Undeterred by a sluggish economy, consumer electronics giant Best Buy Co. is pushing ahead with plans to open 60 stores this year, including three in the Washington region.
The expansion, outlined in a detailed company announcement yesterday, underscores Best Buy's strategy to capitalize on troubles at its chief rival, Circuit City Stores Inc. At the same time, the big-box retailer is shedding some of its money-losing music and video stores and curbing its international operations.
The company will open its first D.C. location in the fall at the vacant Hechinger Co. store on upper Wisconsin Avenue in the Tenleytown area. It also signed leases for a store in a strip mall on Leesburg Pike near Tysons Corner and another on Berry Road near Crane Highway in Waldorf, to open in the spring and summer, respectively.
In the battle for sales dominance, Best Buy has edged ahead of Richmond-based Circuit City in recent years. A decade ago, Circuit City revenue was more than three times that of Best Buy.
Circuit City is in the midst of revamping its 628 stores, its image and its advertising. But it has no immediate plans for a huge expansion, analysts said.
"It's probably going to be another year before Circuit City is in a position to catch up," said Michael Via, an analyst with Anderson & Strudwick Inc. "The clock is ticking against them."
For Circuit City, the year already is off to a bad start after the holidays. In December, sales at its stores open more than year decreased 6 percent. Best Buy, which operates 546 stores, bucked the gloomy holiday trend by posting a 2 percent gain and raising its fourth-quarter earnings forecast.
Last year was not an easy one for Best Buy, either. Like Circuit City, it also had to deal with a weak economy and cutthroat pricing from discounters such as Wal-Mart Stores Inc.
The Eden Prairie, Minn.-based retailer also struggled with its money-losing Musicland unit. Last week, the company closed 110 of the unit's Sam Goody music and Suncoast video stores.
Best Buy has beat out Circuit City because it has a larger array of merchandise and more consumer-friendly service, analysts who track both companies said.
Circuit City stopped selling appliances in July 2000, figuring it could turn more profits by focusing solely on consumer electronics. But Best Buy kept both, which helped increase traffic through its stores, analysts said. Electronics move off the shelves faster than appliances, but their profit margins are much lower.
Meanwhile, Best Buy stores tend to be more self-service oriented, allowing customers to pick merchandise off the shelves and pay for it immediately. Circuit City has what some analysts described as a more cumbersome sales approach, requiring customers to wait for help from sales clerks.
As Circuit City tries to regroup from strategic missteps and lackluster sales, Best Buy wants to move quickly. Joseph Beaulieu, a stock analyst at Morningstar Inc., said he expects the company to expand aggressively for four or five more years.
"They have taken many of the prime locations and as they expand, they are going to expand to smaller or less ideal locations," Beaulieu said.
Best Buy already has 15 stores in the Washington region.
"We're trying to ramp up efforts in our existing markets and really leverage the investments we have out there," said Jenny Bohuslavsky, a company spokeswoman.
But even before the economy went bad, or Best Buy's Musicland problems mounted, the retailer was planning its entry into the District.
The District has been struggling to find appropriate retailers for the vacant Tenleytown building since the bankrupt Hechinger home-improvement chain abandoned the site in 1999.
Home Depot Inc. briefly considered the location but decided against it in part because of space constraints. Also, the historical designation of the building, a former Sears, Roebuck and Co. store, restricted demolition work.
Home Depot gave up on the site in favor of a shopping center in the Brentwood area of Northeast Washington.
Since the deal fell through, Madison Marquette and Roadside Development, which are jointly developing the Hechinger site, have been looking for a similar tenant.
Best Buy will occupy about 45,000 square feet at street level on Wisconsin Avenue. Other retailers are expected to occupy the remaining 25,000 square feet.
The developers also plan to build a parking lot and four levels of rental apartments, about 175 units, on top of the retail space.
The Tysons Corner and Waldorf Best Buy locations will be about the same size as the D.C. store.