Retail Pulse: Best Buy Strikes Out With Small-Format Stores (But Beats On Earnings)

Despite a positive earnings report this week, Best Buy had another announcement: It’s in the process of closing all 250 of its U.S. small-format Best Buy Mobile stores. By May 31, they’ll all be gone.

In contrast to the small-format Best Buy Mobile store closings, only 17 of the closures affected full-scale locations. The company still achieved comparable sales growth of 7.1 percent in the first quarter, driving domestic sales totals up 6.3 percent to a total of $8.41 billion.

The Verge reported that Best Buy Mobile stores were only contributing around 1 percent of overall revenue, while gobbling up more in operational costs than their full-sized counterparts.

This is the opposite of what has been seen in some other categories, where smaller-format stores are helping to stem the tide of closures – or, at least, retailers seem to hope that will be the case.

Grocers, for instance, are heartily embracing small-format stores. Target opened 30 small-format urban stores in 2017 and aims to maintain or accelerate that pace throughout 2018 and 2019. Since being acquired by Amazon, Whole Foods has opened several Market 365 locations to sell its private-label goods. U.S. grocers Schnucks and Meijer also have plans to open small-format stores.

Outside of grocery, crafts retailer A.C. Moore is experimenting with this format in Haddon Township, New Jersey, ahead of its plans to open 13 stores this year and a second small-format location elsewhere in the state. Fashion designer Ralph Lauren has also reportedly had success with this approach.

So, what went wrong for Best Buy?

This time, it doesn’t look like Amazon can be blamed, despite the eCommerce giant’s expansion into the electronics space. Retail Dive reports that mobile phones, appliances, computing, tablets and smart home devices actually drove the most same-store sales growth for Best Buy this quarter.

Instead, it seems that issue boiled down to good old-fashioned brick-and-mortar competition. These mini-stores had to compete with dedicated wireless stores, such as Verizon and AT&T – not to mention the ever-successful Apple store.

On top of that, many were located within three miles of one of Best Buy’s big box stores, so in some cases the company was cannibalizing its own sales. Thus, closing the Mobile locations should streamline operational costs and channel the company’s other successes back into the profits column.

In Other Brick-and-Mortar News…

Sears will be closing a minimum of 40 more stores this summer across 24 states, including Arizona, California, Florida, Missouri, Ohio and Minnesota. The closures, slated for July and August, include 31 Sears-branded stores as well as nine Kmart locations.

That’s according to Business Insider; the retailer hasn’t been vocal about its upcoming closures. The announcement stacks on top of the department store chain’s existing plans to close 166 stores this year. All told, the company has halved its store count over the last five years. It began 2013 with 1,980 stores and has now reduced that number to somewhere in the high triple digits.

Footwear brand The Rockport Group likely has closures on its horizon, as it filed for Chapter 11 bankruptcy protection earlier this month. The company is hoping to be acquired and intends to close any North American retail stores that are not purchased by “stalking horse bidder” Charlesbank or another party. No specific closures have been announced at this time.

Across the pond, Marks & Spencer has announced that it plans to close 100 shops by 2022 as part of its plan to reverse years of dwindling sales and profits. The company says it wants to make its brick-and-mortar space more relevant while focusing on the growth of its eCommerce site.

Reasonable as that may seem, this is the third round of store closure announcements for the retailer, which has led the shopworkers’ Union of Shop, Distributive and Allied Workers (USDAW) to accuse the company of “salami slicing.”