Big-box tech stores facing big hurdles, analysts say

The days of Canadian "big-box" technology retailers may be numbered, analysts say, after a pair of competitors in that sector announced very different plans for their businesses in Canada.

Best Buy Canada said Thursday it would be closing seven of its big-box locations and eight Future Shop stores as part of a "transformational plan" to replace them with small concept web and mobile locations over the next two and half years. As many as 900 jobs could be affected, or roughly five per cent of the company's Canadian work force.

A day later, one of the company’s competitors in Canada, The Source, said it was expanding, with plans to open 20 new locations across the country this year.

Observers say the differing fortunes of the two companies point to big changes that are afoot in how consumers buy their electronic gadgets.

John Williams, of retail consultancy J. C. Williams Group, said the big problem that Best Buy is wrestling with is that its business model "is not as viable" now compared to when it was expanding quickly in the 1990s and 2000s.

“Best Buy came in with 30,000-square-feet [per store] and they had everything that anybody could want – except that it’s a big store, it has high overhead, and now Amazon or other specialists come in and they offer far more,” he said.

Brick-and-mortar outlets "have become less relevant," he said, and as a result "the handwriting’s on the wall" when it comes to selling electronics in a big-box format.

Another factor is that electronics are being "downsized" as technology advances, making it less necessary to maintain huge stores, and cheaper for retailers to sell goods online and ship them to customers, Williams said.

Best Buy Canada Ltd. operates 139 Future Shop stores and 58 Best Buy Canada stores across the country. Their parent company, Best Buy, announced last March that it was closing 50 stores in the U.S., and reported mediocre sales over the holiday season.

The Source boasts that it will have more than 700 locations in Canada once it adds 20 new stores. That company, which is owned by Bell Canada, added several dozen retail outlet across the country last year.

In a statement, CEO Charles Brown said the company’s "small-box format" was part of the reason it has been able to expand. More than half of the new stores slated to open will be located in Western Canada.

"The beauty of our model with the small store is you can go into a fairly small market and have that store be profitable. You don't need a massive market for a 2,000-square-foot store," Brown said from Toronto.

John Andrews, director of Queen's University Real Estate Roundtable, said he believes The Source has been making the right decisions to stay competitive.

"They’re realizing they don’t need to be exclusively in the suburbs. They can be opening smaller stores, paying far less rent" compared to the big-box format, he said.

Andrews added that he believes the best way for bricks-and-mortar technology retailers to compete with online sellers is by providing the best customer service they can, giving people a reason to avoid purchasing goods via the internet.

"The electronics retail business is almost a case study for online shopping, because there’s very little about those products that consumers feel like they need to touch and feel," he said.