Best Buy CEO Hubert Joly gave notice to employees this past Wednesday that all 250 mobile phone stores located in the US will be closing before the end of May. The small retail locations first made an appearance back in 2006 just one year before the introduction of the first generation iPhone.
At their peak, Best Buy was running over 400 mobile store locations. For the past several years, that number has been on a steady decline. Now that competition has risen in the mobile space, profits for third-party retailers have been affected. "Fast-forward to 2018 and the mobile phone business has matured, margins have compressed and the cost of operations in our mobile stand-alone stores is higher than in our big box stores," Joly said in his notice.
Each mobile store location averages 1,400 square feet compared to a traditional Best Buy store that uses around 40,000 square feet of floor space. Despite being significantly smaller and requiring far fewer employees, the electronics retailer is having trouble turning profits from smaller locations. Rising rent and labor costs as well as competition from online sales have all caused difficulties.
Although many may not miss Best Buy's small storefronts found in malls and as kiosks, the business accounts for 1 percent of its revenue. Even though the dedicated phone shops will all be closing, Best Buy will continue to sell mobile devices in its regular big-box stores and online.
It may sound as though Best Buy is really struggling to get by, but that truly is not the case. In fact, its stock is up over 60 percent since last year and is approaching an all time high. This is mainly attributable to the 33 percent market share that Best Buy holds on TVs and strong sales growth in recent months. Only 6 percent of the mobile phone market belongs to Best Buy, but executives have already shared plans on how they plan to grow this segment.
There are currently over 1,000 Best Buy stores operating. Many employees of mobile locations will have the opportunity to transfer to nearby stores, but those let go will be receiving severance pay.