Best Buy Latest Marketer to Cut Spending

Will Adjust In-Store Projects, Corporate and Ad Spending Due to Rising Costs, Sinking Profits

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NEW YORK (AdAge.com) -- Count Best Buy as the latest marketer to scrutinize its ad costs.

In an earnings call today, the retailer said it has identified cost savings for the second half of the year, following a 17% rise in selling, general and administrative costs during the second quarter. Quarterly profits sunk 19%, despite a 12% rise in revenues.

"We'll reduce or defer nonessential in-store and corporate projects," Chief Financial Officer James Muehlbauer said during a call with analysts. "We'll also adjust our advertising spend to closely align with expected business conditions."

Best Buy did not return calls seeking comment as to whether that will result in reduced marketing spending.

Expecting sales decline
In the call, Best Buy executives said they expect consumer spending will be modestly softer in the second half, leading the retailer to predict sales increases of between 1% and 2% at stores open at least a year for that period. That's represents a decline, considering that same-store sales at U.S. locations rose 5.3% during the second quarter.

"We're not expecting the same level of consumer spending in the back half, which is why we're not forecasting a repeat of [same-store sales of] 4% in the back half," said Mr. Muehlbauer.

According to TNS Media Intelligence, the retailer spent $380 million on measured media in 2007. In the first half of 2008, Best Buy had spent $151 million, or 40% of last year's total outlay.

The retailer also said that it would be focused on its promotional strategy in the second half, noting it sees an opportunity to improve the effectiveness of those promotions. "We'll continue to fine-tune our strategy in the second half, leveraging our knowledge of our customers to ensure each offer is connecting with its intended target," said Brian Dunn, president-chief operating officer. "While we go after that opportunity, we will not stop using promotions as a powerful means to deepen our relationship with our best customers, especially in our Reward Zone loyalty program, which now includes more than 31 million U.S. memberships."

Best Buy's creative agency of record is Omnicom Group's BBDO, New York.
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