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New Blood at Best Buy May Be Best Shot at Reinventing It

It’s going to take more than a new CEO to fix Best Buy’s problems, but at least it’s a start. At best, it’s a signal the board is getting ready to be more aggressive about shaking things up and reinventing the brand.

Employees help customers at a Best Buy store.
David Paul Morris | Bloomberg | Getty Images
Employees help customers at a Best Buy store.

Although Best Buy shares popped after the news broke that Brian Dunn resigned and a search for a new CEO is underway, the euphoria was short-lived and Best Buy shares have since retreated. That is likely an acknowledgement of the tough task ahead.

“They need a new, strong operating CEO to help come in and do some radical things to make some changes,” said Joe Feldman, assistant director of research at Telsey Advisory Group.

The news was somewhat surprising given the company had laid out a restructuring plan less than two weeks ago. According to Feldman, investors don’t want Best Buy reaching for growth right now. Instead, he said, investors want to see Best Buy maximizing the opportunities it currently has and operating in a more efficient manner.

Feldman said this may mean shuttering large numbers of stores, rethinking the types of displays it uses to showcase its products and investing more in product promotions and discounts, even if it means lower profit margins.

But others feel those types of solutions won’t solve the problem entirely.

In many ways, Best Buy’s troubles have been coming for a long time, and the source of its problems pre-date Brian Dunn’s tenure. Many analysts say Dunn is a likeable and capable manager, but he may not have had the right skills to radically rethink the Best Buy’s business.

Best Buy’s fleet of large, big-box stores are built for yesterday’s retail wars, said Craig Johnson, president of Customer Growth Partners.

“It is very difficult to repurpose them,” Johnson said. He explained these stores have decades-long leases, and it is not easy to convert them into other uses. The large stores, with their vast square footage, were great for showcasing big screen televisions when that was all the rage, but gadgets are smaller now and may be more suited for Best Buy’s smaller mobile kiosks.

“As Jack Welch once said, if you are going to be in a business that is being cannibalized, it is better to cannibalize yourself first,” Johnson said.

But finding the right person to take the helm will be a challenge. It’s a pivotal time in retail. Best Buy isn’t alone in trying to figure it out. Eddie Lampert, founder of ESL Partners, which controls about 60 percent of Sears Holdings recently told CNBC, retailers need to adapt or die. Lampert has been struggling revive Sears.

Ron Johnson, who pioneered the concept of the Apple retail store and Genius Bar, is attempting to rethinkJC Penney.

Even Wal-Mart Stores, the nation’s largest retailer, has opened an online research lab to test new ideas.

Amazon.comand Applehave given Best Buy a body blow.

Amazon has cornered the market for low-priced electronics that can be purchased anywhere at any time. As Brand Keys President Robert Passikoff puts it, consumers only leave home when they want to sample the product before they buy it, and that has turned Best Buy into Amazon’s showroom, not an ideal situation to be in.

As for Apple, they have already fulfilled the need for a unique buying experience.

“The Apple Store is slim in dimension (how much space do you need for an iPod, really?) with a clean, white design scheme and trendy consumer hooks like the ‘Genius Bar.’ Best Buy, in contrast, is bulky, sporting an explosion of primary colors down every cavernous aisle. Really not ideal,” Passikoff said.

Apple’s success is one reason why many analysts are saying that Best Buy needs someone like Ron Johnson to replace Dunn.

“You really want someone with consumer electronics experience who has been able to transform a dated retail concept and bring that into the next century,” said Johnson, of Customer Growth Partners.

But Johnson sees a hint of what may be to come for Best Buy. Last month, the retailer hired former Starbucks CIO Stephen Gillett to boost its ecommerce business.

Gillett is credited with leading the coffee chain's digital business unit, which was responsible for Starbuck's mobile payments and developing some very engaging smartphone apps.

But Michael Pachter, an analyst at Wedbush Securities, said he's not so sure Best Buy will be able to find the right person to lead the company.

"This restructuring should have started 10 years ago," he said. "...This company is going to go away within five years if they don't do something and do it soon."

Questions? Comments? Email us at consumernation@cnbc.com. Follow Christina Cheddar Berk on Twitter @ccheddarberk.

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