New York - Best Buy Canada, a unit of Best Buy, said it will close 66 of its Future Shop electronics stores, or roughly half, while firing 1 500 full- and part-time workers and taking a restructuring charge of as much as $280 million.
Best Buy said in a statement released on Saturday that the cost of the consolidation will reduce earnings in its 2016 fiscal year by as much as 20 cents a share. The company, which has pushed to cut costs in its US operations, said it doesn’t expect the move to affect earnings in later years. Best Buy plans to rebrand the remaining 65 Future Shops under its own name while investing up to $160 million to improve operations.
The company’s decision to close some Future Shops while rebranding the others reflects the difficult business climate in Canada, where a plunge in the price of oil, one of its key exports, has curbed consumer demand. Best Buy also has struggled to develop the right growth strategy in a geographically dispersed market with a slowing economy, as well as to compete with online merchants.
“The market’s not growing and consumers are shopping across channels,” said Amy von Walter, a company spokeswoman in Minneapolis. “What we need now is fewer but better stores and a single brand that we can invest in.”
Many of Future Shops being closed were located within what the company said was “a 15 minute drive” of a Best Buy store, and some were in the same malls. After the consolidation, Best Buy will have 192 stores in Canada.
Cost cutting
Earlier this month, the Richfield, Minnesota-based company said it would issue a special dividend of 51 cents a share, or $180 million, and increase its quarterly payout by 21 percent to 23 cents a share. Best Buy also is beginning the second phase of an expense reduction program this year, aimed at cutting $400 million from annual operating costs.
The company said the Canada closures weren’t part of that cost-cutting plan.
“It’s about business efficiencies, not about cutting costs,” Von Walter said.
Best Buy Canada’s investments will go toward adding appliances such as refrigerators, washing machines and dryers to its product line, improving the in-store sales efforts of vendor partners including Sony, Samsung Electronics and Apple, and enhancing online sales, such as by adding pickup areas in its stores for purchases made over the Internet.
Oil shock
The broader economic environment hasn’t been inviting for retailers in Canada. Oil prices, which have fallen by more than half since June 2014, have taken a toll on Canada’s economy. The Bank of Canada cut interest rates in January in a surprise move that policy makers called insurance against the oil shock, which probably will hamper business investment and weaken consumer incomes and home sales.
Retail sales in Canada fell more than forecast in January after declining in December at the fastest pace since 2010 as the drop in crude oil prices has led residents in the world’s 11th-largest economy to cut back on purchases. Sales dropped by 1.7 percent in January, compared with median forecasts for a 0.8 percent reduction in a Bloomberg News survey, after shrinking by 2 percent the month before.
Canada’s unemployment rate rose to 6.8 percent in February, while wholesale trade declined 3.1 percent in January, the biggest decrease since 2009.
Target said in January that it would liquidate its Canadian operations, causing as many as 17 600 job losses. Suncor Energy also unveiled plans to fire 1 000 employees as the Calgary-based firm cuts capital spending.
Best Buy will offer jobs to some of its laid-off workers as it expands staffing at the remaining stores, while those not receiving offers will get severance packages, Von Walter said.
All 66 general managers at the shuttered Future Shop stores will retain jobs with the company, Von Walter said. Of the laid-off workers, 500 worked full time, while 1 000 were part-time.
Bloomberg