Best Buy Is Back!
Originally published in the StarTribune.
What a difference a year makes!
A year ago Best Buy was headed for the unending troubles that have beset retailers like Sears, Kmart, Circuit City, J.C. Penney and Mervyn’s: storied histories followed by long-term decline of their brands.
Last April CEO Brian Dunn resigned over allegations about a relationship with an employee. However, Best Buy’s problems went beyond Dunn’s conduct. Its same-store sales were declining and its stock price had dropped from $45 to $25. Security analysts were predicting Best Buy’s ultimate demise, referring to it as “Amazon’s showroom.”
How did Best Buy get back on track while overcoming a rupture with founder Richard Schulze? Let’s look beyond the headlines at the leaders involved.
Dunn’s resignation was just the beginning of Best Buy’s troubles. In May, Schulze stepped aside as chair for failing to disclose allegations about Dunn, and later resigned from the board, threatening to take Best Buy private. Meanwhile, interim CEO Mike Mikan was preparing a plan to preserve Best Buy by closing stores and cutting costs. This upset Schulze as he feared “his baby” would be dismantled.
Schulze countered in August with a preliminary offer of $26-$28 per share to take Best Buy private and bring in his own management team led by former Best Buy CEO Brad Anderson. Wall Street seemed skeptical whether he could raise $8 billion to $9 billion for the buyout. Meanwhile, Best Buy’s 170,000 employees, customers and shareholders wondered whether the retailer had a future.
Things changed dramatically in September when Carlson CEO Hubert Joly was elected CEO. Joly left the CEO post of Carlson to take on dual uncertainties of Best Buy’s ownership battle and unclear strategy. A brilliant strategist and astute observer, Joly recognized that Schulze would be his No. 1 shareholder whether BBY was public or private. He reached out to Schulze to engage in discussions, only to be rebuffed at first.
Joly recognized Best Buy couldn’t just cut costs or return to its past. Online retailing was here to stay and Amazon’s threat couldn’t be ignored. More important, Best Buy’s employees, customers and shareholders needed light at the end of the tunnel.
With Christmas approaching, Joly announced his “Renew Blue” strategy: a balance between retail and online strategies and in-store matching of online prices. His ace in the hole Amazon couldn’t match: the Geek Squad to help customers set up their home electronics. Joly also reshaped his leadership team to fit the new strategy, replacing Dunn’s team with Shawn Score to lead retail, Scott Druckslag to spearhead online, and Sharon McCollam as CFO.
Best Buy’s shares continued to fall to a December low of $11.29, as investors didn’t believe Schulze could make a fully financed offer, nor did they think Joly could turn around Best Buy. In late December, Schulze and the Best Buy board agreed to extend his deadline for two months. Meanwhile, Joly continued to reach out to Schulze.
In January, Joly announced good news: Retail sales didn’t decline during Christmas as expected, and online sales climbed 10 percent. The bleeding was stanched, and the turnaround underway.
Meanwhile, discussions between Schulze and Best Buy continued, leading to the agreement announced March 25: Schulze became chairman emeritus as Anderson and former COO Alan Lenzmeier rejoined the board, representing Schulze’s 21 percent stake. Joly’s role as CEO was cemented. To reinforce Schulze’s newfound confidence, Joly on April 5 announced a strategic partnership with Samsung to install boutiques in Best Buy stores, giving Samsung a showroom to compete with Apple stores.
While Best Buy still has a long way to go, the road ahead is now clearer. From their December low, Best Buy shares have more than doubled to $26, so Joly can focus all of his energies on making this turnaround successful.
This outcome is far better than most anticipated. Credit Schulze for his deep commitment to Best Buy, rising above wounded pride, while letting Joly run the company. Also credit Anderson’s role as honest broker, and Best Buy’s board for hiring Joly and working toward equitable solutions. The real hero here is Joly, who recognized what was needed to turn the business around and find a way to reach an accommodation with the founder — certainly not easy tasks.
In the end there are no losers here, only winners. Enlightened leadership is transforming a great retailer and preserving this bedrock of the Twin Cities. Other companies threatened by rapid shifts to online and mobile would be well advised to learn from Best Buy’s experience.