Best Buy is planning to evolve its operating model with a greater emphasis on smaller stores as the retailer plans to close 20 to 30 large-format stores, implement eight experiential store remodels and open approximately 10 additional outlet stores over the coming year. The retailer plans to invest $200 million in capital expenditures for both these physical store changes and routine store resets and maintenance, down from about $300 million last year.
The ongoing shift to smaller formats is in response to shoppers seeking more flexible shopping options, with greater emphasis on digital sales as well as rising real estate and labor costs. Changing consumer behavior also has led to the tech retailer to reduce its overall head count by approximately 25,000 people, or 20% of its workforce, over the past three years.
“Our most recent restructuring activities will allow us to invest more in our customer-facing labor and at the same time drive increased ability to flex labor spend with revenue fluctuations,” said Corie Barry, CEO of Best Buy during a call with investors. “Stepping back, we expect the evolution of our store portfolio and operating model to drive sales lift and efficiencies over time. Most importantly, these changes are necessary to relieve the pressures of a changing world, a world in which customers are in control and increasingly more digital and the cost to operate physical stores such as rent and labor are not likely going to come down.”
In July 2022, Best Buy introduced a small-format, digital-first store concept that builds on a pilot that started in 2021. The first location, a 5,000-square-foot shop in Monroe, N.C., features the ability for customers to scan products’ QR codes with their phone to send the order to a pickup counter, and a selection of grab-and-go items like charging cables and cell phone cases that can be paid for through the Best Buy app.
Best Buy’s overall Q4 2023 results reflected a difficult economic climate. Comparable sales fell 9.3% as overall revenue dropped to $14.7 billion, down from $16.4 billion in Q4 2022. The retailer expects the existing economic pressures to carry over into the coming year, with comparable sales down 3% to 6% in fiscal 2024, but said its fortunes should improve in fiscal 2025 and beyond.
“We remain incredibly excited about our industry and our future — there are more technology products than ever in peoples’ homes, technology is increasingly a necessity in our lives and technology innovation will continue,” said Barry in a statement. “Our initiatives to deliver our omnichannel retail model evolution, build customer relationships through membership, and remove cost and improve efficiency and effectiveness will allow us to deliver even more experiences no one else can and capitalize on the opportunities ahead of us.”