Best Buy Has Big Plans for Big Box

Slogans blossomed like roses this week at a press conference marking the launching of Best Buy's new chain store Big Box, which will specialize in electronics in the entertainment field, computers and gadgets: "The latest news in Israeli retailing," "Happy consumerism," "A new era," "We'll change the electronics market" and "Everyone will have to follow our lead."

Best Buy is investing NIS 7 million in the first two Big Box stores, and CEO Avi Motola says the chain has plans for six more branches at a cost of NIS 2.5 million each. Big Box's marketing budget is NIS 6 million.

"Electronics stores look like warehouses. They all sell the same products, and all that remains is negotiations over the price," says Motola, who promises the lowest prices and a shopping experience that will distinguish Big Box from other chains, including its big sister Best Buy.

Motola has ambitious goals - a combined 10-percent share of the electronics chain store market for Best Buy and Big Box. Best Buy currently has a 4-percent share of the whole electronics market, which has estimated annual sales of NIS 3.5 billion to NIS 4 billion. Big Box will sell gadgets alongside traditional electrical products such as refrigerators, and considerable floor space has been devoted to DVDs, handheld computers and computer games.

Motola proudly notes that Big Box will be the first store in Israel to sell brand name computers from the Chinese company Lenovo, which recently acquired IBM's personal computer division. Big Box stores will be a spacious 1,200-1,400 square meters (13,000-15,000 square feet) and will sport a cafe and merchandise to try out.

Fishman chain stores, headed by Eyal Fishman (Eliezer Fishman's son), purchased a 49-percent stake in Best Buy for $4.9 million in 2000. The chain now operates 15 branches, each averaging 450 square meters, with estimated annual sales of NIS 180 million. In 2003 the remaining holdings in Best Buy were bought out by Home Center, which is controlled by Eliezer Fishman.

Eyal promises that the new chain will maintain regular prices and also promises full refunds on returns.

Will Big Box's growth be at Best Buy's expense?

"Big Box will become the leading brand," says Fishman. "We will open new stores, but not at Best Buy's expense. Big Box is suitable for seven to eight sales outlets, but one Big Box store will sell five times as much as a Best Buy store."

Are you worried about competition from Internet shopping sites?

"I view the Internet as a direct competitor. On October 21 we will launch a site listing the prices of products sold at Big Box, and customers will be able to make purchases via the site. We are committed to the lowest price even in comparison to the Internet sites."

Some of the electronics chain stores are also representatives and distributors of some of the brands. Will the fact that you are not representing any brand be to your disadvantage?

"The wholesalers have tremendous power in the electronics industry, and absurdly, the chain stores lose money while the distributors profit. This does not happen anywhere else in the world, as each chain buys directly from the manufacturers without any middle men. We will check whether our suppliers are giving us the best price or are subsidizing the chains with which they are affiliated. If the prices are not good enough, we will investigate importing on our own."

Advertisements for Best Buy and Big Box will not mention specific prices, but will rather focus on building the image of the two brands.

"When you want to change an industry, your have to invest," says Fishman, referring to the chains' advertising budget of $5 million. "We will maintain Best Buy's sales at NIS 160 million to NIS 200 million and are aiming for annual sales of NIS 200 million at Big Box."

The electronics market is not doing well. Is now the time for a big investment?

"The market is in poor shape, but the situation in the whole country is improving. This is an opportunity. You also have to remember that the electronics market has an annual turnover of NIS 3.5 billion to NIS 4 billion, and we want 10 percent of it. If you add the personal computers and entertainment categories, the total market is about NIS 8 billion annually."

When do you think the chain will achieve profitability?

"I hope that by next year we will be profitable on an annual basis," says Motola, "and that within a few months we will reach profitability on a monthly basis."

Motola is hoping Big Box will gain a foothold in the Israeli market by attracting small electronics and gadget customers away from duty free stores and foreign purchases.

"Our prices will be better than those offered by the duty free stores," he says.