As the Best Buy Turns
Daytime dramas have nothing on Best Buy. Let’s recap:
- The consumer electronics chain has seen market share steadily decline in recent years as its stores turn into showrooms for Amazon.com and others that undercut it on price.
- Former Best Buy CEO Brian Dunn, who is alleged to have carried on an inappropriate relationship with a female subordinate including the possible misuse of company funds, resigns abruptly.
- Best Buy founder Richard Schulze announces he will step down as chairman of the company in late June after it is learned that he knew of the former CEO’s alleged misbehavior and failed to report it to the board.
- Deciding not to wait until the end of the month, Mr. Schulze resigns from the board on June 7 and announces he will "explore all available options," which many interpret as finding a way to take the company back. As the largest shareholder in the company with a 20.1 percent stake, many think Mr. Schulze will attempt to do just that.
"To some extent, people are saying to themselves maybe what he is doing is he is getting off the board so he can team up with some private equity guys and make a run at the company," BB&T Capital Markets analyst Anthony Chukumba, told Reuters.
JPMorgan analyst Christopher Horvers said the one thing he doesn’t expect to see happen is Mr. Schulze looking to "dump" his stake in Best Buy. According to the Pioneer Press, Mr. Horvers expects Best Buy’s founder to try and regain "greater control over the strategic direction of the company."
If private equity doesn’t work out, there is also the possibility that Mr. Schulze could look to enlist other shareholders in the company to push current members of the board out to regain control and choose Best Buy’s next CEO.
"We don’t know what [Mr. Schulze’s announcement] means, but I guess we’ll find out," Bruce Hight, Best Buy’s spokesperson, told the Star Tribune. "We certainly appreciate his past contributions, which were immense. But the company’s going to proceed forward with plans that it has already announced."
Stay tuned.
Discussion Questions
Discussion Questions: How do you think Best Buy’s boardroom drama is affecting the rest of the company? What would be the best case scenario for Best Buy going ahead now that Richard Schulze has resigned from the board?
Best actions for the board: make certain that there is an ongoing communication platform in place for associates. The focus can’t be on financial investment maneuvering, it has to be on associates and consumers.
There will be an enormous amount of time spent by associates sitting around the “water cooler” speculating, if this communication platform isn’t in place. Remind every associate that the objectives of taking care of customer needs has to be the primary focus. Best Buy needs to guard this part of their culture.
Best Buy has been going in the wrong direction for a while. Now it seems to want to become RadioShack (all the phones you need, all the time). Are these board level decisions? Maybe so. The more we read about the story, the less it sounds like Brian Dunn was really guilty of any crime beyond allowing the company to lose its way on his watch.
I don’t think it would be the worst thing in the world for the founder to come back. The company could talk up a return to the original ethos.
The Best Buy drama has been going on for some time and it certainly has adversely affected the corporate morale. Sources working in Best Buy have told me that they have never experienced the uncertainty and apathy within the halls of the Best Buy campus.
In my opinion, business decisions and directions taken over the past 2 years have weakened and undermined the ability for Best Buy to react with agility and innovation to the digitally empowered consumer. There has been speculation that Mr. Schulze’s recent resignation is part of a process and strategy to use his 20% share to regain control of the company. If bold and innovative moves are not made soon, I am of the opinion that Best Buy will go the way of Kodak and become yet another casualty of the disruptive nature of the digital revolution.
This kind of thing always paralyzes a company. Anyone with enough stroke to make things happen is either absorbed in the political game or hiding under a rock. There is no good scenario as long as Richard Schulze leaves open the impression that he either is (or may seek a surrogate) stalking horse.
How can all of this boardroom drama NOT affect the company? How can it not have a demoralizing effect on workers? Best Buy is already under siege from Amazon and other etailers. Clear vision and direction from top management is more necessary than ever. Currently leaders may try to set direction, but the 800 pound gorilla in the room is the threat of a proxy fight by Schulze. This has to have a negative impact.
Best Buy’s boardroom drama is affecting the rest of the company similarly to spraying Round Up on weeds.
Whether Richard Schultz’s resignation from the board is for good or otherwise, Best Buy has to prove it has a will since Richard Schultz will still have a way.
Since his judgement seems to have been marred by his past successes, Schultze should be like the old soldier that just fades away — but we doubt that’s his intention.
The Amazon.com showroom formally known as Best Buy has a serious business model crisis bigger than boardroom antics.
For decades, selling electronics has always been a zero sum game. I believe even Mays at one point in time had an electronic retail chain in the 1980s. Electronics tend to obsolete themselves and always sold at near cost commodity level.
Right now, online is the only place selling electronics make sense due to drop-shipping (Amazon.com/CDW) instead of stocking inventory upfront in brick and mortar locations.
Best Buy is the next Borders bookstore — too much physical inventory on hand. I don’t see anything other than the inevitable for Best Buy.
You need leadership at the top, but those who have a love for the company — the staff aren’t interested nor distracted by the turmoil. They have a job to do and love it. Seriously, this is all so much gossip and speculation with little foundation. Dunn lost his job for several reasons and likely any indiscretion on his part (if true) contributed mightily to his leaving the company. What Schulze does or does not do has little impact on stores which are open 365 days a year and for the better part of 20 years have thrived. Being a cellular phone superstore seems a bit odd, but there is a lot of traffic driven from the category.
Advertising was all about people, service and selection. Price was at an advantage due to MAP agreements. That continues to this day. RewardZone is an asset that until recently was not optimized the way it could be to bring loyalists back into the store or online. Discounts for one regularly priced item at 12% doesn’t get me to drive to the store that’s for sure. Recent communications have been much more aggressive and trigger e-mails thanking the customer for their most recent purchase was a first observed last week from a visit I made for electronics.
The vision to re-invent the store, make it an event to shop the store and see all the latest home electronics, cameras, sample new video games and try out new personal computing products remains. The decision to scale back the square footage and sublet out the divided space is a good move. The stores are over-sized with a lot of dead display. Music is down to two aisles and videos scaled back as well. A store within a store concept with new extended categories/partners to attract their loyal base to shop the physical store and/or buy online is indicated.
In my opinion, the Best Buy boardroom drama probably cannot be good for the retailer, its employees, or its customers, at least not in the short term. However, these types of scenarios tend to work themselves out either for the better or worse, and maybe the drama will eventually result in a new type of leadership at Best Buy that will deploy a new vision to give this retailer the profitability and long-term staying power it deserves.
Best Buy, if not careful, will go the way of many other retailers (out of business), as the internet has crushed any growth in the Electronics Industry. Add Costco and Sam’s Club to it, and it gets really tough to turn a profit today. Good luck, they’re going to need it!
BB needs to develop a clear vision of how to regain its relevance against competitors that continue to take market share. Meanwhile, the focus seems to be on rearranging the deck chairs. All of the time and energy spent on the corporate tug of war runs the serious risk that the winner will end up with a victory that will hardly have been worth the fight.
Disruption and transformation are the name of the game in retail right now (just ask Macy’s, J.C. Penney, Walmart, Lowe’s…). At the heart of it are bold decisions to depart from legacy processes and people. In this environment, Best Buy has permission to do the same (and few will notice). A transformation is a terrible thing to waste.
This is terrible. Stability, clear direction and faith in management all start from the top. No company is going to thrive on disarray, and upheaval like BB is undergoing. The real question is what will BB look like if they survive…if they survive….