In Hard Times, Is Best Buyâs Best Good Enough? http://www.nytimes.com/2008/12/07/business/07best.html Damon Winter/The New York Times Best Buy is emptying its bag of tricks to attract customers for the holiday shopping season. By LAURA ZINN FROMM Published: December 6, 2008 AMY ADONIZ, general manager at the Best Buy flagship store, knows what her staff wants for Christmas: a case of Red Bull. Two weeks before Black Friday, Ms. Adoniz gave in to employeesâ requests and had a Red Bull vending machine installed at the store, at 62nd Street and Broadway in Manhattan. Many in the sales staff of 140 are drama students, opera singers and actors who may run themselves ragged selling electronics by day and performing at night. To keep them from getting hungry and cranky over the long Thanksgiving weekend, Ms. Adoniz let them wear slippers and Uggs boots to work, and had food delivered three times a day. Amy Adoniz, at the center of the table, with her employees in the break room of the Best Buy store she manages in Manhattan. Employees arenât the only ones being tended to this shopping season. To lure customers, Ms. Adoniz waits for â and on â their dogs. âWe have a doggie water bowl with filtered water, and treats for them as well,â she says. With unemployment rising sharply, and consumer spending plummeting, Best Buy managers are bending over backward to attract shoppers and are encouraged to put their personal stamp on the stores. For Ms. Adoniz, that means stoking employees with caffeine and carbohydrates and catering to customersâ pets. Itâs an extraordinarily tough time for retailers. âNovember is shaping up to be the worst month in retail since Iâve been here 30 years,â says Edward Schmults, C.E.O. of FAO Schwarz, the toy chain. âNow I know how that little kid felt who misbehaved all year and then wondered if Santa was going to show up in December.â Next year could be even worse. Fitch Ratings forecasts that the United States economy will contract 1.2 percent in 2009, with consumer spending falling 1.6 percent. âThe impact on retailers is almost tragic as the economy adjusts,â Mr. Schmults says. And Best Buy, to limit the damage, is not just cutting prices. It is trimming inventory and advertising, promoting higher-margin, private-label lines and pushing exclusive products, like the Blue Label series of notebook computers made for Best Buy by Hewlett-Packard and Toshiba. Itâs also adding new services and products that specifically aim at women. If the stock market and consumer spending hadnât plunged so precipitously, Best Buy, the nationâs biggest electronics retailer, with $44 billion in annual revenue, might not have had to bother stocking up on delectables for dogs. The chainâs chief rival, Circuit City, recently filed for bankruptcy protection and is closing 155 stores. Tweeter, a high-end rival, shut down this week, and Sharper Imageâs stores, which sold more exotic electronics, are liquidating. CompUSA closed most of its stores last year. But no retailer is immune from the drop in consumer confidence and spending, especially one that specializes in gadgets, not groceries. Sales at Best Buy stores open more than a year were down 7.8 percent in October, compared with the same month last year. The company will not release November figures until Dec. 16, but itâs already clear that November was a brutal month for electronics retailers. According to a report MasterCard Advisors released last week, sales of electronics and appliances nationwide sank 25.2 percent in November, versus the same month last year. Best Buyâs stock price, which reached almost $54 in November 2007, closed Friday at $23.05, and its market capitalization has shrunk to $9.5 billion. Because of slumping sales, Fitch Ratings in mid-November downgraded the outlook on Best Buyâs $2.7 billion in debt to negative, from stable. Nevertheless, Karen Ghaffari, a managing director at Fitch, says she thinks Best Buy will weather the storm. Its longstanding reputation for high-quality service helped it grab market share this year when Circuit City laid off many of its highest-paid â and most experienced â sales workers, and shuttered stores. âBest Buy is a very strong operator,â Ms. Ghaffari says, âand long-term they should benefit from the difficulties being experienced by the weaker competitors.â That may well be so. But consumersâ reluctance to spend is making Best Buyâs investors skittish. Though analysts expect revenue to grow slightly next year as the company expands overseas, profit margins will come under pressure from price-cutting, especially on televisions. âGiven the circumstances and uncertainty in whatâs coming here in this market, we decline to comment,â said a press officer at Gardner Lewis Asset Management, which owned almost four million shares of Best Buy in June. In an interview, Best Buyâs president, Brian Dunn, discussed the challenges the company faced. âThe depth and speed with which the economy stumbled was extraordinary,â said Mr. Dunn, who started as a salesman at the chain 23 years ago. âIâve never seen anything like it. Our business was growing really nicely and then, all of a sudden, boom!â BEST BUYâS winter holiday shopping season is crucial, as it is for every retailer. A good Christmas can make the difference between a mediocre year and a fantastic one. Ten percent of a retailerâs sales can come on Black Friday alone, and typically, almost 60 percent of Best Buyâs profit comes from fourth-quarter sales. (Page 2 of 3) Now that itâs clear that fourth-quarter sales and profits will be down substantially from last year, the chain is scrambling to cut costs. There will be fewer national TV commercials and more targeted e-mail crowing about low prices. Best Buy stores are stocked with thousands of boxes of the hit video games Rock Band 2, Guitar Hero and Wii Fit, along with myriad camcorders, digital cameras, flat-screen TVs and GPS devices. Nevertheless, to make sure that the company isnât stuck with mountains of unsold merchandise after Christmas, Best Buy is cutting inventory levels to match reduced demand, Mr. Dunn says. But the company will not say by how much. âSuppliers are being flexible,â Mr. Dunn says. âApple, HP, Samsung and Sony have answered the bell nicely and worked with us on inventory levels.â To accommodate shoppers, Best Buy is offering more lenient financing. Customers who charge at least $499 worth of merchandise on a store credit card donât have to pay interest for 18 months. âWe donât push it,â Mr. Dunn says, âbut customers are grabbing the 18-month financing options.â Last year, shoppers had to spend at least $499 on one item to receive such financing. âNow you can put whatever you want into your cart to get it up to $499,â he says. That strategy worked for Nadia Lora and her husband, Carlos, both 21. The couple work at Nunzioâs Grill, a restaurant in Vauxhall, N.J., where she is the manager and he is a cook. They were shopping at a Best Buy near the restaurant on the Friday after Thanksgiving, and they bought a JVC camcorder and a Garmin Nuvi GPS system, purposely spending enough to hit the $499 financing threshold. Ms. Lora said the Best Buy incentives allowed her to justify her purchases: âI like that they donât charge interest for stuff for months.â IN this stressed-out holiday season, Best Buy is trying to be hip and friendly. The chain is the only retailer to have exclusive rights to sell the new Guns Nâ Roses album, âChinese Democracy,â in its stores and has hired Magic Johnson to open stores in urban areas. Free limousine rides and mini-camcorders were offered to 25 customers in New York, Los Angeles, Boston, Miami and other major markets who wrote compelling, 250-word essays about why shopping at Best Buy on the day after Thanksgiving was a meaningful ritual for their families. Claudia Di Folco, 35, an actress and former television news reporter, was shopping at Best Buy two days before Thanksgiving. She bought a $299 Slingbox, which transfers whatever is playing on your home television onto a laptop, cellphone or PC, so her husband could watch the New York Jets game during a trip to Rome. Ms. Di Folco lives a few blocks from the Best Buy store at 86th Street and Lexington Avenue on the Upper East Side and shops there often. âThey always have special sales, or at least the big yellow signs make you think they do,â she says. On the day after Thanksgiving back at 62nd and Broadway, hundreds of electronics fans lined up. âWe had a fabulous day,â says Ms. Adoniz, 41, that storeâs manager, though she says she was less confident earlier in the week. âWith everything happening with the economy, we didnât know if that was going to scare customers away.â But when she arrived at 1:30 a.m. on Friday, 500 people were waiting. Customers had been outside since Thanksgiving morning: they sat huddled in sleeping bags; the line went around the block to Central Park West and back. Ms. Adoniz gave out coffee and sales fliers.