Best Buy is responding to shifts in the smartphone market by closing some 250 mobile-focused stores it had opened across the country. Best Buy CEO Hubert Joly announced the closures, which will be completed by the end of May, ahead of the company’s fourth-quarter 2018 earnings release.
The retailer began opening up the stores over the past decade, before the launch of the first iPhone, to bolster its growing smartphone business. The model was also considered at the time to be a possible solution to the beginning of what would become a seismic shift in brick-and-mortar retail for the likes of Best Buy and Radio Shack as Amazon began to rise to prominence.
In 2011, Best Buy announced it would close a smattering of its big box stores while planning to open up between 600 and 800 mobile stores across the country in the following five years. The company only opened up 250 such stores in the intervening years, most of which are located inside shopping malls.
But shifts in the market, driven primarily by carriers’ subsidizing new phones for their customers in a heated wireless service market, have squeezed out the need for standalone mobile stores.
“Fast-forward to 2018 and the mobile-phone business has matured, margins have compressed and the cost of operations in our mobile standalone stores is higher than in our big box stores,” Joly wrote in an email to employees, according to a Wall Street Journal report.
At present, the mobile phone stores, which are much smaller than its bigger electronics stores, only account for about 1% of Best Buy’s overall revenue. About 85% of its mobile stores are located within three miles of a Best Buy big box store, and Joly said the smaller mobile stores now cost more to operate than the bigger stores and aren’t bringing in much revenue.
“We believe the best way to serve customers is to sell phones in channels where they have access to our whole range of connected devices,” Joly said.
Despite the closures, Best Buy reported strong results for its latest quarterly earnings release, covering the holiday shopping season. Sales grew 9% during the quarter, driven by a record-breaking $2.8 billion in online sales alone for the retailer. Revenue reached $15.4 billion during the quarter, a 14% increase over the year-ago quarter.