Best Buy CEO sees potential amid missteps
Nov 14, 2012 (Menafn - Pioneer Press - McClatchy-Tribune Information Services via COMTEX) --Best Buy's new CEO concedes the company has screwed up. The good news, he told analysts, is that its problems are fixable, and his team is passionate about fixing them.
"I feel that many of these problems are the result of our own making," newly installed CEO Hubert Joly told Wall Street analysts Tuesday, Nov. 13.
And despite the catcalls and forecasts of doom, Joly declared "there is nothing structurally wrong" with Best Buy's business. "For some reason, we took our eye off the ball and failed to focus on execution and innovation," he added.
In his first appearance before a skeptical Wall Street crowd, Joly unveiled turnaround plans that have more to do with better execution of fundamentals than with radically reshaping the Richfield-based consumer electronics retail giant.
For instance, company officials noted that Best Buy's website attracts 1 billion visitors a year, but only 1.3 percent actually buy something, a low rate that contributes to Best Buy's lagging online sales.
Surveys show about 900,000 website visitors come looking to buy but are discouraged when an item is out of stock, the product information isn't helpful or the price is too high.
Here, Best Buy executives see opportunity. Stephen Gillett, Best Buy's president for digital, called it a "very tactical issue that we can resolve," as the chain aims to up its game.
The same with store visits. About 600 million people visited Best Buy stores last year, Joly told analysts. About
40 percent bought something -- and an additional 19 percent intended to, but left empty-handed because items were out of stock or too expensive, or shoppers had a bad experience with a salesperson.
"This is basic blocking and tackling," U.S. retail chief Shawn Score told analysts -- and highly fixable, with better inventory, better training and better employee scheduling. About 45,000 Best Buy store employees already are undergoing more intense training.
Still, skeptics abound. Some analysts Tuesday were unhappy about Best Buy's reticence to concede that the world has changed, and its gigantic stores don't work so well in the digital age.
"I appreciate and admire your ambition about controlling the things you can," one analyst told Joly but added, "I'm a little bit dismayed about your lack of introspection about the loss of traffic ... that the Best Buy customer of old isn't coming in as they used to. ... What are you doing to get new customers to come into your store and what are you doing to win back the customer who has abandoned Best Buy?"
Joly stuck to his thesis, that numbers show Best Buy has unappreciated strengths, that its market share is growing in key categories and the cynics are missing the larger picture.
Buy is an amazing place. There is a passion, there is a heart, there is a desire to win," Joly told analysts, adding, "Best Buy has been a winning organization for decades, and you can imagine people are sick and tired of losing and being criticized in the media."
Nevertheless, Best Buy has plenty of bleak facts, too.
Its share price has fallen 43 percent in the past year. Turmoil in the executive suite has made Joly its third CEO since March. In Minnesota alone, Best Buy has closed six big-box stores and laid off thousands in the past year.
And now, founder Richard Schulze is plotting to retake the company, adding uncertainty to an already-difficult picture.
Joly didn't mention Schulze, focusing instead on what he called the Renew Blue turnaround program. Many aspects of the program involve the basics, such as devoting more retail space to growing and profitable areas (including mobile phones) and less space to shrinking low-margin areas (including DVDs and music CDs.)
Joly also gave a mixed assessment of Best Buy's Twin Cities experiment. Last spring, the company unveiled plans to slim down its local footprint by closing five big-box stores, pruning the square footage at most other big boxes and opening more small Best Buy Mobile stores.
Did the test work? "While it's very early, it seems to be very encouraging," Joly said. But then he added, "We've decided to hit the pause button on this redesign."
Separately, Joly dismissed the idea that Best Buy's struggles were because of "showrooming," or customers who browse stores and then buy more cheaply online.
"We love the fact that many people come to our stores ... Candidly, once they're in our physical stores, they are ours to lose."
Joly, former CEO at Carlson Cos., joined Best Buy in August, but that decision wasn't popular on Wall Street.
If Wall Street was swayed by Joly's presentation Tuesday, Best Buy's stock price didn't show it. The market was open during the three-hour session and Best Buy's share price barely moved. Shares closed down 15 cents to 15.70.
Tom Webb can be reached at 651-228-5428.
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