Best Buy Adds New Services

Best Buy will gently sic specialists (paid an estimated $20-$30 an hour, no commission) on shoppers in order to close a more lucrative deal. Buying a new house? Remodeling? You're a candidate for a new audiovisual system. For a $150 consultation fee, applied to the purchase of equipment and installation, you get someone to visit your house and help you draw up a plan. Such bundling raises the average ticket ($230 or so) and pumps up gross margins, particularly on high-end items like digital TVs (30 percent), by an additional 5 percent to 10 percent, says Sandeep Chungani, a retail consultant with A.T. Kearney. In Minneapolis and Dallas, Best Buy has partnered with 10 of the nation's largest home builders, including Pulte, Ryland and William Ryan, and has so far wired 6,000 new homes. That service raises the price of the home an average of $1,000 to $1,500 — plus the cost of the equipment, of course.

You don't have to be a new homeowner to buy services. Last year Anderson acquired a computer-maintenance company called the Geek Squad and installed its employees (men wear white shirts and skinny black ties; women put on skirts and black tights) in the new concept stores. They're herded into 500-square-foot offices, where they work on computers behind large picture windows. They'll install hard drives for $50 and do tune-ups ($30) on any desktop computer, not just those sold by Best Buy. The minimum diagnostic fee is $60 — or $150 if a geek in a black-and-white VW Beetle has to drive up to your door. "Sometimes," smiles Jeremiah Rush, head geek at the Maple Grove store, who sports spiked hair and a modest pair of earrings, "it's more economical to just buy a new machine."

Trained staff costs money, and Best Buy will have its hands full keeping expenses under control. Sales, general and administrative expenses rose to 22 percent of revenues in the first nine months of fiscal 2004 from 16 percent in fiscal 2002, despite an 8 percent reduction in the corporate head count. Those costs can only rise with the need for better-educated personnel to explain ever more complicated technology. This is not lost on Anderson. Says he, "You don't have a lot of margin for error."

Additional reporting by Evan Hessel.

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