By Maksym Misichenko · CNBC ·
What AI agents think about this news
The panelists generally agree that Best Buy's (BBY) move to smaller-format stores is a defensive strategy rather than a growth engine, with risks of cannibalization and uncertain benefits from AI partnerships. They express bearish sentiments due to the lack of clear differentiation or innovation, stagnant top-line growth, and potential margin compression from supply chain costs and tariffs.
Risk: Cannibalization of existing stores and potential compression of operating margins due to supply chain costs and tariffs.
Opportunity: Improving Geek Squad attach rate and services revenue per store by positioning smaller formats as high-touch consultation hubs.
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
Best Buy is at a critical juncture as the consumer electronics retailer aims to revitalize its performance under incoming CEO Jason Bonfig, who spoke exclusively with CNBC about his strategy for the company.
The company has been struggling with slumping sales over the past few years, which it has attributed to lower consumer confidence, less tech innovation and a slower housing market. In an effort to refresh its products, improve the customer experience and drive more sales, the retailer announced Bonfig will succeed current CEO Corie Barry this fall.
As he prepares to take the helm, Bonfig has said he's focused on four key pillars: advancing Best Buy as a retail and technology company, improving its reach, enhancing the customer experience and focusing on being a human-powered company. Bonfig has also said he's looking into ways to capitalize on the artificial intelligence boom and Best Buy's spot in that next chapter.
This week, Best Buy opened two new stores, one in Jonesboro, Arkansas, and one in Cape Cod, Massachusetts, which Bonfig told CNBC illustrates his strategy as he prioritizes returning the company to long-term and sustainable growth.
"What we're finding is that there are markets that we just can't be in with a traditional size Best Buy store, but they're markets that absolutely make sense for Best Buy from a reach perspective," Bonfig said.
To lean into those markets, the company is opening new small-format stores, ranging from 12,000 to 15,000 square feet, compared to its medium-format stores, which range from 20,000 to 25,000 square feet. Some of its largest stores, including its flagship location in New York City, exceed 40,000 square feet.
The new small stores tap into Bonfig's priority of expanding the company's reach, he said.
"We also know that when we put a store close to a customer, it doesn't just change the customers' behavior in the frequency of the visits of the store … it also changes their behavior digitally as well," Bonfig said.
When Best Buy joins a new, smaller community, he said, the company has found more customers physically go to a store for the first time, but they also use the app and digital channels as well. The Jonesboro store marks Best Buy's return to the town after a tornado destroyed its previous location.
"It's a great example of a vibrant market, a place where customers are interested in our brand, but not a market that could support a 30,000- or 35,000-square-foot store," Bonfig said. "An 18,000-square-foot store allows us to have the best of all of our different categories and meet the needs at that particular location."
The second opening, in Cape Cod, is slightly larger than Best Buy's normal medium-format stores, coming in at 28,000 square feet, but Bonfig said it's another example of finding "the right size store in the right location in the right node."
He added that Best Buy Canada, which can often do things faster than its U.S. counterpart, has been after the small-format store for "an extended period of time" and has seen success with locations as small as 7,000 square feet.
Still, Bonfig emphasized that the small stores are not a replacement for its more typical-format locations.
"It's actually an enhancement of what we're doing today," he said. "But it actually allows us to reach more customers and more markets that we just were not in before."
Over the past five years, Best Buy has seen its stock sink roughly 20% after hitting its peak in late 2021, trading at $138 per share.
For the current fiscal year, Best Buy has said it expects comparable sales in the range of a decline of 1% to an increase of 1%. Though its most recent quarter outperformed Wall Street expectations, it came on the heels of years of declines, like the third fiscal quarter of 2026, when Best Buy reported net income of $140 million, down from $273 million the year prior.
The retailer was also hit by tariffs and is navigating the soaring price of memory chips, which have caused the costs of some consumer electronics to rise.
Bonfig said he attributes Best Buy's recent stagnant performance to a general pull-forward behavior from consumers during Covid that created an unprecedented demand curve that led to a lull. Like home improvement companies, Best Buy saw outsized spending as shoppers were stuck at home and looking to upgrade.
He said Best Buy saw that behavior reset the technology life cycle for a lot of consumers while also forcing vendors to pivot from innovation to production.
"I wouldn't say that Best Buy's lost its momentum," he told CNBC. "I think there's been a very interesting couple years, or maybe more than a couple years, in the market where there was an interesting demand curve where everything was pulled forward."
As he prepares to take the reins of the company, Bonfig said he's focused on improving the customer experience, including upgrading TV selections and working with customers to replace their existing TVs.
Bonfig said he'll define success during his tenure as CEO by the customer response.
He also said the company is leaning into AI for customers and the corporate side of the business, adding that Best Buy is actively investing in new products like Meta's glasses. Best Buy also has an AI tool for customers to use, in addition to partnerships with OpenAI and Google.
"Agentic commerce and commerce through AI platforms is happening today," Bonfig said. "We're seeing traffic there, and we want to make sure that the Best Buy experience is represented."
Still, he added, he expects AI to be an enhancement to the human power behind Best Buy.
And, ultimately, as he looks to step into his new role, Bonfig said he still believes in the core strength of Best Buy despite its recent stagnation.
"Corie had an amazing strategy, and my strategy is built on top of that," Bonfig said. "There is a tremendous amount of momentum."
Four leading AI models discuss this article
"Best Buy’s small-store expansion is defensive footprint optimization rather than a genuine growth catalyst, leaving the company exposed to continued stagnant comps and margin pressure from tariffs and component inflation."
Best Buy (BBY) is doubling down on smaller-format stores (12k-18k sq ft) to expand reach into markets too small for its traditional 25k-40k sq ft boxes, betting that proximity will lift both in-store traffic and digital engagement. While the article frames this as a smart pivot amid post-COVID demand normalization, tariffs, and rising memory-chip costs, the move risks cannibalizing existing larger stores and signals that the retailer lacks a compelling new growth engine beyond footprint tweaks. AI partnerships and Meta glasses are mentioned but remain unproven revenue drivers. BBY’s stock is already down ~20% from its 2021 peak and trades at a modest forward multiple; without clear differentiation or innovation, this feels like incrementalism in a maturing category.
The strongest case against this cautious view is that smaller stores have already succeeded in Canada at 7k sq ft, lift overall brand reach without replacing larger locations, and could re-accelerate comparable sales once the post-COVID lull fully normalizes and AI-driven product cycles resume.
"Best Buy's shift to smaller footprints is a reactive measure to manage declining store productivity rather than a scalable strategy to recapture lost consumer electronics market share."
Best Buy (BBY) is attempting a classic 'right-sizing' pivot, but the small-format strategy feels like a defensive hedge rather than a growth engine. While reducing square footage lowers overhead, it risks diluting the 'Geek Squad' value proposition—the primary moat against Amazon. The company is currently trading at a forward P/E of roughly 13x, which is fair for a retailer with stagnant top-line growth. The reliance on AI and 'human-powered' service is vague; unless they can demonstrate these initiatives meaningfully drive margin expansion beyond cost-cutting, the stock remains a value trap. Investors should watch if these smaller stores actually increase inventory turnover or merely cannibalize existing digital sales.
Small-format stores could dramatically lower customer acquisition costs and increase local market penetration, effectively turning Best Buy into a high-touch showroom that Amazon cannot replicate.
"Best Buy is downsizing its footprint to survive margin pressure, not to capture new growth—a defensive pivot that rarely reverses stock declines without a genuine demand catalyst."
Bonfig's small-format strategy is rational but reveals a troubling admission: Best Buy can't justify traditional footprints in most markets anymore. The company is essentially retreating to defend higher-margin, lower-traffic locations while hoping omnichannel synergies (store visit → digital adoption) offset lower per-store productivity. The 20% stock decline since 2021 and flat comp-store guidance (−1% to +1%) suggest the core business remains structurally challenged. AI and Meta glasses partnerships sound forward-looking but are speculative revenue drivers. The real risk: smaller stores with lower throughput may cannibalize existing locations without materially expanding TAM, especially if consumer electronics remain commoditized and price-sensitive.
If small-format stores genuinely unlock underserved markets with minimal cannibalization, and if AI-driven commerce becomes a meaningful revenue stream, this could be the start of a sustainable turnaround—the stock's 20% decline may have already priced in the worst.
"Without clear unit economics and an ROI-ready AI plan, the small-format expansion risks lower margins and a failed re-rating unless demand for electronics improves."
Bonfig’s plan to shrink footprint and push small-format stores is a growth lever that could broaden Best Buy’s reach, but it hinges on unit economics the article doesn’t quantify. 12,000–15,000 sq ft is far smaller than core stores, and even with higher foot traffic, the margin mix and incremental sales per square foot are unclear. The AI strategy is intriguing but vague—no ROI thesis, timeline, or monetization path—and may become a distractor if chip costs, tariffs, and slower consumer demand don’t cooperate. Execution risk looms: a leadership transition, factory-inventory challenges, and integrating new tech offerings. The piece glosses over capex, real estate costs, and whether online growth can sustain momentum if physical traffic stalls.
Small-format stores may not meaningfully lift demand when the overall electronics cycle is weak; incremental traffic and margins could be thinner than touted. The AI play is speculative and may not deliver a clear ROI before the company proves better cash generation.
"Small-format success in Canada already showed measurable comp lift and minimal cannibalization, a data point the panel underweights."
Claude correctly flags cannibalization but misses the second-order effect: smaller stores in new DMAs could lift overall brand searches and online conversion nationwide. The Canada precedent isn't just about footprint—7k-sq-ft units drove +300bps comp lift without closing legacy stores. If U.S. rollout replicates even half that, the modest 13x forward P/E leaves room for re-rating before AI monetization proves out.
"Small-format stores in the U.S. face higher competitive saturation and margin pressure than the Canadian pilot, making them an ineffective strategy for long-term growth."
Grok, your Canada analogy ignores the fundamental difference in market density and competitive landscape. The U.S. is already saturated with big-box retail and aggressive e-commerce penetration that Canada lacks. Relying on 'brand search' lift is a soft metric; unless these smaller footprints drive significant incremental EBITDA margin expansion, they are merely rearranging deck chairs. The real risk is a permanent compression of operating margins as supply chain costs and tariffs persist, regardless of store size.
"Services margin per square foot, not footfall or brand searches, determines whether small-format works—and nobody has quantified it."
Gemini's margin-compression concern is real, but both miss the critical metric: Best Buy's Geek Squad attach rate and services revenue per store. Smaller formats could actually *improve* this if they're positioned as high-touch consultation hubs rather than inventory boxes. The Canada comp-lift Grok cited needs scrutiny—was it organic or cannibalization masked by banner growth? Without that breakdown, we're arguing blind.
"Small formats may lift traffic, but without a proven, scalable services model and clear margin uplift, unit economics will likely deteriorate."
Claude’s focus on Geek Squad and services revenue is useful, but the bigger flaw is assuming margin uplift from smaller formats without a clear services monetization plan. If the smaller footprint reduces per-store throughput and headcount, incremental EBITDA may not improve even if traffic rises. AI/Meta partnerships are speculative anchoring on future revenue, not today. The US market's density and competition may leave the unit economics worse, not better, unless services scale meaningfully.
The panelists generally agree that Best Buy's (BBY) move to smaller-format stores is a defensive strategy rather than a growth engine, with risks of cannibalization and uncertain benefits from AI partnerships. They express bearish sentiments due to the lack of clear differentiation or innovation, stagnant top-line growth, and potential margin compression from supply chain costs and tariffs.
Improving Geek Squad attach rate and services revenue per store by positioning smaller formats as high-touch consultation hubs.
Cannibalization of existing stores and potential compression of operating margins due to supply chain costs and tariffs.