Best Buy tests remodeled stores during busy holiday season

Some of the Best Buy stores that dot the Twin Cities have begun to function a little differently — with more employees working like Santa's elves preparing items for delivery and pickup and fewer square feet dedicated to in-store shopping.

With a record number of online sales due to the coronavirus pandemic, the Richfield-based electronics retailer has redesigned a handful of stores in the metro and recalibrated a chunk of stores across the country to focus more on fulfilling online orders.

While the final results of its pilots are still left to be seen, retail experts said what Best Buy is doing during one of the retailer's busiest times will set it up well for the future.

"Best Buy is hands down the smartest retailer of 2020. … It is incredibly scientific in its approach," said Chris Walton, a former Target executive who co-runs retail blog and podcast Omni Talk and Minneapolis retail lab and co-working space Third Haus. "It's a series of micro experiments."

Best Buy has tried to be nimble throughout the pandemic. For example, it temporarily closed stores to foot traffic in the spring and offered only curbside pickup and delivery. It made consecutive changes throughout the last few months to test different capabilities, Walton said. Most recently, it announced it had expanded curbside pickup before and after regular store hours.

At the center of Best Buy's constant changes has been how it utilizes its stores to fulfill orders.

Ship-from-store fulfillment is not a new concept. Both Best Buy and Minneapolis-based Target have invested in the fulfillment model for years. Last month, Target reported more than 95% of its third-quarter sales were fulfilled by its stores.

During the pandemic, many retailers have used their stores to distribute products and have expanded the way consumers can get their orders with limited contact such as curbside pickup.

But ship-from-store has had its issues. Retail stores can have difficulty maintaining the appropriate inventory at their stores or sometimes items can be damaged or difficult to locate, said Sucharita Kodali, a retail analyst with Forrester.

Another issue has also popped up: For orders with multiple items, a store might have one product, but the other items would be at other locations that would split the shipment and be less efficient and more costly for retailers, Kodali said.

"The model was always solvable, it was just how much did companies want to invest in keeping track of their inventory," she said. "If they really, really want to ship from store you want to do that cost effectively."

Best Buy CEO Corie Barry said late last month in a call with analysts that her company had redesigned four stores in the Twin Cities "to test our hypothesis of stores as more primary fulfillment hubs."

The store remodels — in Shakopee, Burnsville, Eagan and Apple Valley — were completed by November.

At the redesigned stores, the shoppable square footage was decreased from an average of 27,000 square feet to about 15,000 square feet. Customers can still shop the stores' major product categories such as laptops and cellphones, but there are fewer items on the sales floor with the most popular products on display.

A large wall separates the sales floor from the fulfillment space. Checkout, customer service and store pickup all have been moved to one area with service desks built into the wall that customers can walk up to.

In addition to staging orders for in-store pickup and ship-from-store transactions, the redesigns allow for space to stage inventory for items not on the floor. Additionally, at the Eagan store, Best Buy increased space for its Geek Squad customer support.

Barry said it would take time to calculate the return on investment for the store redesigns especially during the pandemic when demand and operations vary from the normal.

"This is the very first foray into fulfillment stores like this," she said. "We will continue to try additional formats and additional ways that we will approach the market as we head into next year."

To Walton, the redesigned layout makes sense because it frees up valuable space for other uses.

"It's almost like a furniture showroom," he said. "You look at it. You get help from people, and you pick it out. And you can get it from the back or say how you want to get it."

In a YouTube video with Walton posted last week, Omni Talk co-contributor Anne Mezzenga agreed that the redesign was a smart move.

"You don't need the sales floor," she said. "It makes sense that they're moving toward the store pickup, they're converting these to fulfillment centers and they're really leaning in on what makes Best Buy different and better than Amazon right now. And that's service and all the store locations."

In September, Best Buy also began to turn 250 locations, about a quarter of its stores in the United States, into store hubs meant to handle significantly more online order volume than normal stores.

Best Buy is adding around 90 additional hub locations for the busy holiday season. Best Buy estimates that in total the store hubs will ship more than 70% of the retailer's ship-from-store units during the fourth quarter.

Unlike the remodeled stores, the layout of store hubs hasn't been dramatically changed. At the hubs, Best Buy has designated dedicated employees to help fulfill online orders shipped directly to customers.

Locations were chosen based on their available warehouse space and proximity to carrier partners. There are 10 store hubs throughout the Twin Cities metro.

In a separate, out-of-state pilot, Best Buy also is testing changing the location of one store's warehouse so it is near a new covered drive-up area.

Best Buy — which offers same-day delivery on many items at almost all of its stores — also is expanding its delivery options by adding more partners such as Instacart. The retailer expects to have about 450 stores set up with dedicated employees and vehicles to deliver products to customers' homes.

Kodali, the Forrester analyst, said Best Buy, to its credit, is trying to stay ahead of the curve, Kodali said.

"Best Buy has been an exemplary company during the pandemic," she said.

Walton said it has taken guts for the company to launch so many changes quickly during a hectic time such as the holidays when it is handling more online orders than usual due to the coronavirus.

"They are not afraid to test this at a time that is busy," he said. "COVID is going to be a good time to test what is the ceiling."