Best Buy Outsourcing Music, Movie Departments

The company announced Thursday that it will decrease the size of its music and movie departments and outsource their functions to a third party, which will save the company an estimated $40 million annually.

In an effort to save money and make room for other products at its stores, Best Buy Company, Inc., has decided to shrink and outsource its music and movie departments, a move that is expected to save the company $40 million annually.

The company made the announcement at its annual investor and analyst meeting on Thursday.

An unnamed third-party will take over the assortment and inventory planning, stocking, and in-store presentation functions of the two departments-work that was previously done by Best Buy employees.

Under the new model, the retail giant said it will close a company-owned distribution center in Indiana. According to a company spokesperson, about 300 people are affected by the closure, all of whom will be offered severance packages and outplacement services.

It is unclear whether other Best Buy distribution centers will close due to the shift in the company's business model for the two departments.

According to Chris Homeister, senior vice president of entertainment at Best Buy, outsourcing and shrinking the two departments will “dramatically increase [their] profitability.”

Both departments will be significantly resized to make room for other categories that “have a higher return on space,” including gaming, tablets, and mobile.

“You'll see music going down by 50 percent in many, many stores and you'll see the movie department right-sized,” Homeister said in his presentation to investors.

Also on Thursday, Best Buy announced plans to decrease the size of its traditional stores, expand its mobile stores, and add hundreds of stores internationally. It also said that it would expand its buy-back program.

Best Buy is Minnesota's third-largest public company based on revenue, which totaled $49.7 billion for the fiscal year that ended in February 2010. The company reported $50.3 billion in revenue for its most recently completed fiscal year.

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