Best Buy’s CEO Resigns. Who Next?
Best Buy Co.’s Chief Executive Officer Brian Dunn resigned on Tuesday, leading market observers to speculate on what type of executive would best lead the consumer electronics giant.
Board member G. Mike Mikan, who formerly served as EVP and CFO of UnitedHealth Group Inc., became interim CEO while a committee was formed to search for a successor.
According to Reuters, Mr. Dunn resigned as a result of an investigation into allegations of personal misconduct, the electronics retailer confirmed on Tuesday.
“Certain issues were brought to the board’s attention regarding Mr. Dunn’s personal conduct, unrelated to the company’s operations or financial controls, and an audit committee investigation was initiated. Prior to the completion of the investigation, Mr. Dunn chose to resign,” Claire Koeneman, a spokeswoman for Best Buy, told Reuters.
On Wall Street, many said Mr. Dunn, a 28-year veteran of Best Buy who had been CEO since June 2009, wasn’t moving Best Buy fast enough to counter the competitive pressures from online retailers, notably Amazon.
“Some investors had been frustrated with Dunn’s tenure, given his strong affinity for physical retailing and perceived slowness to adapt to threats facing the company,” Colin McGranahan, at Sanford C. Bernstein & Co, wrote in a note to clients attained by the New York Times.
Less than two weeks ago, Mr. Dunn outlined ambitious turnaround plans that included the closing of 50 larger stores and layoff of 400 workers as part of a plan to trim $800 million in costs. Slightly smaller “Connected” stores are also being tested in San Antonio and Minneapolis that focus more on mobile devices and service. They include an area similar to Apple’s Genius Bar that assist customers with services and connections and offer training and classes, and will complement further growth in its much smaller stores focused on selling mobile phones as well as its expanding online business.
Gary Balter, at Credit Suisse, told the Associated Press that Best Buy should close even more stores and further capitalize on its mobile business, which makes up nearly one-third of Best Buy’s profits but accounts for less than 10 percent of its net square footage.
Michael Pachter, an analyst at Wedbush Securities in Los Angeles, told Bloomberg that Best Buy needs someone who can manage the transition from big box to small box stores.
Anthony Chukumba, an analyst for BB&T Capital Markets, told Bloomberg that Best Buy should hire an outsider who is “more of a strategic thinker and not afraid to ruffle a few feathers.”
Other challenges facing Best Buy include a significantly erosion in movie and CD sales as well as weakness in its formerly core categories, TVs, digital cameras and video game consoles.
“I think the departure is long overdue,” Brian Sozzi, chief equities analyst at NBG Productions, an independent research firm, told the Associated Press. “Best Buy’s operational strategy has been way off the mark and late to address the fundamental industry upheaval.”
- Best Buy Announces Leadership Transition Interim CEO Named to Lead Company – Best Buy
- Best Buy’s Dunn Resigns as CEO; Mikan Steps In – Bloomberg
- Best Buy CEO Resigns – Wall Street Journal
- Best Buy’s Chief Executive Resigns – The New York Times
- Brian Dunn resigns as Best Buy CEO; co. says was a mutually agreed upon decision – Associated Press
Discussion Questions
Discussion question: What type of skills (merchandising, digital or other) are required to lead Best Buy at this point? What value do you place on bringing in an outsider in turnaround situations?
When Brian Dunn took the reins at Best Buy, he promised a transformation — one that has yet to materialize. Best Buy forfeited its first big opportunity when Circuit City shuttered and now, Walmart and Amazon are duking it out for dominance, with Walmart spending millions on omni-channel and social shopping innovation. In this environment, a home-grown Blue Shirt isn’t Best Buy’s best choice. It’s time to look outside for an out-of-the box visionary who knows how to tell connected brand stories. My fantasy pick? Mindy Grossman from HSN. She didn’t want to go to Avon but maybe this would provide a tasty challenge?
This is a much bigger issue than the fact that Best Buy needs a new guy. What exactly would moving BB faster to confront the showrooming effect look like? They still have overhead and staff to pay for. Lowering prices as JCP is gambling for market share is far from a proven strategy. Having RadioShack clones with BBY banners on them doesn’t seem like a profitable model either.
How can any retailer out-Amazon Amazon when they’ve been working at disrupting the entire retail landscape for more than a decade teaching customers they are the “true” lower price?
Even before Mr. Dunn’s departure (apparently for reasons pertaining to personal conduct rather than company performance), Best Buy has become a deeply troubled giant. It needs a more nimble, forward-thinking leader and whether this person comes from inside or outside is irrelevant as long as he or she can look at the business with a fresh pair of eyes.
Best Buy has not capitalized on fast-moving changes in tech product development (such as the explosion of tablet computing), nor its own core strength in customer service. It has lost share to e-commerce sites like Amazon, and stood by while players like Apple have provided a more innovative in-store experience (granted, with a much narrower, single-brand assortment).
The bloggers’ declaration of Best Buy’s demise is premature: It is still a $50 billion company and the dominant “big box” in its category. But it’s time to reinvent the idea behind Best Buy at a faster pace than Mr. Dunn was prepared to do.
The circumstances of Mr Dunn’s departure are now sort of murky … but the needs seem clear. Best Buy lost its way and stopped meeting the brand’s customer-centric promise.
Yes, the stores should be a bit smaller now. No need for all that space for CDs and DVDs. But if the Apple store can succeed, so can Best Buy. Reinvigorate the workforce, create a better cross-channel experience (more consistency in price finally!), put energy into the Geek Squad, and the customers will come.
The brand and the store along with its website and digital engagement, plus the RewardZone loyalty program are all outstanding assets. What is needed is a surgical transformation of the physical store. There is way too much dead space on the floor. A leader that can optimize the significant buying leverage Best Buy maintains, plus motivate and/or bring in new visionary store display/design talent to make the store vibrant again. At present, it is a cut up mess with no focus.
Corporations spend too much time reading resumes for job related experience when what they really need are leaders with vision; CEOs that know how to work on the business more than working inside the business, and presidents and COOs that take the time and have the wisdom to know the customers and make the right changes.
BBY should take note of JCP’s move: hire a winner with merchant expertise that is also a change agent and not afraid to lose his/her job. Having said that, this could possibly be the most difficult job in the history of retail. BBY could “Blockbuster” on us unless they change the formula in spectacular fashion, and not everyone has a stomach for that type of risk taking.
Whoever they bring in from wherever, will face serious fundamental issues. Mainly that the electronics store model has shifted to online and that online has invaded the retail electronics store with price comparison apps that make stores showrooms for competitors.
“Michael Pachter, an analyst at Wedbush Securities in Los Angeles, told Bloomberg that Best Buy needs someone who can manage the transition from big box to small box stores.”
That statement is another indicator: big store, to small store, to no store. This is possibly the company’s make or break point. If they don’t find the magic bullet to fight back the Amazons of the world, they will fade away. They miss the mark on some retail fundamentals like hassling customers over returns, so they need a makeover in every aspect of user experience.
It’s a big challenge that someone has to recognize from the core on out.
When I read news of Mr. Dunn’s departure from Best Buy my first thought was what a relief it must be for him. The company is last titan in a dying category and there are no operational, service, real estate, relevance marketing or IT tweaks that can change that fact.
In fact, Best Buy is in need of total re-imagination. It must find a way to shed most of its big box stores and transform the remainder from showrooms into the nation’s leading home-tech solution provider network. The inertia of shareholder responsibility may make a radical re-positioning seem impossible, but the alternative would mean total abandonment of a fast-evolving customer base that — let’s face it — can buy the products anywhere they want.
Best Buy needs to gather itself and take the plunge while it still retains significant distribution power. History indicates this is seldom accomplished by existing management. An outsider is needed — most likely someone with out-of-the-box-store views and little concern for making friends.
An outsider is definitely needed here and they could do worse than to hire from another Twin Cities retailer. Target has been competing against Amazon for years and is one of the best companies on the planet when it comes to talent development.
Whoever Best Buy selects as the next leader has to be a change agent. I would suspect someone from outside the company would be better suited to make the changes needed.
I agree a smaller footprint is also needed. Best Buy lost a golden opportunity when Circuit City closed. If they aren’t careful, they can become the next Circuit City.
I would bring an international outsider with both digital/merchant experience. Someone with European and/or Asian retail market experience where the convergence of mobile, web and floor selling is more mature and developed.
Best Buy could try to do all the cute buzz word things (loyalty cards, lower prices, improved web site, train employees, brand image makeover) but in the end, they will lose out to lower-priced retailers that use Best Buy as a showroom. Therefore the new CEO needs to be an accountant, not a marketer. Best Buy needs to pay more attention to the expense side since the sales side is futile. They can Kmart-esque themselves for survival.
There are many ways for a company to fail. When confronted with the complexities of present day markets, the number of ways to fail increases exponentially. This is largely due to the increased value of time as a critical component to the measure for success. When a new person enters a company charged with getting things right in short order the task is most likely an impossible job.
Companies facing elimination in this market should look among their own rank and file to provide a solution. Failing that, then merger acquisition is a better solution with less at risk. Retail has been of the mindset that merchandising is the formula for success. The present day economies and buying habits of the consumer have evolved to the extent that successful merchandising is more than racking and stacking with a little lipstick. The digital age expands customer range to global levels. Simply put, we can sell anything to anyone anywhere. The only limitation is the retailer’s ability to reach out to the entire world with a message and product information that all can understand.
Sadly very few retail executives understand this as an opportunity and even fewer know how to address the needs. So they go back to the old fashioned way and wait to die.
“It ain’t over ’til it’s over!”
Yogi Berra talked about it in the ’60s. Lenny Kravitz sang about it in the ’90s. And, Best Buy competitors would do well to keep it in mind in 2012. The Big Blue has a dominant position in the minds of the U.S. consumer. The March BIGinsight Monthly Consumer Survey indicates that 37.4% of all Adults 18+ shop Best Buy MOST often for Electronics.
Walmart follows with 20.6% and Amazon has 7.3% of consumers choosing them most often. The former doesn’t have the “on-the-floor” muscle of Best Buy. And, they are selling lower price electronics and TVs than the Minnesota giant. Amazon has unique selling propositions, but they’re not omniscient in the consumer’s mind.
Best Buy customers index between 105 and 115 compared to the general population in terms of household income, presence of children under 18 (the next generation), higher education, marital status, and home ownership. In addition, they are well-balanced across racial/ethnic lines — African-Americans, Hispanics, Asian-Americans, and Caucasians.
It may be time for an outsiders perspective. Both she/he and the board should make it known that they have mutual support and belief in each other. Then, the new CEO needs to make solid use of existing associates in building new, disruptive strategic plans, STOP doing the items that are meaningless to bottom-line and customers — that means cutting where needed, communicate aggressively, and make certain the consumer is communicated with in the ways and platforms that they are attuned to — diversify an integrated media platform.
There is a future upside for Best Buy. These are talented people who can and will win.
As the boss, Dunn failed in delivering the Best Buy promise to its customers. It became myopic and wed to the past. Competitors surged past. Change is required. The person who is given the challenge must listen to the customer. Not an easy task now a days.
But as we like to say, “Retail ain’t for sissies.”
Whoever leads Best Buy next needs to be highly innovative to make BBY relevant again. It is not and will not be if it is focused on selling “goods” versus providing service and selling services as well as a broader consumer electronics and technology experience. It completely lost its way with RewardZone, which is basically a frequent flyer program without the same kind of compelling economics as an airline.
Best Buy needs a Ron Johnson and unfortunately there aren’t that many of those, especially in retail today.
I don’t agree that Best Buy’s fundamental problem is “showrooming” or that Dunn wasn’t aggressive enough in combating that threat. Showrooming is a lot more sizzle than steak as far as a big box retailers problems go. Frankly, if you sell a product where customers only care about price, and shoppers are using mobile devices to discover that you don’t offer the best price, your core problem isn’t “showrooming,” it’s that you are in the wrong product categories and/or you have the wrong pricing and cost structure.
Showrooming is at best a symptom. But really, who believes that Best Buy is struggling because people who need consumer electronics take an hour out of their day, get in their cars, brave traffic to get to their nearest Best Buy, fight for a parking space, hunt through a 42,000 square foot store to find a product, and only then when they are minutes away from owning the product, they discover it’s cheaper on Amazon and so they order and go home to wait for the UPS driver? It’s sexy to write about, but that is not a real problem. The real problem is shoppers choosing not to go to the store in the first place.
Frankly, Best Buy does as good a job as anyone with 130,000 US retail employees has ever done, at providing a good experience when you visit its stores. Best Buy’s true fundamental problems are:
1. The primary value proposition of a big box (assortment) has shifted from offline to online, so they need to reinvent themselves to win on something other than assortment.
2. It’s hard to grow when margins for the products you are known for are eroding (see entertainment software, iPad, digital TV, etc…).
3. It’s hard to offer uniformly great service when you have scaled to need hundreds of thousands of retail associates.
Given those three huge problems, Best Buy has responded better than most. They still have good store traffic. They still get great reviews for their customer experience. They invented an alternative assortment concept that is doing well (Best Buy Mobile), they have established some higher margin services (GeekSquad), and they have shifted some demand to private label products. That is why they are the last ones standing.
They will need to do much more if they are going to survive, but I’m not sure you can expect a BOD picked CEO to make the kind of risky changes that could help Best Buy re-invent itself. The kinds of things that BOD friendly CEO’s do aren’t going to cut it in this major market shift. Best Buy has already failed international expansion. Shuffling the square footage and cost cutting aren’t going to solve their problems.
Most people in the know don’t think Dunn was asked to leave because of their challenging business situation, but rather because of some other issues that haven’t been fully disclosed yet. We’re all waiting for the other shoe to drop on that one. But it does create an opportunity for Best Buy to reset its leadership and strategy. For them to really re-invent themselves, they are going to need an entrepreneurial leader that is willing to take some big chances and do something dramatically different. Those are the kinds of things we usually expect from founders, not from BOD selected CEOs.