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U.S. big box retailer Best Buy on Wednesday announced the imminent closure of 250 satellite stores dedicated to mobile phone sales, pinning the nationwide shutdown on sluggish sales amidst increased competition from cellphone carriers, etailers and first-party shops like the Apple store.
In a statement to The Wall Street Journal, Best Buy chief executive Hubert Joly said the company's mobile phone outlets, which on average run about 1,400 square feet, are more expensive to operate than a 40,000-square foot full-size location.
The smaller stores, commonly found in malls, will cease operations by the end of May.
Perhaps more important to Best Buy's bottom line, the mobile stores are not as lucrative as they were at the start of the smartphone boom. Currently, sales from the specialized outlets contribute about 1 percent to Best Buy's revenue, Joly said.
No single event or product is to blame for Best Buy's mobile slump. The overall cellphone industry has simply condensed since the company diverted capital to take advantage of what once was a fledgling market more than ten years ago.
Along with cellular network stores run by AT&T, Sprint, T-Mobile, Verizon and countless regional operators, handset makers began selling their wares through their own shops. Apple, for example, built out its retail chain to cover nearly 300 locations in the U.S.
"We began to open them more than a decade ago, before the iPhone was even launched," Joly told employees in an internal letter. "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."
In addition to brick-and-mortar sales, consumers are increasingly purchasing — and in the case of iPhone, preordering — smartphones online, meaning Best Buy's competitor list includes e-commerce giant Amazon. While the big box retailer has done well to ramp up its own online efforts to find success where others, like Radio Shack, have failed, the cellphone business is a different beast.
Ironically, Best Buy in 2012 expanded the mobile phone store initiative at the cost of its big box business to take advantage of emerging smartphone trends. At the time, reports estimated the retailer sold as many iPhones as Apple did, though that metric is thought to have shifted in Apple's favor over the past couple years.
Most recently, Best Buy caused a minor controversy when it charged iPhone X buyers a $100 premium when purchasing the handset at full price. Less than a week later, the company stopped selling unactivated iPhone X and iPhone 8 units, moving instead to installment-based purchases through AT&T, Sprint or Verizon.