Industry News

Miraculously, Best Buy Lives

Industry News has written many times about brick and mortar consumer electronics stores that have crashed,burned, and disappeared: Radio Shack, hh gregg, Circuit City—even Toys ‘R’ Us, once the 22nd-largest seller of consumer electronics products in the US. A few years ago. most in the industry would have predicted that Best Buy would be added to the list of CE retailers that perished, having failed to compete with Amazon.

They were all wrong. I was wrong.

When first offered in 1985, shares in Best Buy—the metamorphosis of Minneapolis hi-fi dealer Sound of Music—could be bought for 12 cents per share. As the chain grew, share value grew as well, reaching a peak of nearly $55/share in 2008. And then, as it did for so many businesses that year, the business crashed—and so did the share value, dipping down to about $20 by November, ’08.

Over the next two years, a slow climb brought shares back up to nearly $45, possibly aided by the closing of rival Circuit City in 2009. And then, again, the bottom fell out. By the end of 2012, shares had fallen below $12 (stock history can be seen here).

Why the ups and downs? This timeline from the Minneapolis Star-Tribune spells it out clearly; the squeaky-clean image of the company was blemished in 2011 when it became known that CEO Brian Dunn had engaged in, as they say in corp-speak, “inappropriate behavior” with a female employee. 2012 was a tumultuous year: in rapid succession, 50 stores were closed, laying off hundreds; Standard & Poors downrated the company’s credit; CEO Dunn resigned, with company Director George Mikan named as interim CEO. By the end of the year, Mikan had also resigned.

2013 wasn’t much better: an investigation showed that Founder/ Chairman Richard Schulze had neglected to apprise the full board of allegations against Dunn, and Schulze was forced to resign in June. By July, Schulze announced a takeover bid, assisted by other former officers of the company. In August, Hubert Joly, a veteran of the hospitality industry and officer of hotel owners the Carlson Companies, was named the new CEO of Best Buy.

Joly had no previous experience in retail or consumer electronics, but was known as an expert in corporate turnarounds. Many in retail and CE assumed that the choice of Joly would provide the final nails in the Best Buy coffin.

As said before: they were wrong, and I was wrong.

Joly’s first order of business was to meet with employees and then with Schulze. By the next spring, Schulze and Joly had reached detente, Schulze’s takeover plan was abandoned. Schulze remains as Chairman Emeritus of the company.

Joly abandoned the lavish offices and perks that had marked the C-level floor at the company, worked in stores, and revamped the corporate culture. In the years since his appointment, Joly has instituted price-matching policies that helped the company fight competition from Amazon; revamped the distribution system to make in-store and at-home deliveries far more efficient; leased store square footage to tech companies like Samsung, Microsoft, and Apple, slashing costs and further helping the company to compete successfully against Amazon; greatly expanded the size and reach of the Geek Squad service corps; and most-recently, initiated a class of in-home advisors who will go to the homes of customers and potential customers, advise them of possible tech solutions to their needs—and most surprisingly, may not sell the customers a thing.

Today, the company has been transformed from a big-box-pushing group of know-nothings to a company offering tech solutions, provided by highly-trained experts—from many companies, not just Best Buy.

It hasn’t all be roses: that $12 share price came shortly after Joly’s appointment, and there have been peaks and troughs since. For the most part, though, the trend has been upward— in both the stock price and the public’s view of the company.

And: miraculously, Best Buy lives. A remarkably-thorough recounting of the whole messy process can be found on Bloomberg, and it is instructive and fascinating reading.