Can mindSHIFT Thrive Amid Best Buy Big Box Store Closings?

Only a few months after Best Buy (BBY) acquired mindSHIFT, a top managed services provider, Best Buy has announced plans to close 50 big retail box stores, open 100 smaller stores, and will cut $800 million in costs by fiscal 2015. The moves surface as Best Buy struggles amid fierce competition from Amazon (AMZN) and other online retailers. For MSPs keeping tabs on mindSHIFT and Best Buy’s new Geek Squad partner program, here’s what you need to know.

The big picture: Best Buy announced Q4 fiscal 2012 results on March 29. Putting the revenue and net income figures in proper perspective can get a little tricky because some results are based on continuing operations, while other figures involve discontinued businesses.

Numbers that Matter

But here are the most important figures worth watching: Best Buy expects fiscal 2013 revenue between $50 billion to $51 billion, while comparable store sales are expected to decline by 2.1%. In other words, while the U.S. and many foreign economies expect potential upward growth over the next 12 months, Best Buy expects sales in its existing stores to shrink.

To compensate, Best Buy’s plans include:

• $800 million in planned cost reductions by fiscal 2015; $250 million in fiscal 2013
• Reductions to fund investments in enhanced customer experience and growth initiatives
• Launch Connected Store full market test in the Twin Cities and San Antonio in fiscal 2013
• Closure of 50 U.S. big box stores in fiscal 2013
• Opening of 100 U.S. Best Buy Mobile small format stand-alone stores in fiscal 2013
• Plans to grow Domestic segment online revenue 15 percent in fiscal 2013
• Cutting 400 positions in corporate and support areas.

mindSHIFT: Part of the Solution

On the upside for mindSHIFT, it sounds like Best Buy will accelerate its investments in IT services. During an earnings call last week, Best Buy CEO Brian J. Dunn said:

“domestic services revenue is expected to grow 10% in fiscal 2013, driven primarily through 3 initiatives: the continued performance of our leading Black Tie warranty program across fast-growing categories such as mobile phones and tablets; the expansion of in-store service offerings like our popular Geek Squad Tech Support program launched early last year, which offers customers both in-store and remote support; and the new and very promising small and medium business opportunity via the combination of our existing business and the new capability and product offerings available from our expanded business products and the mindSHIFT acquisition last year.”

Translation: Best Buy views mindSHIFT as part of the solution to the retailer’s growth challenges.

I certainly agree. The mindSHIFT team, led by Paul Chisholm, has generated consistent growth for a decade so there’s potential upside to that business.

But again, let’s keep things in perspective:

• Best Buy is roughly a $50 billion company.
• mindSHIFT, I suspect, is a $100 million to $120 million operation — a small drop in Best Buy’s overall revenue stream.

So I don’t expect some sort of miracle where mindSHIFT props up the rest of Best Buy.

Geek Squad Free Offer: Smart or Foolish?

I also think Best Buy could be making a mistake in the consumer IT services market. It involves Geek Squad, which just launched a partner program and may promote some mindSHIFT cloud services down the road.

Those moves are potentially good. But here’s the potential problem. In a prepared statement, Best Buy said it:

“plans to expand the benefits under its Reward Zone Silver loyalty program, whose members account for a significant percentage of the company`s profit. Reward Zone Silver customers will receive exciting enhancements including free expedited shipping, premier access to many of the most popular products and major sales events, a free house call from the Geek Squad, and 60-day no hassle returns and price-match policy.”

Personally, I think giving loyal customers a “free” house call from Geek Squad is a bad, short-sighted move. Here’s why: Digital product margins continually fall. But great IT support deserves a price premium. Instead, Best Buy could wind up commoditizing its own IT services by giving customers a free taste of Geek Squad services.

Glass Half Full?

Still, let’s keep Best Buy’s challenges in perspective. Many Wall Street pundits noted Best Buy’s fiscal 2012 progress last week. And some key executives are driving new initiatives at the company. Among those worth watching: Stephen Gillett was recently named to the newly created role of executive vice president and president, Best Buy Digital and Global Business Services.

Gillett, formerly CIO at Starbucks, is leading the company`s global digital strategy. I wonder if Gillett will dial the folks at mindSHIFT to gain their perspectives…