Best Buy is speeding changes to adapt to a post-pandemic consumer: Smaller—and fewer—stores ahead

• Best Buy CEO Corie Barry on Thursday laid out how the company is transforming its workforce, store fleet and sales strategy to focus more on e-commerce.
• The retailer laid off thousands of store employees and is testing stores with a smaller sales floor.
• It plans to shrink its store footprint in the U.S., as it signs shorter lease agreements, carefully reviews renewals and plans to close a larger number of locations this year.

Best Buy CEO Corie Barry said the pandemic has forever changed the way consumers shop — and the retailer is not waiting to adapt.

On Thursday, she laid out how Best Buy will transform its workforce, store fleet and sales strategy to focus more on e-commerce. The company is laying off thousands of employees and reskilling others for digital roles. It is testing new stores with a smaller sales floor and more space for fulfilling online orders. And it is considering shrinking the footprint of its nearly 1,000 stores across the country.

"Customer shopping behavior will be permanently changed in a way that's even more digital and, of course, puts the customers entirely in control to shop how they want," she said on a call with reporters. "We believe our strategy needs to embrace that reality and lead in the space, and not follow."

Online sales in the U.S. grew 89% to $6.7 billion in the fourth quarter ended Jan. 30 and made up 43% of its total U.S. sales for the three-month period.

Barry said she expects a larger percentage of Best Buy's overall sales will take place on its website and app rather than in its stores. It anticipates digital sales will represent about 40% of total U.S. sales this fiscal year. That compares with 19% two years earlier and 5% a decade ago.

Even with this rapid growth, Barry said, the company's brick-and-mortar footprint will still play a key role. Stores will have products on display and staff to help customers, but they will also increasingly serve as warehouses where employees pick and pack e-commerce orders and convenient spots where shoppers can quickly retrieve an online purchase in the parking lot.

New kind of store

As Best Buy pivots, its stores may become less numerous and smaller.

Barry said the company will sign shorter lease agreements for its stores going forward and have a higher bar when they come up for renewal. She said about 450 leases are coming up for renewal in the next three years.

Best Buy has closed about 20 large-format stores in each of the past two years — and Barry said she anticipates it will close a larger number of stores this year.

The consumer electronics retailer, historically known for its vast sales floor and eye-catching displays of gadgets, has a new look at some stores near its Minneapolis headquarters. It remodeled the stores in November as part of a pilot.

"We're testing our hypothesis that stores might act a little bit more as primary fulfillment hubs," she said.

This is something other retailers such as Target are doing to help make online orders more profitable.

At some Best Buy stores, it cut its shoppable square footage nearly in half — to 15,000 from an average of 27,000 square feet, Barry said. The smaller sales floor features only the more popular items, with a fuller assortment that's stored behind the scenes and still available for purchase.

In some stores, it is also testing a hub for the Geek Squad, a team of employees who install and set up tech and do repairs.

So far, she said, the company likes how the smaller stores have freed up more room to stage curbside and in-store pickup of online orders and ship some e-commerce purchases.

A smaller workforce

The company's workforce has already gotten smaller to reflect the different way it will operate.

Best Buy began the most recent fiscal year with 123,000 employees and ended the year on Jan. 30 with about 102,000 — a decline of roughly 17%, Barry said on a call with investors and analysts. She said most of that reduction came from attrition.

Earlier this month, Barry said the company laid off and gave severance to about 5,000 employees, most of whom were full-time. It is hiring people for about 2,000 part-time positions.

"Decisions like these are never easy or taken lightly, but they position us to be more responsive and flexible, as we continue to refine our operating model going forward in response to the incredibly rapid change in how customers want to shop with us," she said.

She noted that the company is giving pandemic-related bonuses to employees. Full-time workers will get $500 and part-time workers will get $200, including those who are losing their jobs. And, she added, it wants to train employees for new kinds of roles, like providing tech support to customers by video chat.

Some employees have criticized Best Buy for the layoffs — especially at a time when many are already struggling with other stressors such as finding child care during virtual learning, coping with illness in their family or dealing with the financial strain of the recent Covid-induced recession.

A group of them are circulating an online petition, calling for retroactive pay for workers. The petition says that even those who still have jobs at Best Buy are having trouble paying their bills because of reduced hours.

Finding inspiration

Also important to Best Buy's future growth is having the right mix of products. Barry said technology will continue to gain importance in people's lives.

She said the retailer sees health as a growth area, as more people use wearables to track home workouts or use telemedicine to meet virtually with a doctor.

The large number of people working from home has inspired new products, from high-tech chairs to standing desks, she said. And she added, its tech services are a sales driver and differentiator.

Online and off, she said, customers look to Best Buy for the same things, such as researching products, finding inspiration and getting tech support.

"We must be ready to serve all of these needs at all times in all channels," she said.

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