Retailer Energy Alliance Supplier Summit Webinar—Best Buy Presentation (Text Version)

Below is the text version of the Best Buy presentation from the Retailer Energy Alliance (REA) Supplier Summit Webinar, presented on June 5, 2008. Dwayne Shmel from Best Buy was the presenter. You can also view the slides for this presentation (PDF 125 KB). Download Adobe Reader.

Dwayne Shmel:

(Slide 1)
I'm Dwayne Shmel with Best Buy and I realize after the first four presentations — no, three presentations, that I don't have a single photograph. [Laughing] So graphically — and it's hard for me to admit this because I'm an architect. So graphically, my presentation is really pretty boring. It's just a lot of words. So I would encourage you to look at this photograph up here. This is of Best Buy. This is Mayfair, Wisconsin. Now there's nothing really special about this. This is not a green building. It doesn't have any unique energy features. It's just a really cool looking building. So close your eyes and think about the last time you went into Best Buy.

So one of the challenges and I represent the mid-box sector. And one of the challenges that we have and I don't know what the definition of mid-box is it 20,000 to 50,000 square feet? I'm not sure. But one of the challenges that we have is that there's a scale issue. For instance, if I were to go out and spend a $100,000 on some technology whether that's some energy technology or sustainability technology. For me that's $3.00 a square foot additional cost to my building. For somebody like Scott or Jim it might be 50 cents a square foot. So for me I have to be cognizant of the upfront costs. And also for me particularly and we'll get into this as we get into the slides. A lot of my stores I don't own. I lease them. So again, there's an additional challenge as to what kind of technologies I can put into my building.

(Slide 2)
So who is Best Buy? Well we've got — we've been around for probably 35 years now. But we have fiscal year '08 revenues of $40 billion, income of $2.2 billion, 150,000 employees and 1314 stores. And I've got a breakout on another slide of all of these stores. We have over 48 million square feet of retail space. I put the company values and mission statement up here because I think that when we look at the values and the mission we kind of want to see that in the vendors and the suppliers and in our partners too. I mean we like to have fun and we enjoy good partnerships and we also look for value add in the relationships. It's not just the product, it's how you back up the product. It's how you help train us. We don't have a lot of internal resources. Again, perhaps that's a mid-box characteristic. But we don't have a huge staff of people and we don't have a lot of engineers on staff. So we rely on our outsource partners to help figure this stuff out for us.

(Slide 3)
What we sell? Well consumer electronics. We have that's not up there. Appliances, services an increasingly large portion of our business is Geek Squad and cellular and mobile electronics.

(Slide 4)
Where we're going. Where we're going. We plan approximately 90 new retail stores a year and that's the Best Buy retail store proper. That doesn't include some of the other brands up there. And the reason why I didn't put numbers for the other brands is quite frankly those numbers really aren't nailed down and if they were I probably couldn't share those with you. But the 90 plus retail stores is a pretty solid number for us. We have Best Buy Mobile and that's kind of a new concept for us that could either be based inside of a shopping mall or it could be a stand-alone facility. And I got another slide that has the square footages.

Pacific Sales that's a new — new for us. That's upscale appliances. We have International. Takeover projects and this is like we're seeing more and more of this and I apologize if anyone is offended by the two retailers up there that I listed as takeovers, those are buildings that we have taken over just a few of their stores.

And so for us we're seeing more and more of that. We're seeing existing buildings whether it be a large building that's been cut up into smaller pieces and we lease part of it. Anyway, we recently acquired 50 percent of Car Phone Warehouse.

(Slide 5)
Well we have 949 Best Buy stores in the United States. We have 51 Best Buy stores up in Canada. Now there's also a chain in Canada called Future Shop. And that's a 132. We have one store in China, 20 Pacific Scale [sic] — Pacific Sales, excuse me, nine Best Buy Mobile and those are the current nine Best Buy Mobiles are not inside of shopping malls those are free standing, seven Geek Squad stand alone, 12 Magnolia Home Theatre. Again, 132 Future Shop and then 159 Five Star Appliance and those are in China. And then we have 34 distribution/district appliance warehouses.

(Slide 6)
A typical Best Buy Store is anywhere between 25,000 and 45,000 square feet. We used to have a 54,000 square foot store. It was just too big. Then we went down to 45,000 and once we built out all of the bigger markets then we realized we needed a smaller market format so we went down to a 30,000 square foot building and now we're down to 25,000. So we have the 25,000, a 30,000 and a 45,000. But Pacific Sales are roughly 30,000 square feet. Best Buy Mobile 1,500. The Geek Squad standalone 1,500 and the Magnolia Home Theatres are 5,000. Future Shops again, are 30,000, Five Star 33,000. And then the International stores we really don't have enough of them to say that there's an average size. But typically, they're larger so that we can have a larger warehouse and to get a little bit better payback on all of the shipping and the logistics.

(Slide 7)
We're a publically owned company. And again, I mentioned this before. We don't have a really extensive staff. In our property development department, you can see we have a seven market analysts and they go out and find the sites. Real estate negotiates the deals. In the development world which is my team there's only ten people and we manage — we're probably looking at any given time 300 to 500 sites because we're looking about five years ahead.

Construction — we have 12 individuals in the construction department in purchasing 4. So again, we leverage the resources of the outside consultants and we leverage the resources of the vendors and the suppliers to help us figure out solutions.

(Slide 8)
How we manage stores? Now here's — here's something interesting: Best Buy does about 80 percent build-to-suits. So that means we give our plans and specs to a developer and they go out and build the building for us. And that's a challenge quite frankly because we don't — there's so much of the construction process that we don't control. The self developed stores, which are about the balance — 20 percent. Those are the ones that developers don't want to touch. So those are your takeovers those are the difficult multi-story projects in Manhattan or in Chicago.

By size, about 65 percent of what we do are the 30,000 square foot format. About 25 percent are the larger 45,000 square foot stores. And in — historically the 20,000 square foot store was only about 10 percent but we've developed — we realized that 20,000 was just too small. We couldn't get everything into it. So we went with 25,000 and by doing so we believe that that's going to be more than 10 percent next year.

(Slide 9)
This is a slide and again I'm not an engineer so some of this to me is sort of just relative numbers. So I don't know exactly what all of this means other than, "Wow, we spent a lot of money on plug loads." So basically if you look at this about 32 percent is lighting, 26 HVAC and all of those nice plasma TVs and all that equipment accounts for 42 percent of our electric consumption.

(Slide 10)
So in an ideal world — I mean what do we do? What's Best Buys opportunities? Well solid-state lighting throughout. Obviously, if about 30 percent of energy consumption is lighting there's a huge opportunity there. Skylights. Within the last six months we've implemented a daylight-harvesting program and we believe in that we think it's going to pay off. We're not quite sure how we're going to control the dimming system but we're figuring that out.

Innovation to reduce plug loads. Again, if I could reach out to Sony and Panasonic and all of the major manufacturers and say, "If there's a way that you could produce equipment that could go into a standby mode or be low power mode that then could become brighter based on a motion detector or something like that, that would be something that could help us out." Obviously, we're in the business to sell technology. That technology needs to be displayed. I can't turn 100 plasma TVs off. And that's the problem. I don't know if there's a way that we can figure out how to reduce those plug loads and still sell what we need to sell to stay in business.

Higher efficiency roof top units. We already have high efficiency equipment. We're looking for greater levels of efficiency. Again, that's — one of the only other areas that we can control. And then we're looking for greater use of our EMS capabilities. Again, because we don't have the expertise in-house we're relying on our vendors and our partners to help us figure out more innovative ways to tie the EMS system into the building systems and make everything a little bit more efficient.

(Slide 11)
So what do we already have in place? Well we have an EMS system. We have daylight harvesting. We use dimmable lighting. We've been using ceramic metal halide light fixtures for many, many years and every year we figure out ways to make them more efficient and to capture the latest fixture in lamp technology. We've implemented energy recovery units in certain climates. These units will pay back in about 18 months. So it's a pretty good investment for us. And then we're also experimenting with photovoltaic cells to power our trash compactor and our bailer because those are intermittent use so we can store the energy into a battery and then run the unit when it needs to be cycled.

Something else that's not up here. We have a white roof that helps reject heat. One of the things for Best Buy is that we generate so much internal heat. We don't even run the air — or excuse me — we don't even run the heat until the outside ambient air temperature gets into the single digits. We'll run it in economizer mode but we hardly ever have to heat our buildings because we just generate so much internal load.

What are we doing as far as the green and sustainability? We're participating in the USGBC's pilot program for volume certification. And our commitment to the Retailer Energy Alliance is we're a member of the Steering Committee and the LED Sub-committee.

(Slide 12)
So new opportunities. Obviously, we're very interested in solid-state lighting and one of the things that — not only do we have the general lighting but we're also interested in the accent lighting the track lighting. We were into — I don't know if you've been into a store recently where we're getting a little more upscale in some of our presentations. As far as lighting controls, we'd like to get better at lighting controls. We think that's an opportunity to really capture the full efficiency that daylight harvesting can offer to us.

Load shedding, photovoltaic. We have a store in Manahawkin in New Jersey that has PV on the roof. It'll actually be the first Best Buy LEED certified store and it opens in July. And it does have PV on the roof and we did some really different things to make that happen. It's probably not — for a 30,000 square foot store there's really — it might have like a 50-year payback. But it's — we want to get out there and experiment with this technology.

Wind, geothermal, energy storage. Those are all question marks because in some cases we're in the middle of a strip shopping center. We're in line with other mid-box retailers and so we don't own the property. We don't control the parking lot. So that's a challenge for us and that's one of the characteristics of being in a strip shopping center.

(Slide 13)
The inhibitors. We have a design department and they have different priorities. And some of their priorities might conflict with some of the available technology like the color rendering index. We went from a CRI of like 94 and some of the current technologies aren't quite there. We need to control daylighting in certain areas. We've implemented daylight harvesting through skylights. We have to actually put filters or opaque domes in the areas where we have the Home Theater because I can't have a 135-foot candles shining down on those plasma TVs. I certainly don't want to turn them up any brighter than they already are because they're already sucking up so much juice.

The plug loads. Again, I'm looking for a solution on that if anybody's got one. Maintenance concerns with complex solutions. We have to look at — when we implement these more complicated solutions like dual flush valves. Great technology but it could be a maintenance concern for us. And we're challenged to design within both an energy and a dollar budget. I mean again, it's a competitive marketplace. I mean we're — we're the nation's number one consumer retailer electronics chain but we want to stay number one so we have to be cognizant of the bottom line.

(Slide 14)
Lighting — 320 watts ceramic metal halide in the sales. We've actually rearranged our lighting grid to reduce it from a 16 by 20 foot grid spacing down to a 20 foot by 20 foot grid spacing and this will help us reduce the overall energy consumption. We do use fluorescent strip lighting in the warehouse. We have troffers in the offices. So we do use that technology as well. And then we use the halo miniLUME for our track lighting.

So again, we have a number of different lighting technologies that we use. We actually — because the ceramic metal halide system that we use is so efficient and some of the existing stores we have an old system that's highly inefficient. We're going to do 156 lighting retrofits in the next fiscal year.

So what do we look for as far as what can a supplier do to help us out? Obviously, solid-state lighting. LED — everyone's talking about LED. It's the color-rendering index. It's the light output. It's being able to match the current performance of the lighting systems that we're currently using. Higher lamps — excuse me, higher lumens per watt. We're looking — we're seeing some newer ceramic metal halide lamps out there that are higher lumens. We're interested in that. But they have to be dimmable because now we've made a commitment to daylight harvesting. So any technology — any lighting — general lighting technology that we use has to be dimmable.

(Slide 15)
As far as the envelope is concerned it's not a major issue for us. Again, because we generate so much internal heat the amount of heat that's gained through the envelope is not really significant for us. We do use a white roof, EMS system, and economizers. The one thing that is an opportunity is the solar glare. I mean we do have — this particular photograph doesn't — is not our prototype but we do have a considerable amount of glass at the front of the store. And what we're finding out is that our facilities department comes in and puts in window tint film after we open a store. And so I have tinted glass with window tint film. And so I'm thinking maybe I should just get rid of the glass altogether. Or maybe there's some other technology that'll help reduce the solar glare. So that's an opportunity for us.

(Slide 16)
Water. We don't use a whole lot of water because we don't do any kind of food prep. But we did implement into our prototype plans and specifications an ultra low flow urinal, which uses 16 ounces per flush instead of a gallon. So based on that we can save over 12,000 gallons per year in a typical 30,000 square foot store. So we're pretty excited about that. We didn't go with the waterless urinal. We decided to do the ultra low flush. And we're also looking at the dual flush water closet valves.

(Slide 17)
As far as technology controls. The EMS system we have — we have our sales floors divided into eight different dimming zones. So that allows us to raise and lower the light levels in Home Theater and appliances. We do control everything through the EMS system, lighting, HVAC — the exterior lights are on the EMS system as well.

One of the opportunities for us is again, How can we integrate a higher level of user friendliness in the system? I would envision the capability for me to sit down and be able to pull up an individual store on my computer screen and see what's going on, what needs to be — where the energy is going and what are the lighting levels. So a better user interface is something that I would be interested in.

And then as far as — because we're involved in the LEED for commercial retail interiors volume certification program the quality control piece is going to be really big for us. How do I ensure that the whole system is working? If I get the polarity on one control wire crossed then my dimming system doesn't work at all. So and how can a vendor or supplier — how can they ensure — how can they provide a product that, pardon the phrase, is idiot proof? How can it be installed correctly no matter who installed it or touches it? So that's a big — big issue for me is the quality control piece.

(Slide 18)
HVAC typically 26 percent of our total energy bill is HVAC. Our 30,000 square foot store uses about 111 tons of cooling. And quite a bit of that is for those internal loads. Both for the occupant loads and for the plug loads — all those plasma TVs.

We do use high efficiency units with economizers. They are EMS controlled. We've experimented with some circulation fans in some of our stores to see if that increased airflow kind of helps with destratification — helps increase the occupant comfort level allowing us to raise our set points on the temperature.

Energy efficient fans. Yes, we're interested. We're interested in improved roof top unit performance. We do have year round cooling in pretty much all of our stores. So obviously cooling is a huge concern for us. The size limit of the store, that kind of keeps us from getting into some of these other technologies like ice storage or geothermal. Maybe in the future when those technologies mature and become more cost effective for someone that's 30,000 square feet we would look into that. But for us right now there's really not a payback. And again, that kind of ties in with the strip center format that we find ourselves in most of the time. So really, for us the big bang is greater efficiency in the HVAC arena.

(Slide 19)
Plug loads. I mean biggest challenge for Best Buy — I've said this before I'm not going to dwell on it. If there's a way to manage those plug loads better that would help us out because again, that's 42 percent of my energy bill.

(Slide 20)
Operation and maintenance. Not a big concern for us. It is an issue, but primarily because we run everything on an EMS system and we don't have food preparation or refrigeration equipment. The O&M is not as big of a piece of a pie for us as it might be for other retailers. The one thing we'd like to do and we're hoping that the dimming technology will allow us greater periods of time between re-lamping.

(Slide 21)
Our procurement process. On build-to-suit projects, which, again, is 80%, very minimal. We don't supply anything on a build-to-suit. It's strictly a turnkey. On 20% of the projects that we do buy products or equipment, we do buy almost everything. We buy the HVAC, lighting, the modular wiring, energy management, electrical distribution. So we purchase all of that equipment, and that's done by four people.

(Slide 22)
Our priorities. Basically, again, it's sort of a limitation. I've mentioned this before. The size of the mid box limits what we can do because any cost is a greater dollar per square foot because it's being divided by a smaller denominator.

For us when we look at daylight harvesting, it's really difficult for us to get a three-year payback. When we initially ran it, it was more looking like seven to ten years. We believe the daylighting will have a payback of five years, and so we'll be happy with the five years. So, again, it's a function of being a smaller box.

We're not really willing to pay a lot in research and development costs, so, what we would ask is that, if you're doing innovation, that you look at that as part of your cost of doing business. And it's kind of a gamble and we understand that. By the same token, as a retailer, we may build a store in a particular market and it may not work out, so it's a gamble for us. So if the sales don't meet the projections, then we bear the cost of having an underperforming store or the cost of relocating it. So it's a risk that we expect the industry's going to have to take. And so I know it's tough because you have to decide how much research and development you do on technologies that are yet to be proven.

Leasing versus owning affects us as well. Again, I can't put too much money into the building because then I'm going to pay the landlord an increased rent. So, again, I have to be cognizant of that.

(Slide 23)
So, in conclusion, what can suppliers do? Eliminate the research and development passthrough costs, provide increased implementation support. Again, value-add service. We have a very lean department. We don't have a lot of research and development capability. Willing to listen and entertain new products, but not willing to pay for the cost of developing them. And that's why we're here in the alliance so that together we can communicate a common message — this is the technology, develop it, and then we'll be your market.

Consolidate data from retailers. This is what the DOE can do for us, consolidate from the retailers, act as a clearinghouse for info and results, communicate the common needs, and encourage innovation. So that's it. Thank you.

[End of Audio]