Cash Rich Best Buy On Building Tear

EDEN PRAIRIE, MN- With a cash war chest of $850 million and growing, Best Buy is nicely positioned to ramp up its new store growth. The company plans to open 70 new stores next year, increasing its total number of stores to 420.

The Eden Prairie-based chain of electronics stores, which now has more than 350 stores, will be able pursue an aggressive expansion program without borrowing a dime.

In the second quarter, Best Buy opened 12 new stores, including its first four stores in the New York tri-state area. About 45 new stores are slated to open during the second half of the fiscal year, including 10 more stores in the New York tri-state area and entry into the new markets of Seattle, Washington and Jackson, Miss.

That will make 60 new stores for this year. Best Buy officials said this week they will top that next year, continuing its expansion into New York and the rest of the Northeast.

Circuit City, Best Buy’s archrival, has a much smaller checking account, more debt and is embarking on a huge restructuring effort. Unlike Best Buy, with nearly a quarter of their assets in cash, archrival Circuit City has less than 10 percent of its assets in cash and carries a lot of long-term debt.

Circuit City’s stores, which are barely half the size of Best Buy’s 45,000-square-foot format, don’t have enough space to display the vast array of digital products coming down the pike these days, says Dean Ramos, a securities analyst with the Minneapolis office of George K. Baum & Co.

“Previously, Circuit City’s store size was seen as an asset, as it was able to do a lot of sales volume out of small space,” Ramos said. “Best Buy built big boxes with merchandising in mind. As a plethora of new products flowed in, they had the space to display them while Circuit City did not.”

The Richmond-based retailer said it would spend more than $1.4 billion to remodel its network of 573 stores over the next three years. Also, the retailer said it would close eight distribution centers.

Circuit City, which debuted its new format at a Jacksonville, Fla., store earlier this summer, plans to open 25 new stores and completely remodel 30 others by February using the Jacksonville format. The company will build a new store across from Virginia Center Commons here next year, while the chain’s store near Chesterfield Town Center gets a complete makeover by November.