Best Buy Is Poised To Grow, After Buyout Drama Concludes With A Wimper
The year-long saga that has paralyzed electronic retailer Best Buy ended Friday, not with a bang, but with a whimper. Founder Richard Schulze was unable to produce the funds to execute his promised plan to take the company private. While his buyout bid fell short, Schulze in effect has already achieved his goals as Best Buy has new leadership, a renewed growth strategy, and a revived stock price. After 47 years leading Best Buy, now it’s time for Schulze to settle into his role as the largest shareholder, retire fully, and let the new generation of Best Buy leaders restore the company’s greatness.
While Schulze turned over his CEO title to his longtime colleague Brad Anderson from 2002-2009, he never really relinquished his iron-fisted control over Best Buy’s board or its strategy. Anderson did a superb job in building Best Buy during its strongest period of growth, focusing on extending the company’s values and its mission as the nation’s leading electronic retailer. He also fended off competition from Wal-Mart. After seven years at the helm, Anderson turned over the leader’s role to his successor, Brian Dunn, while Schulze took a more active role from his board vantage point. Things at Best Buy deteriorated rapidly under Dunn as the retailer failed to address the growing power of on-line retailers like Amazon and an old boys’ atmosphere seemed to dominate the corporate culture.
Last March the Best Buy board learned from a company executive about Dunn’s inappropriate relationship with a company employee. Dunn was terminated and board member Mike Mikan, grandson of the Minneapolis Lakers great basketball player, was named interim CEO. He immediately embarked on cutting costs to mitigate the company’s declining revenues. Then in May the board found out that Schulze had learned in December in writing about Dunn’s issues but failed to act on them or disclose the letter to his fellow board members.
That was too much even for the usually passive Best Buy board. It stripped Schulze of his chairman’s role, and longtime board member Hakim Tyabji became chair. A month later, Schulze resigned in protest. Tyabji immediately stepped up to his new responsibilities by forming a search committee to identify the right CEO. For his part Mikan intensified his cost-cutting to pare back Best Buy’s enormous retail footprint and bolster his case to be the permanent CEO.
That only seemed to anger Schulze even more. Wounded and embarrassed by losing control over the company he founded, and angry over Mikan’s retrenchment strategy, he announced his intention to offer $26-28 per share to take the company private to regain control in August. The media, always seeking drama, took Schulze’s bait. Press stories largely ignored the reasons Schulze was forced to give up his chairman’s role and played up the angle of the founding hero’s return. But the stock market remained skeptical that Schulze could raise the necessary funds.
Meanwhile, Best Buy stock continued its slide from its March high of $27 per share to $18, as 160,000 employees and millions of customers were left to wonder what the future held for this once prestigious chain.
On August 12, 2013, the Best Buy board announced the appointment of Carlson CEO Hubert Joly. The security analysts and the media were dubious that Joly, with his hospitality background and lack of retail experience, could turn around the company. Having known Joly for a number of years, I immediately believed he was an inspired choice.
A brilliant strategist with an intense work ethic, Joly wasted little time in reshaping the company’s strategy and its leadership. Facing the loss of retail sales to lower-price offers at Amazon, he adopted a “both/and” strategy of combining refreshed retail sales with an aggressive online offering, proposing to match any online offers to in-store shoppers. The key to winning the electronic retail race is Joly’s ace in the hole – Best Buy’s service offerings – a competitive advantage that online retailers simply cannot match. For consumers unable to figure out the complex maze of rapidly changing electronic technology, the Geek Squad is there to help sort it out.
Joly wasted no time in rebuilding Best Buy’s leadership. He split its line operations into retail and online, appointing new heads of each, while moving to eliminate the old boys’ culture that grew under Dunn. He also appointed a highly respected CFO who had held a similar position at William Sonoma. Unimpressed with either Schulze’s proposed bid or Joly’s “Renew Blue” strategy, however, the stock market seemed to expect that Best Buy would continue to decline as its stock fell to $11.29 in late December.
As the new year dawned, Best Buy’s fortunes started to turn. An early January announcement that the decline in its retail sales had been stemmed over the holidays and online revenues had grown 10% sent the clear signal that Joly’s leadership was paying off. From that December low, its stock has increased over 40% to $17.16 as of March 1, 2013. When Schulze failed to deliver his much-anticipated bid by the February 28 deadline, it was clear that this agonizing chapter in Best Buy’s history was over.
Now it is time for a new chapter in Best Buy’s 47-year history. Joly should have free rein to execute his strategy with full support of an undivided board of directors. If he is at all concerned about his net worth, Schulze can let go. If he holds on, he may well benefit as Joly and company carry out the turnaround that no one except Joly believed could happen.
Leadership matters… a great deal. Let’s give credit to Joly for having the vision to perceive the winning strategy and quickly take charge to make it happen. Chairman Tyabji deserves recognition also for his courage to appoint an outsider to lead the firm, while the board stood firm in the face of Schulze’s challenges. Instead of declining with a never-ending series of cutbacks as former retail stars like Sears and K-Mart have done, Best Buy is back with new leadership, a new strategy, and renewed passion from its 160,000 employees.