Best Buy will shrink its big-box stores by sharing space

LOS ANGELES — Amid weak sales and growing online competition, Best Buy plans to sublease space at stores to other, smaller retailers, joining the ranks of big-box giants who are shrinking store sizes.

When it comes to retailing, big is not so beautiful anymore.

Best Buy, with 1,300 stores nationwide, is launching plans to wall off parts of its cavernous stores and sublease the space to smaller retailers, such as grocers, beauty-supply stores, home-furnishing outlets and others.

The retailer's new stores will aim to be about 36,000 square feet — down from the current average of 45,000 square feet.

"We can reduce our overall square footage while actually increasing our presence," Best Buy Chief Executive Brian Dunn said at the company's annual shareholders meeting last month."It's an opportunity to capture cost savings and get ourselves 'right size,' " he said.

Best Buy, based near Minneapolis, survived the consumer-electronics shakeout that led to the demise of Circuit City and a host of regional competitors. But its prospects are clouded by a shrinking market for DVDs and CDs, along with competition from online rivals such as Amazon.com.

"Big-box has already seen its heyday," said Brad Thomas, a retail analyst with Keyblanc Capital Markets. "Retailers just don't need as much space as they once did. Across the retail industry, there is an effort to reduce the size of your stores as retail and purchases increasingly occur online rather than through brick-and-mortar stores."

Best Buy hopes to lease out between 4,000 and 15,000 square feet at its 46 stores in Southern California.

Brokers say prospective tenants might include stores such as Trader Joe's or cosmetics chain Sephora. Unlikely new tenants: competitors in the cutthroat home electronics and appliance business.

Shari Ballard, executive vice president of Best Buy in North America, disclosed broad details of the downsizing plan during the company's analyst day earlier this year. Ballard and other Best Buy executives declined to comment for this report.

The moves reflect Best Buy's attempts to adapt to changing consumer trends. Its profit fell 12 percent in the three months ended May 28, compared with a year earlier.

On Wall Street, Best Buy's shares are down about 6 percent so far this year. Amazon.com, by comparison, is up more than 18 percent.

Many consumers still prefer to "touch and feel" a product while making up their minds, he said, but go online to make a purchase.

Big-box stores are a pre-Internet business model, said M. Eric Johnson, a professor at Dartmouth's Tuck School of Business.

"It was a killer model in the 1980s and 1990s," he said, "a vast selection of inventory under one roof with low prices. Then, Amazon happened."