Best Buy Can’t Stop the Bleeding

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Scott Olson / Getty Images

A shuttered Best Buy store in Chicago on April 16, 2012

Just when it appeared things couldn’t get worse for Best Buy shareholders, this morning the firm released a downright grim earnings report showing that profit slumped a jaw-dropping 91% in the second quarter. Shares then slid to a nine-year low.

The news comes one day after the firm announced the appointment of a a former hospitality and travel executive, Hubert Joly, as its new CEO. The appointment didn’t go over well with shareholders either – shares dropped 10% in yesterday’s trading – and drew the ire of Wall Street analysts. According to the Wall Street Journal, Michael Pachter, a Wedbush Securities analyst, pilloried the choice, writing in a research note:

“We believe that [turning around Best Buy] is a herculean task even for an accomplished retail executive, and believe that Mr. Joly’s complete lack of retail experience will be an impediment to his success.”

In all fairness, Joly does have a track record of corporate turnarounds, and this is the main reason for his selection as CEO. As Best Buy chairman Hatim Tyabji said in Monday’s press release announcing the decision,  “Hubert’s range and depth of experience in transforming companies is exactly what the company needs at the moment, as is his energetic, imaginative and experienced leadership in executing strategies.”

(MORE: Are We Witnessing the Death of the Big-Box Store?)

The new CEO certainly has his work cut out for him. Today’s earnings highlighted the firms declining same-store sales, a key metric for measuring traditional retail success, and the continued decline of the firm’s bread-and-butter consumer electronic sales revenue, which dropped 9.6% domestically.

Without Best Buy’s traditional revenues from consumer electronics – sales of which have been migrating to online competitors for several years now – the firm will be forced to rely on mobile phone sales and big-ticket items like appliances. But competition in those areas is already fierce, and it is unclear if or how Best Buy might be able to set itself apart from the pack.

The precipitious decline of this once this once high-flying retailer has troubled its founder Richard Schulze, who submitted a proposal earlier this month to Best Buy’s board to take the firm private, using a combination of his own equity, funds from a consortium of private equity firms, and new debt. Though the move briefly buoyed stock prices, negotiations have since fallen apart, and many observers consider the deal impractical. According to Dealbook:

“People close to the company, however, have countered that his proposal, worth up to $8.8 billion, simply does not seem financially feasible. Such a bid, they say, would require too much debt and a surfeit of equity capital that they do not believe he can raise.”

But Schulze is unlikely to take the board’s decision to terminate negotiations with him lying down. The 73-year-old executive is obviously not happy with the board’s new choice for CEO, and his actions over the past month have shown the he has his own ideas for the firm’s turnaround. In a statement,  Shulze criticized Joly’s lack of retail experience, saying that the firm needed an executive with “deep retail experience and knowledge of Best Buy.” He also criticized the boards “abrupt” decision to terminate private negotiations over a takeover plan. Said Schulze:

“We had believed we were close to an agreement for a reasonable standstill period and are eager to resume our discussions immediately if the Board is truly interested in reaching an agreement in shareholder interests. It is time for everyone involved to focus their energies on saving Best Buy. Time is of the essence, as value is eroding every day.”

(MOREBest Buy Founder Offers $8.8 Billion to Take Company Private)

11 comments
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DELTA DAWN PUBLISH'G
DELTA DAWN PUBLISH'G

I gave up on BB because their customer service was so lousy, both in store and on the phone.  IF BB WANTS TO MAKE IT, PAY YOUR SERVICE ASSOCIATES A LIVING WAGE INSTEAD OF COMMISSIONS! THAT'S WHERE YOU SHOULD START WITH CHANGING HOW YOU OPERATE! THAT'S WHY PEOPLE DON'T MIND SO MUCH WORKING FOR WALMART - THEY KNOW WHAT THEIR PAYCHECKS WILL BE AND THEY CAN COUNT ON IT! IF I WERE WORKING FOR COMMISSION, I MIGHT NOT BE SO NICE TO DEAL WITH IF I WERE BEING PAID WHAT THEIR ASSOCIATES ARE BEING PAID! IT'S A TERRIBLE WAY TO DO BUSINESS, IF YOU ASK ME!

SAP Training
SAP Training

It's just time for Bust (I mean BEST) Buy to change. Who knows, going private might give them this opportunity.  They shouldn't wait for it to be another Circuit City.

18235
18235

just learned off yahoo that best buy's new ceo will get paid 32 million dollars over the next three years!

and he's from france, he lives in france!

18235
18235

best buy in whitehall, pa, is too close to the start of a crime ridden latino slum---a politically incorrect reason to avoid that one.

bugmnot
bugmnot

Last week I needed a computer part. I figured that, even though it would be cheaper and easier to buy it online, I could have it instantly if I went to Best Buy. Then I realized I'd have to deal with Best Buy.

Looking forward to the part arriving in the mail!

bugmnot
bugmnot

Last week I need a computer part. I figured that, although it'd probably be cheaper online, Best Buy would allow to me have it sooner. But that would mean having to deal with Best Buy.

 Looking forward to that part arriving in the mail!

SAP Training
SAP Training

The last time I visited BB specifically their Geek Squad desk, no one was there. These little things make you want to buy somewhere else.

Nicco Janelli
Nicco Janelli

Dear Best Buy,

May I be the first to say "good riddance".  With your lousy prices, pushy salesman, and un-redeemable  rebate offers I'm surprised it took this long.

Sincerely,

Nicco

Mary Ann
Mary Ann

More and better customer service. I gave up on BB 8 years ago after I could not find anyone, at 3 different locations, who could provide any real info on appliances. Maybe not as glamorous as computers or big screen TV's but still opportunities for sales.

Sukumar D
Sukumar D

A new CEO is not a god, much like a new doctor to handle a messed up patient..!  The inevitable will come...

oblio9090
oblio9090

I went to Best Buy to buy a washer/dryer.  After some time, an employee finally approached the appliance department and immediately explained to me that he didn't work on commission (like I should care), and then he offered to help me.  I asked him, "How much is this washer/dryer pair? There's no price tag." 

"I dunno." he replied. "Do you have Internet service?"

"Huh?" I said.

"I can sign you up for a great deal on Satellite Internet! " He said.

So, I walked away and went elsewhere.

IS ANYONE REALLY SURPRISED THAT BEST BUY IS CLOSING STORES? 

REALLY?