Best Buy cuts salaries, yet looks to product demos to drive high-end home theater


With retail electronics stores closing down faster than the backwards-spinning water in an Australian toilet bowl, Best Buy is now trying to figure out how to compete with remaining high-volume, low-price super retailers like Wal-Mart.

And while trying to take on Wal-Mart’s ultra aggressive pricing isn’t necessarily in the cards, “Best Buy supposedly intends to create differentiation by playing up its product demonstration ability,” according to Electronic House.

The problem with that strategy, however, is that in order to pull off effective and informative product demonstrations, you need a relatively highly-skilled workforce which, in turn, demands relatively high wages.

Take Magnolia Home Theater, for instance, Best Buy’s premium home electonics division. Average hourly wages currently hover around the $17-$18 range. However, effective June 3rd, Best Buy will be cutting pay for Magnolia personnel to $12.56 an hour according to CE Pro. Best Buy contends, however, that the wage cuts “aren’t that cookie cutter” and are ultimately a strategy to get more salespeople in front of customers.

Specialty electronics dealers aren’t convinced, though. Richard Gilkes, executive director of Home Theater Specialists of America (HTSA) says:

“I don’t want Magnolia to fail. It’s very important for consumers to have a step-up buying opportunity that eventually leads to an HTSA member. It’s also important for vendors to have a company like Magnolia to fill their capacity. [However] when you’re going to offer $12.50 per hour to your sales people, you’re not going to get an educated sale. Quite frankly, the next step will be to shut the whole thing [Magnolia] down.”

Whatever the case, cutting the salaries of relatively skilled workers by around 30 percent will undoubtedly cause many of those workers to quit. In turn, their jobs will be filled by relatively unskilled workers willing to work for $12.56 an hour. If this all sounds familiar, it should, because it’s pretty close to what happened at Circuit City.

The major difference now, however, is that there are far fewer competing stores remaining for former Magnolia salespeople to find new jobs. Best Buy is quickly becoming the only big-box electronics game in town, a fact the company surely realizes.

Retailers: Big Changes Coming to Electronics Stores [Electronic House]