Best Buy sees growth in home appliances

When Best Buy Co. Inc. CEO Hubert Joly visited stores during his first week on the job in September, he quickly noticed something was amiss. Why, he asked, did some locations relegate some appliances to the back of the store when they should be more up front and center?

After all, Joly correctly noted, appliances both large (refrigerators, cooking ranges, washing machines) and small (blenders, toaster ovens) have been hot items recently, one of the few growth categories that Best Buy has only begun to tap.

The company apparently got the message. Encouraged by nine consecutive quarters of same-store sales increases in appliances, Best Buy is poised to expand aggressively into this category. The Richfield, Minn.-based consumer electronics retailer plans this year to open 18 to 25 of its high-end Pacific Kitchen stores, a store-within-a-store concept. Best Buy also plans to shift more of its existing retail floor space away from CDs and DVDs toward higher-growth areas like smartphones, tablets and appliances.

At a time when Best Buy has struggled to grow same-store sales, appliances have performed well. Since the fourth quarter of 2011, Best Buy has averaged a quarterly same-store sales gain of 10.3 percent.

As the housing market continues to recover, Best Buy's push into appliances is a "superb strategic move," said Burt Flickinger, managing director of the Strategic Resources retail consulting firm in New York. "It's a good opportunity to target new home buyers or consumers who want to remodel their homes."

Selling large products like stoves and dryers also will help Best Buy pull away from Amazon, since people are reluctant to purchase such big-ticket items online, Flickinger said.

It might strike people as odd that Best Buy should wade into appliances. Consumers normally associate the brand with televisions, computers, and sound systems, not dishwashers and vacuum cleaners.

Even Best Buy didn't really fashion itself as an appliance retailer. In fiscal 2012, appliances made up only 6.3 percent of the company's $50 billion in revenue. Officials declined to give a target for revenue growth this year.

"This was a business that we weren't really serious about," said Liz Haesler, vice president of appliances. "We were not on top of the latest and greatest trends."

Best Buy took note of how traditional retailers like Sears and Home Depot built successful appliance businesses. Sears, in fact, spun off its appliance operations last fall into a separate publicly traded company called Sears Hometown and Outlet Stores Inc. in a deal worth $446 million.