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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

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

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

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

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

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

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.