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Best Buy's CEO reveals why the company is closing 250 stores

Business Insider logo Business Insider 4/16/2018 Dennis Green

Video by Wochit Business

In March, Best Buy announced it would close all 250 of its small-format mobile locations by May 31.

These stores sold smartphones and accessories in a small footprint — around 1,400 square feet — and mostly in malls.

"We had opened them about 12 years ago, at a time when the penetration of smartphones was very low, so this was a great growth opportunity. The margins in smartphones were very good," Best Buy CEO Hubert Joly told Business Insider in a recent interview. "Fast forward to 2018, smartphone penetration is a very mature industry."

Best Buy decided to instead invest in its big-box stores, where the company can provide "a better experience because there's more space."

Most Best Buy stores still have mobile phone kiosks.

By the time the store closures were announced, they were contributing a very small portion to the retailer's bottom line, according to Joly. The stores comprised only 1% of Best Buy's total store square footage and 1% of its revenue.

"In business, you have to constantly optimize what you do," Joly said. "If you don't optimize, you're stuck."

"Our VCR department, for example, is not doing so well anymore," he added in jest.

Best Buy now has around 1,000 stores and just recently announced it will open its first new store since 2011, a 36,000-square-foot location in a Salt Lake City, Utah suburb. Joly called its stores of between 30,000 and 45,000 square feet "the right size."

"They really feel good because we have so much stuff to show, and the economics work from these two types of stores," Joly said.

Best Buy makes decisions every month about which stores to keep as leases come up for renewal. That has resulted in closures of around 10 to 15 stores per year on average, according to Joly.

"Many retailers were probably late in the cycle before the recession, and there was a diversification strategy, so we probably built a few too many stores," Joly said. "That's why we're optimizing gradually."

Best Buy, according to Joly, does not have "as a structural problem, too many stores."

"We have the right-size stores, they're in great locations, they're a great asset for us, and every year, we're going to tweak the margin, because things evolve, and so forth," Joly said.

Read the full interview with Best Buy CEO Hubert Joly on BI Prime.

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