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One-On-One With Brian Dunn

11/08/2011 01:16:24 PM Eastern
[Editor's Note: The following is an unabridged version of the exclusive interview with Best Buy CEO Brian Dunn that appears in the Nov. 7 issue of TWICE.]

Minneapolis - It was two years ago amid the fallout from the global financial crisis that Best Buy CEO Brian Dunn took the reins of Earth's largest CE retailer.

His first order of business, akin to catching falling knives, was managing the aggressive growth plans that had been put into place both here and abroad before the world economy buckled.

But faced with unprecedented competition online that was fomented by the very technology his company sells, Dunn also launched a laundry list of initiatives to leverage the retailer's formidable multichannel capabilities and ensure its leadership in a connected world.

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Throughout the challenges the one-time sales associate has maintained a shirt-sleeve management style borne of his days on the store floor, which has endeared him to his 180,000 far-flung employees. The affection was evident during a recent store visit when Blue Shirts vied for a chance to be photographed with their chief executive.

 Dunn's no-nonsense manner extends to his unassuming corner office, where he shared with TWICE his vision for Best Buy in the brave new world of price transparency, online efficacy and an always connected consumer. The complete conversation follows.

TWICE: How will you continue to get footprints in the stores now that traditional traffic drivers like pre-recorded music and movies are fading?

Dunn: We have over a billion customer visits a year between online and in our stores, and one of the challenges we face is with the deterioration of sales of physical music, the shiny discs. What do we do in place?

What you've seen us do in the center of our store is roll out things like Best Buy Mobile, like our digital imaging boats, like our gaming solution now. Increasingly, Best Buy is becoming a sort of digital playground, and I think that we find that to be very, very compelling for our future because while some of the technologies that have been central to this industry for a long time,  physical media as an example - are fading, digital's exploding. And we're just getting started with what we're going to be able to do with digital media and digital technologies.

So we are very much making our store, and intend to make it even more so, an experiential place where people can explore, touch, feel and play with the products.

TWICE: How is Best Buy addressing market share gains by online-only retailers?

Dunn: For me it isn't a question of Internet vs. brick-and-mortar, it's Internet and brick-and-mortar. I do not believe that physical alone is going to be enough, nor do I believe that digital alone will suffice. It is how those things come together, and that's how people are living today.

BestBuy.com influences 60 percent of the time we ring the register in the store. The customer's been to BestBuy.com and done some research, taken a look at what's available, and increasingly we see that being important.

I'll give you an example of something we're selling right now: Batman Arkham City launched last month, and Best Buy has exclusive content. We have a Robin fight game and we have a couple of exclusive maps, so if customers pre-ordered the gaming disc from us they got the code for a download for that additional content. Increasingly we're going to see physical and digital interacting.

I hear the statement all the time that "Boy, the Internet is going to devour the entire physical world." I simply don't believe that. I believe people want to see the television screens they're going to be enjoying in their homes. I believe people like to see the different phones side by side and decide which smart phone is the best phone for them. They like to see the form factor of the computers.

There are times and places where a digital transaction lickety-split will solve the day. There are also times when only a physical interaction with the product is going to be able to answer the questions or create the set of solutions that you're going to want.

TWICE: What's the ideal channel mix for Best Buy?

Dunn: I don't have in my head a hard number. I certainly have targets for online, on-phone, in the store - for all the various channels we have. But I really think it's for the customer to determine what they want, where they want it, and how they get it.

Our job is to be where the customer needs us to be, and the best way to do that is to be where they are. And that's what we're doing. That's why you see us doing work with Facebook, that's why you see our presence on Twitter, that's why you see our network of stores you know so well, and that's why dot-com's so important. We even have a media network now, Best Buy On, where we present information and advertising.

TWICE: How can you improve your customers' online shopping experience?

Dunn: Our website will be more nimble, our website will be more intuitive for our consumers - we're doing a lot of work with that right now.

I also want our physical presence to be more reflective of all the possibilities that are available to customers today. We're working on all those things together, with the idea of creating a web of experiences around the customer in all the different channels in which they operate. Customers don't think, "I'm going to behave in a multichannel fashion today."  They say, "I'm gonna go online and check it out, I'm gonna call and check it out, I'm gonna stop by and visit the store."

One of the things that is very compelling about multichannel as a solution is that today - even in the environment where we have an un-level tax playing field - a huge number, over 40 percent, of our online sales are in-store pickups. So it shows you that the customer is really looking for the best of both worlds, and increasingly it's one world, with all these different aspects of it.

TWICE: How likely is a national Internet tax collection law?

Dunn: I believe that over a reasonable time frame, think two years or less, we'll have a change in that space. The economics of it demand it. The notion of not paying taxes on a television sale ... I just think in the environment we're in right now there's a huge appetite for generating those sorts of tax dollars.

And let's just remember this isn't a new tax we're looking for, this tax exists. It's just that it's self-reported, which means that it's not. The multichannel world isn't asking for anything but a level playing field, and to let the business models compete straight up, head on. I view this first and foremost as a jobs issue.

TWICE: You said Best Buy's physical presence needs to be more reflective of all the possibilities available to customers. How is the connected store prototype supporting that?

Dunn: It sounds so trite, it's so obvious, but the consumers are really gravitating toward "How do I explore, how do I test drive these connected technologies?" One of the demonstration areas we have set up in our connected stores is the Samsung AllShare model, where you can distribute from the phone to the tablet to the television screen. You can't go into one of those stores and not find a customer who's playing with that and is really impressed with how you distribute that content.

It's that sort of thing that we need to bring to life to show our customers the thrill of what's available today at their fingertips. And you will see us move aggressively toward deploying what we've learned in our stores starting next year.

TWICE: What will the chain look like in ten years? Will there be fewer stores?

Dunn: Ten years from now we will still have a big number of physical stores. I don't know if it will be 1,100, or 2,000 with our freestanding Best Buy Mobile stores. Will it be 1,200 because nodes have shifted?

We'll do what we always do - we'll be where the customers need us to be, and we will be the leading multichannel retailer in the world, period. We will bring the latest and greatest solutions to our customers; we'll bring great value and great price; we'll bring great information, great knowledge; we'll bring a great and differentiated experience.

It's very hard for me to tell you with precision what we'll look like ten years from now. I can tell you we'll be centered around the customer, and we'll be focused on bringing them the very best technology.

Ten years from now I don't think there'll be an area of our lives that this digital connected technology's not touching. We'll have in-home solutions for everything from energy management to healthcare to transportation and on and on and on and on.

All these industries are going to be dramatically impacted by this, and we're going to have a big role to play. We always have a big role to play where choice matters. Think about Best Buy as a place where we give you a choice of all these great technologies, not only helping you solve what you want to do, but how you can do it.

TWICE: Those are not things that are easily replicated online.

Dunn: They're not. But not only are they not easily replicated online, they're also not do-able with just stores. It's in that place where those channels come together.

TWICE: Will you still operate big-box stores? Will there still be a 45,000-square-foot Best Buy store in ten years?

Dunn: Do I think we'll have 45,000-square-foot stores 10 years from now? Yes. What number I have of those I don't know. What I can tell you for certain is that we will have what it is we need; big footprint, small footprint, medium footprint and digital, digital, digital. We'll be wherever the customer wants us to be.

TWICE: Can we assume manufacturers want to see a viable brick-and-mortar presence, and if so are they doing enough to support it?

Dunn: I'm not advocating for brick-and-mortar by itself, I'm advocating for our multichannel presence, because I sincerely believe that one without the other is not going to work and is not going to give people what they need.

But yes, I'm sure our vendor partners, who as you would imagine I talk to frequently, would very much like to see a continued, vibrant brick-and-mortar presence, and Best Buy being the largest CE retailer in the world, we play a really, really important role in that eco-system.

I think the entire industry needs to do more. Specifically, we need to do a better job with our industry narrative. Last year when we came with IPTV, a number of the OEMs had their version of it and explained it differently, and we tried to sort of synthesize all those messages.

When we come with new technologies and new capabilities, the industry has to do a better job of telling a narrative that makes sense, whatever OEM it is, whatever vendor it is or whatever retailer it is. It's in everybody's best interests, especially the consumers', to have a narrative that's consistent across all those manufacturers and across the various retailers so that we're not creating confusion. Confusion's the enemy to the industry and it's the enemy to the consumer because it prevents the consumer from realizing all the things that they can actually do today.

TWICE: In lieu of a national Internet tax collection law, are manufacturers doing enough on their own to level the playing field, through more stringent MAP enforcement for example?

Dunn: I'm much more focused on what the vendors are doing to tell their story. All those other elements, that will all sort itself out over time. Where I'm really focused is on what it is we can do for the consumer, and how do we help the consumer better understand everything that they can actually do today.

I'll give you an example: My oldest son went off to university this year, and he went to Best Buy, of course, with my credit card, of course, to outfit his dorm a little bit. And he came back and told me, "Dad, I found the coolest thing," and proceeded to tell me about Slingbox, and what it can do for him. Again, my son doesn't find that by going online, he finds that by walking through the store and talking to our associates. Which is not to say online isn't mission-critical, because it is, and it's such an important influencer, and such an important place to do business.

TWICE: So brick-and-mortar's here to stay, albeit as one element of a multichannel presence.

Dunn: Yes it is. But you ask me what the industry's going to look like in 10 years, what's it going to look like in five years? What's really going to be important and what's timeless here is that you stay connected to helping the customer and helping her navigate this wide array of choices she faces so that she can make good decisions about what it is she's trying to do, wants to do and how to do it.

So it may be I have ten thousand 1,000-square-foot boxes. I don't know. I will have what the customer needs me to have. I hope that doesn't sound trite, or that I'm just trying to flip a phrase, [but] a really important principal of ours here at Best Buy is that our role is to travel with the customer and help them navigate the increasingly complex and exciting choices they have at their fingertips. Best Buy's kind of a Times Square for the industry: all of its in there and you get to see it side by side by side, whether that's online or in one of our physical stores and I think that's a really, really important role.

TWICE: But given the post-recessionary environment, price is also extremely important to hard-pressed consumers.

Dunn: Price is always going to be important. But what's come out of this - and I think you're generous in describing it as a post-recessionary period - is a consumer that is more anchored to the fundamentals and not going to overspend their capacity. As you know, savings rates have improved dramatically in the country, and families have strengthened the household balance sheets in a way that is very, very healthy actually.

Value will always be important, and that's not lost on us here at Best Buy. We are extremely focused on how we not only provide great prices but great differentiating services that help make our experience meaningfully more fulfilling for our customers.

TWICE: What about that customer that's comparison shopping for that one SKU with his smartphone? How do you address price transparency?

Dunn: Increasingly you will find us priced competitively with pure-play retailers on the SKUs we carry in our stores. Our initial position has always been that we are always there on any physical prices, and increasingly we are expanding that so that we are more actively engaged with online and sharpening our pricing there, and you will continue to see us drive better and sharper pricing in all the channels we play in.

TWICE: How?

Dunn: We've done a couple of things. We launched Marketplace this year, which allows us to bring different providers in through BestBuy.com and has allowed us to get even sharper on pricing, [while] our extended SKU assortment and our supplier direct fulfillment has allowed us to broaden the range of offerings.

TWICE: TV has traditionally been the backbone of CE retail. How are you restructuring your business to compensate for the category's slowing sales and severe price and margin compression?

Dunn: TV is a critically important part of the portfolio of products and services we sell. TV remains a multi-billion-dollar business for us. Television has just had over the last seven or eight years the largest adoption of new technology certainly in the history of TV since it's been a "mature" business.

So we're in a very predictable trough on the backside of that huge adoption that is exacerbated by the worst economic events since the Great Depression. Yes, television to some degree has slowed down. However, it remains as I've said a multi-billion-dollar business, and our higher-end, or more fully-featured television business is doing very, very well. On our last quarterly call we talked about positive comps that were certainly over 25 percent. That business is growing and growing rapidly, and has been for some time now.

As those price points start to contract and those technologies start to compress, they start to fit into the mainstream space and it is a very good indicator for what television sales look like a year and two years from now.

Listen, there is nothing more central to connected living, to the American home than the television. I've described it as the modern-day hearth. It's what families gather around, and share experiences. Sundays in my house - and I'm blessed that my kids and my wife are all big football fans - are a multimedia experience, all centered around that biggest of screens watching football, something we all happen to love. And that's not going away.

Nor is the fact that it's a visceral technology; you must see it to appreciate it, and no two pictures are exactly the same.

So yes, the rate of sales has slowed down over the last several years. I don't see that as permanent, I see it as temporal, and at Best Buy we've always built this business for the long haul. We've never over-reacted to temporal disturbances and we have no intention of doing that. TV remains an important part of what we do, and we're quite thrilled to be part of the television business.

TWICE: What's driving that better-featured TV business?

Dunn: We're finding plenty of people that are impressed by, first, the new form factor. The flat-screen television you bought six years ago, five years ago, four years ago, is even flatter and sleeker now. The picture and what it can do for you continue to blow people away. And then when you combine that with the price points which are available relative with what the early adopters saw, or even those of three or four years ago, it's really grabbing people's attention.

TWICE: Historically CE did well when the economy got tough because people would buy a new TV or home entertainment system in lieu of a pricier vacation. What happened to that scenario?

Dunn: People are still cocooning. What's different this time is that people are being very careful about what they spend on. If I'm a working suburban guy and I bought a new TV five or six years ago, I'm not thinking about upgrading it to the new technology now. Not even if I'm an enthusiast, because I have all sorts of other financial commitments that I need to be smart about, and the value of my home isn't growing as it once did. So I think I feel less confident to do that as an average consumer.

I don't interpret what's happening right now as consumers losing interest in our industry. I don't interpret it as the end of innovation and the gee-whiz-wow new stuff. You don't need to look any further than what's happening in smartphones and in tablets to know that there's really amazing innovation coming at us. So I don't interpret any of this as the consumer's lost interest, I think the consumer's making really careful decisions right now.

TWICE: Will the loss of Steve Jobs and his knack for category creation have long-term consequences for the industry?

Dunn: I have no doubt that under Tim Cook Apple is going to continue to create great innovations, great products and great thoughts and trends. So I have no fear that with Steve's very sad passing that passes from Apple.

That being said, we should never forget the enormous impact Steve had on the innovation and the devices that he influenced, even the ones not made by Apple. But I'm not in the camp that Apple's last days are behind it. I believe it is a very fine company and that it's well-built to last.

TWICE: As your original customer base ages, how can you make today's grade-school kids tomorrow's adult customers?

Dunn: I think smartphones, I think gaming solutions, I think tablets and the new Ultrabook computers. My 12-year-old, man - he is more tech-savvy than I was at 25. He loves this stuff and is able to do things with it, like taking practice tests on his computer that the school set up for him. It's just amazing to me what's at their fingertips now. At 12 I was thinking about what cartoon I could catch before I had to grab the bus.

TWICE: And now they're making their own cartoons.

Dunn: Exactly. So I don't worry about the next generation losing interest in what we call our industry. What is incumbent upon us and others is how you stay relevant to that group. And I believe it's around providing the greatest brands on Earth, and showing these customers, these younger people, our whole band of customers, all the choices they have at their fingertips.

What's most compelling about all this is what we're all building - we're not all connecting to one network. We're all building these individual networks around ourselves that have the things that we care and are passionate about. I love music and movies and sports; my network, my devices are all about music and movies and sports, and my business. I'm one of these guys, when I'm on vacation, I want to be connected to my business, because I'm not going to be able to relax if I'm not. It's just how I'm wired.

As long as you remain relevant and can show people what it is they can do and all the doors that this technology unlocks for them, I think it's a bright, bright future. And if you can't do that it's a tough road.

TWICE: It sounds like the connected store is a very important part of that.

Dunn: The connected digital store is a really important piece, but it's not the whole enchilada, it's only a piece. It's the work we do in making our website relevant, the work we do with our mobile applications, the work we do in our freestanding Best Buy Mobile stores, the work we do in the big-box stores, including this connected set of experiences. All of those things together are what matter as long as they're in service of customer and what it is they want to do. We need to be where the customer needs us and wants us to be at any given moment. That's the challenge.

TWICE: Is it fair to say that Amazon and Walmart are your main competitors?

Dunn: The thing about me is I take every single competitor seriously. I take Jimmy's TV down the street really seriously. What's happened in our industry is that when I was going up through the ranks we were competing with a half dozen specialty CE players. Now what we have is the pureplays and we have the sort of hypermart huge-box folks, like Amazon and Walmart.

And what else is interesting about our industry is that it's also an industry where I compete with every one of my vendors. Every one of them. So there's no shortage of places to go to buy consumer electronics and IT. What there is is a shortage of places you can go and see the greatest assortment on Earth, and at great prices with a differentiated array of services to light those products up. That's the space that we have to be strong in, and that's the place that I focus my time and energy on.

TWICE: What are your key strategic priorities?

Dunn: We are enormously focused on our online business; enormously focused on services, as you would expect; and we are fanatically interested in the work we're doing in China, and we're very very pleased with the team there.

Online it's not just our website, it's our mobile applications, and of course we're very proud of our global mobile - what we're doing with Best Buy Mobile here, what we're doing in CPW [Carphone Warehouse], what we're doing in Five Star. Those are really, really important spaces for us. And those are the four key places that we're focusing the energy around the enterprise.

TWICE: Any decision yet on the fate of the stores in Great Britain?

Dunn: We are thrilled with our joint venture, and we love what's happening in the connected world and what CPW represents in that connected world. The U.K. as a placeholder for Europe is a tough economic environment and we are reviewing our businesses as you would expect us to. So no different decision has been made at this point.

TWICE: In hindsight was Best Buy too aggressive overseas?

Dunn: Let me be really, really clear about this: What happened in 2008, when the recession started over that Lehman weekend, changed the world. So decisions made before 2008 were completely appropriate for the time. And post-2008, in this new world we're working in, there are different sets of choices which you've seen me execute against. It's not that I'm second-guessing any of the choices that were made prior to that. It's that I believe the world fundamentally shifted that weekend, and businesses that don't take that moment to really roll up their sleeves and look at their model end-to-end in all their businesses will have a tough time ahead.

There's two ways to look at it: You can say well, it's a temporal event and things are gonna get better, so let's plan our business for when things get better and we'll get that real nice tailwind. I believe when you have seismic events like that you need to look at your model end-to-end and make sure you are invested in the places where you have the highest probability of being successful. And what I have done is focused the portfolio.

TWICE: How profound, and permanent, are the structural changes post-2008? Is the world really on a different axis?

Dunn: Yeah, I think it is. I don't look at what's happened since 2008 as temporal. People are more tied to fundamentals now, and it's really important that you build your businesses to be successful in this environment. If we do catch an economic tailwind, then you exponentially will benefit. But I believe that we are into a long, long march as our economy starts to catch and get stronger. You can't view this as a temporal moment because I believe you'll make the wrong decisions.

TWICE: Will things get better in the long term?

Dunn: I am an optimist. I believe in the human spirit and that mankind will prevail in spite of itself sometimes. I absolutely believe that our country will find a way; it always has and I'm a firm believer that it will. This is a long march through a very, very challenging time as we find the steps we need to take to strengthen our economy and the world's economy.

So yes, of course it will get better, but this isn't a time for wait and hope. This is a time for people to dig in, roll up their sleeves and get very, very connected to their customers.

TWICE: It has been suggested that Best Buy's senior management, having come up the ranks through the stores, has a brick-and-mortar bias. Any truth to that?

Dunn: What I have a bias to is how I do more for more customers. I'm very, very clear on how important all the channels are. Listen, we have these stores, they're an installed base. They're a huge advantage for our customers to connect with and visit and see all the things that are possible. We will marry that with our online and our digital capabilities, mobile applications, et cetera, in such a fashion that'll allow us to uniquely do things for customers that others can't.

TWICE: Do you confer with Dick Schulze and Brad Anderson as sitting U.S. presidents regularly seek counsel from their predecessors?

Dunn: I'm very blessed to have a number of terrific mentors, two of which are Dick Schulze and Brad Anderson. I got to spend a lot of time working very closely with Brad, where I learned an awful lot, and now I have the benefit of working very closely with our chairman Dick Schulze. So yes, we share, and they're both very generous in sharing their experience. They're also very careful to respect that my role now is to lead the company forward and I get the great benefit of their experience and wisdom and I'm very blessed to have that.

TWICE: You've been Best Buy's CEO for 28 months now. What are the most frustrating and gratifying aspects of the job?

Dunn: Frustrations: We are a large company and there are places I'd like us to move faster. I've learned how to leverage some of the things I've learned along the way to make us go faster, but we're a big company, and there's no shortage ever of things to do.

Without a doubt my favorite part of the jobs are seeing customers who are thrilled. That moment where a customer connects with our brand, and they're thrilled and they send me a note or letter about something we set them up with that changed their life or allowed them to create a business or an important tool for their business or any number of things. I get a number of letters from military families that have loved ones in harm's way watching out for us, where they're able to connect via Skype and other technologies that we've set them up on, that's extremely gratifying. When I meet an employee who's really excited about what she's doing, in a way that we provided opportunity for her, those moments still just fire me up like you wouldn't believe.

 
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