Does Going Smaller Actually Grow Best Buy? | Fast Five Shorts

Best Buy's incoming CEO Jason Bonfig, who takes over from Corey Berry on November 1, says his growth plan starts with opening smaller format stores in markets the retailer's traditional big box locations could never support.

According to CNBC, Best Buy's new small format stores run 12,000 to 15,000 square feet compared to medium sized locations at 20,000 to 25,000 square feet and a traditional Best Buy footprint near 40,000 square feet.

The company opened two examples this month.

A return to Jonesboro, Arkansas after a tornado destroyed its location and a 28,000 square foot store in Cape Cod, Massachusetts.

Bonfig was explicit that the smaller stores add to the fleet rather than replace it, describing them as a way to reach customers and markets.

Best Buy simply wasn't in before.

Jen, are you buying or selling best buys?

New CEOs plans for growth via smaller.

Format stores As a customer, I'm buying a hundred percent.

So yes, 100%.

I, I love a smaller format.

As a customer, right.

I think it's just more efficient when I walk through those big Best Buy locations and again, I'm only visiting my local stores, so this isn't representative of the entire nation, right.

But I feel a ton of waste.

Maybe it's the ops girl in me, but it just feels like our local Best Buy, like it's never popping with this unreal amount of foot traffic.

You don't need that amount of aisle space there.

There are so many different sections, right.

And you have to have a specialist in each section because you can't even see the other corner of the store.

I'm a fan of tech and electronics in a smaller format.

So think of like an Apple Store, right?

They're squeezing those into mall formats and that's not a huge space, but they're doing a ton out of those Apple Store locations and I think it's that hands on piece.

So from a business perspective that's as a customer I just like to be more efficient.

I like, like just tell me what I need, help me out.

I don't need to see 37 aisles of cell phones, right.

I just, I don't need it.

But from a business perspective, I like it for a few reasons as well.

I think getting in front of those markets that they haven't been able to is key because again, think of like the, the mid sized cities that haven't been serviced by a Best Buy in the past or maybe rural communities, right.

Being in those locations and being able to say I have someone to consult with me about my new tech to help me Set it up to offer this Geek Squad service on the back end.

I realize again, we're moving towards this digital customer and you can do all that in some cases, but to me,.

Do it with Best Buy.

But to me, those are compelling reasons to actually go into the store and have someone take care of my tech for me and have someone service my, my Geek Squad computer right in person.

So I, I like that it will allow them to reach these new markets and I like that it could allow them to simplify.

I think it's a cool test.

Again, he didn't really announce it as a test.

He said it's going to add to the fleet.

But of course, everything is learn.

I would be really interested to see if they can do more with less here.

Wow.

Wow, wow.

Jen, I 100% have to disagree with you on this one.

Right out of the B.

You're right.

You said we're gonna disagree today.

Yeah, no, I, I, I, I mean, I think what you, what I heard you, I heard you say a couple things.

One thing you're getting at was like, you think it's probably just a more productive box, which may, may in fact be the case.

Like, they just don't need a box the same size that it once was.

Probably because you're not selling DVDs and things anymore, you know, or video games even.

So, like, that's probably true, but that's a scary thought when you think about it.

And so, so I did some math.

I did some math.

I brought some math into today's podcast, Jim.

According to Google's Gemini search, a search I did on Gemini, Best Buy's annual US volume is just shy of $42 billion.

Best Buy operates approximately 1,000 stores in the US give or take.

So the math is easy.

You can assume $40 million, give or take, per average store.

So now Best Buy is going to open stores that are 60% smaller than its typical box.

So let's, let's take that 40 million down by, let's say half.

And maybe you're right, Jen.

Maybe they can still stay productive.

But let's say $20 million per average store.

So by that math, it's going to take 50 stores, 50 new stores a year to generate a billion dollars in revenue.

That's a tough get.

I was there when Target tried to do a very similar thing with smaller stores.

They said smaller stores were there, but path to Growth, and look how that played out.

They had to pull back because the math simply doesn't pencil like.

It's just, it doesn't you can't put that many small stores throughout the country in places where best buys don't already exist.

So there's going to be a cannibalization effect as you get to a higher store count.

So for all that, all those reasons, I throw the caution flag out again on this one.

I threw it out on the first headline, I'm throwing it out on this one.

I'm back from vacation, everybody.

I had time to think, I had time to do some maths.

So.

But to get meaningful growth out of stores from the long small stores that are long term, you've got to build a lot of them.

And it's just, it's not going to work.

And I feel like if you look back at the retail landscape, particularly as I have over the last 10 years, you're going to see a lot of people go in this direction and then end up pulling back.

Like, Macy's was talking about this for a while.

They're not talking about it anymore.

Bloomingdale's was talking about it for a while, they're not doing it anymore.

Target's not doing it anymore.

It just doesn't work to the degree that you think it's going to when you're promising growth to the street.

That's my take, Jen.

Perhaps.

And I like your math there.

I think one of the things that could, and I'm just thinking about this now, as you mentioned Target and Macy's and some of the other examples, I wonder how much apparel and, and the type of inventory that just changes over seasonally and regularly is different than electronics.

Right.

Like once the new phones are out or laptops are out, like we don't have to keep the old ones around.

We don't need seven sizes of that, we only need two.

Like it is a different game.

So I would be interested if any or any space inside of retail, if it could work in electronics and if we're playing with numbers here, again, I'm not a real estate expert, but there's a significant savings if you need to enter a market and you could build a 12,000 square foot location versus if.

You need to enter a market.

For sure, yeah, 100.

Right.

And so there's a, there's an upfront savings which I realize isn't huge comparatively to what a store could produce long term.

But if you think about it like do they need to staff less?

Do they have different utilities?

Right.

The cost of occupancy is different in smaller locations.

So there could be some savings on the expense side as well.

But I hear you on the thought of, like, more space to sell from.

And I think that's what we do in retail.

So it'll be really interesting to see.

But I, for one, Best Buy, if you put one in my area, I'm going to be there.

And I'm going to be so happy that you made it smaller.

Because I'm like, what are we doing with this mall here?

When I'm in a Best Buy Buy, I'm like, this is too, too big.

Yeah.

And you know, I want Best Buy to succeed there.

You know, I'm in Minneapolis, local company, you know, But I'm skeptical of this one.

But, hey, I guess, you know, Jen.

Jen, Best Buy fan, folks, is one of your biggest fans right now.