Best Buy to consolidate its vendors
Chain reduces direct relationships with focus on new releases
By Susanne Ault -- Video Business, 2/13/2009
FEB. 13 | Best Buy will pare the number of labels it buys from directly as part of an effort to emphasize theatrical new releases from the major studios and reduce the number of slower-moving SKUs in stores.
“We are consolidating the number of vendors with which we do business,” a Best Buy spokesman confirmed. “However, as you know, in this category, you can eliminate vendors without eliminating the ability to purchase the product because [of the ability to buy from] distributors. By reducing our vendors, we reduce all the downstream costs and can be more efficient.”
Indie label sources expect Best Buy to name a small number of gatekeepers, as it were, to choose what lower-profile product will get into stores. The gatekeepers, they said, could be traditional wholesalers or key indie labels.
Best Buy execs declined to discuss details of the procedure and emphasized that its DVD category will remain robust after the changes.
“We are constantly looking to ensure we are offering all relevant titles to customers in the most efficient way,” the chain spokesman said. “We will continue to offer choice, meaning all types of new releases will be supported either through BestBuy.com or in our stores.”
This move was foreshadowed by Mike Vitelli, Best Buy’s executive VP of consumer operating groups, who was cited in a Jan. 13 Pali Capital note for believing “that some categories in the store are over-assorted and that SKU counts can come down. Reduced SKU counts could mean faster turns and higher margins, not to mention a less confused customer. One area that we believe may be a near-term target is CDs and DVDs.”
Indie suppliers understand that a proliferation of DVD SKUs and the growing Blu-ray Disc category are putting a squeeze on most retailers’ shelves.
“If you walked through Best Buy during the holidays, you’d see that hardly any titles get faced out, and that makes it impossible to shop,” said one supplier executive. “They know they have too many SKUs in stores. The majority of consumers are looking for the big titles, but there is all this minor stuff as well.”
However, indies are also nervous that their product won’t be as well represented in the new structure. They are concerned that the new points of contact will work to promote their own in-house products over other indies’ titles.
“How can you objectively identify titles that will have the best potential?” asked a source. “Each has their own studio interests. It becomes a sticky space.”
The source hopes that other retailers will step up their merchandising of indie product, seeing the possible Best Buy void as a competitive opportunity.
“The real winner behind this move could be Amazon.com,” said the source. “They have a limitless catalog. This has given them more fuel to exploit this market.”
Consumers are unlikely to notice any adjustments to the overall space dedicated to Best Buy DVDs and Blu-ray, say analysts. They believe Best Buy is mainly working to revamp its title assortment, rather than overall copy amount.
“Best Buy stores are so big and so large, that if they did wipe out half of the DVD space, you’d have to find something to fill it with,” said Stacey Widlitz, a Pali Capital analyst. “They need this space. They are going after higher turn [titles] and allocating more dollars to new releases.”
