retail CFO and CEOs to determine key priorities in assisting their business to enable substantive value creation.

Antony is a recognized speaker and a published author providing thought leadership at industry forums, including the National Retail Federation, Retail Council of Canada, World Retail Congress and the Fashion Institute of Technology and providing content to The Wall Street Journal, The New York Times, Stores Magazine, The Globe & Mail, Chain Store Age, National Post, Toronto Star and Women’s Wear Daily, among others.

About HRC: HRC Advisory is a specialist boutique retail advisory firm. Together with its predecessor firms, it has been assisting Canadian and US Retail Chains to improve their profitability and strategic positioning for more than 25 years. Many of HRC’s senior advisors were previously at Senn Delaney Retail Consultants and Karabus Management following retail leadership roles. Other senior advisors at HRC have a mix of retail leadership and retail consulting experience gained with other leading firms
HRC has significant retail depth in strategic planning, buying, merchandise planning and inventory management, indirect procurement, store operations and omni-channel processes, supply chain/logistics and fulfillment, and comprehensive cost optimization services. HRC has worked extensively with both healthy top performing chains as well as developing and executing turnaround mandates at a number of retailers in difficult situations. For more information, please visit www.HRCadvisory.com.

Today's Retail News From Around The Web: March 30, 2015