Best Buy's Renew Blue Initiative Cuts $295M in Costs

Since joining Best Buy in August 2012, CEO Hubert Joly has taken steps to strengthen the retailer's operational and financial performance through an initiative he has deemed Renew Blue. In a statement last November Joly expressed that as the eleventh largest e-commerce player in the U.S. across all product categories, the retailer has been too slow to capture its share of the online channel. "Our goal is simple," he said. "It is for Best Buy to thrive as the preferred authority and destination for technology products and services."
On a recent call with investors, Joly provided updates on the Renew Blue initiative, which will ultimately reduce SG&A expenses by $400 million. As outlined, the initiative will focus on six key priorities:
  • Accelerating online growth
  • Escalating the multi-channel customer experience
  • Increasing revenue and gross profit per square foot to enhance store space optimization and merchandising
  • Driving down cost of goods sold to supply chain efficiencies
  • Continuing to gradually optimize the U.S. real estate portfolio
  • Reducing SG&A costs
Thus far, the retailer has driven a 16% increase in domestic comparable online sales during Q1 2014 and eliminated $175 million in SG&A and supply chain costs in addition to $150 million last year. In Q2 Best Buy will focus on SEO optimization, redesigning website navigation, user interface and the mobile/tablet experience.
In November the retailer introduced the use of a Net Promoter Score (NPS) as a key performance indicator. Since then, there has been an increase in the score by more than 300 basis points, as well as an increase in year-over-year in-store and online conversion rates. To help improve the customer experience Best Buy also rolled out a low price guarantee and a buy online, ship from store initiative. Buy online, ship from store is currently being piloted across 50 stores with the hopes to be extended through all new stores as a necessity to fulfilling online demand.
To improve revenue and profit per square foot, the retailer has opened 525 Samsung Experience Shops and 390 standalone mobile stores. It will also open the remaining Samsung Experience Shops and complete the large format store space allocation initiative by the end of the summer.
Driving down supply chain costs, Best Buy has enhanced algorithms to optimize retail store delivery for half of its U.S. trucks, reducing the number of loads and miles driven – the remainder will be addressed in the back half of the year according to Joly. It has also expanded its online delivery capability. By holiday 2014 Best Buy will extend online fulfillment capabilities to the remaining three of its eight distribution centers and reallocate the inventory to the DC closest to the customer.
"Based on the magnitude of this opportunity and others, we are confident in our Renew Blue commitment to reduce cost of goods sold by $325 million," said Joly on a recent call with analysts. "To date we've delivered $30 million and expect to deliver substantially more over the next several quarters… progress will be gradual and incremental, but substantial."
Joly continued, "As we laid out at our Analyst Day in November we believe there's an opportunity to remove $400 million in SG&A from our North American business and we're making substantial progress. In the first quarter we eliminated $135 million in annualized SG&A cost including $40 million in Canada, but in addition to the $150 million in annualized reductions we announced in March. This brings us to $295 million and we will take out additional cost as the year progresses."
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