Best Buy Begins Post-Dunn Era


New York - Industry reaction to the resignation of Best Buy CEO Brian Dunn was varied, but most everyone agreed that the chain's recent woes were a product of much more than just its CEO.

Stephen Baker, industry analysis VP for The NPD Group, didn't think Dunn's leaving would be viewed as a sign of instability for Best Buy, but said it could be viewed as a reflection of the current CE industry.

"I think everybody, including Best Buy, recognizes there are a lot of challenges, not just for Best Buy but the entire industry. I think everyone is looking to see how Best Buy is going to cope with those challenges because they're the leader, they're the biggest, and the challenges tend to hit them pretty hard, pretty early," Baker said.

"I don't know that the specifics of [Dunn's resignation] are as important as what it says about the challenges for almost all the companies in the CE business," he noted. "The pace of change, which has always been pretty rapid, used to be forced around declining prices, and now it's around much more. How do I manage my business going forward, and how do I react in an a environment that puts very different values now -- on the value of the selling floor, the value of the Internet, the value of the products, the value of the content that drives all of these products?

"I think almost for everyone I would expect considerable change in the next few years as everyone tries to figure out where the right place is to be in the new business model," said Baker.  

William Matthies, CEO of Coyote Insight, agreed with this sentiment, stating that Best Buy needed to sell "outcomes" instead of products, as well as refine its product mix and use "showrooming" to its advantage.

Best Buy can regain the momentum it's lost to e-tailers but "only with radical overhaul of its business model.  Apple did it and in a relatively short period of time.  Why not Best Buy?  But if the change is not radical, they not only will not regain momentum, they will go away completely," he said.   

NPD's Baker said it would be interesting to see who Best Buy chose to replace Dunn, whom he called "a hardcore retail guy."

"Do they go and find a leader from another retailer who's got a reputation for being forward thinking or innovative? Do they look toward another technology company, whether a vendor or a partner or someone who isn't steeped in retail but is steeped in technology, or do they go away totally from both of those and look for someone who has a different type of experience?" he said.

Matthies said the best candidate would be someone outside of Best Buy. "While "promote from within' has its place, Best Buy's leadership has been and likely still is too incestuous.  Again, as with too much else in CE, both for retail and manufacturers, 2012 looks way too much like 30 years ago.  The time for change is long overdue."

The ideal candidate, Matthies said, would be someone who is "extremely grounded in Internet retail who also has vision for marrying the strength of that with brick and mortar."

Janney Capital analyst David Strasser addressed the transition in a research note. "We believe Richard Schulze, chairman and company founder, will take a more active role in the company throughout this transition," Strasser said. "From what we hear, he has been more active recently in company operations."

But, Strasser noted, replacing Dunn may not be enough to turn the troubled chain around.

"We believe that Brian Dunn never got a fair chance. He came into the company at a tough economic time and dramatically changing environment," Strasser said. "He got blamed for a lot of problems that were out of his control, but that is part of the job. Brian was never the big problem and the person who comes in will not be the big solution. It's going to take some time to turn this company around. It's not going to happen overnight."

Dunn's resignation came less than two weeks after the company reported a $1.7 billion quarterly loss and

announced a series of moves

designed to make the chain leaner and more efficient. These included closing down 50 big-box stores, trimming staff and improving efficiencies to save about $800 million over three years.

The chain has been testing smaller store formats and expanding the implementation of its

"connected store" concept


The connected stores are focused on wireless and broadband subscriptions and provide what Dunn described as "a multichannel experience through a total transformation of the big-box store."

Among other features, the format combines tablets with mobile, moves the Geek Squad stations up front, adds in-store pick up at checkout and, borrowing a page from Apple, provides a Genius Bar-like "Central Knowledge Desk."

Prototypes in Las Vegas are outperforming the rest of chain in profit per square foot, are showing a "significant" lift in sales and margin, and are generating an internal rate of return of more than 20 percent, Dunn had said. He cited one of the test stores, a 19-year-old location, that went from "an old and tired footprint" to "performing like it's new again."

Dunn acknowledged at International CES in January that it was imperative for Best Buy to

adapt to a changing marketplace


"The business is changing," Dunn observed at the time. "People are coming in to buy a piece that interacts with what they already own." Best Buy's role in an increasingly connected world is to provide the widest variety of products from great manufacturers and help consumers link them with Geek Squad's support."

"Choice is so utterly critical," he said of the company's product and services assortment, and the stores provide a forum for consumers to "test-drive products and see what's good for them. It's the best place to see them side by side," assisted by what he described as "the most incredible sales force ever assembled in the industry. It's a compelling combination."

One former Best Buy destination category hard-hit by online competitors is digital imaging, where trends are moving more and more to better-featured, better-performing cameras. According to digital imaging market research firm IDC, "Consumers today are more likely to shop online for higher-priced cameras, as those types of consumers know what they want and pricing is a key factor for them. In year's past, CE was a major channel for all digital camera purchases, but this has declined over time as compact camera pricing has fallen and d-SLR buyers look online."

Tamaryn Pratt, Quixel Research principal who follows the consumer display industry, said: "Best Buy has been and still is today the bellwether for electronics industry. ‘Blue shirts' have defined the CE business even to the average consumer. However, the marketplace is changing as technology changes, and Best Buy is not immune, and has to continue to adjust with the marketplace. It is a painful time as the entire CE food chain is adjusting in a variety of ways, so it is not a shock that they'd start from the top and perhaps reinvent the company to continue their legacy."

Citi analyst Kate McShane thinks a change at the top could make Best Buy an attractive target for a private equity firm. "The fact is that taking a company private would allow for more flexibility with closing doors and radically changing the strategy," she said.

Dunn served as Best Buy's CEO since June 2009. A 26-year veteran of the company, he began his career as a store associate in 1985 when the chain operated only a dozen stores. From 2006 until being named CEO, Dunn was president and COO. 


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