Best Buy Co. (BBY:US) Chief Executive Officer Hubert Joly is considering buying consumer electronics brands as a way of locking up exclusive merchandise as he seeks to turn around the world’s largest gadgets retailer.
Examples of well-known brand names Best Buy could buy or license might include Hitachi and JVC, Joly, 53, said in an interview today at Bloomberg News headquarters in New York. He also plans to expand Best Buy’s private-label business, which includes the Insignia and Rocketfish brands. The company isn’t interested in acquiring manufacturing capabilities, he said.
The move into exclusive merchandise is part of a strategy to reverse same-store sales that have slid in eight of the last nine quarters amid heightened competition from Amazon.com Inc. and Apple Inc. (AAPL:US) Joly is also accelerating a push into services, led by the Geek Squad, an army of 20,000 technicians. Another possibility is leasing consumer electronics to homeowners, generating fees from connecting and updating devices.
The services strategy is akin to what International Business Machines Corp. achieved under former CEO Lou Gerstner, Joly said.
“Gerstner used services to lead the transformation of the company, and we have a similar opportunity,” he said. “Services can play a huge role.”
Best Buy posted a $1.2 billion net loss in its latest fiscal year and said last month that fiscal third-quarter profit will probably be “significantly” below last year’s results as sales at established stores decline. The shares dropped 2.4 percent to $15.33 at the close in New York. They have tumbled 34 percent this year.
Turnarounds by IBM, Starbucks Corp. (SBUX:US) and Ford Motor Co. (F:US) serve as models for Best Buy, Joly said. The Richfield, Minnesota-based retailer lacks the connection to consumers enjoyed by rivals Apple and Amazon.
“Best Buy has lost a little bit of this,” he said. “We need to reinvent our brand identity.”
As he was competing for the Best Buy CEO job, Joly said he read Gerstner’s “Who Says Elephants Can’t Dance?” and Starbucks founder and CEO Howard Schultz’s “Onward: How Starbucks Fought for Its Life without Losing Its Soul.” He also read “American Icon: Alan Mulally and the Fight to Save Ford Motor Company” by Bryce G. Hoffman.
Joly, who took charge in September after the company received buyout overtures from founder Richard Schulze, met with analysts yesterday in New York and laid out his strategy to revive the retailer. Dubbed “Renew Blue,” after the shirts worn by store employees, the effort aims to improve service by giving employees more training, working with vendors on exclusive products and cutting costs to improve profitability.
Best Buy is spending more to train employees and plans no cuts of store employees, who are critical to reversing falling same-store sales and narrowing operating margin, Joly said.
“I like that Joly has a lot of ideas and is open to trying lots of different things,” Colin McGranahan, an analyst at Sanford C. Bernstein & Co. in New York, said today in an e-mail. “But the structural challenges are still very significant.”
Leasing electronics to consumers is “a neat idea but a very niche idea and a very niche market,” said McGranahan, who rates Best Buy as hold. “Does the consumer want a tired brand or do they want Samsung?”
Joly also is planning a major online push.
“We are making online and e-commerce our No. 1 priority,” he told reporters yesterday. The goal is to boost Best Buy’s share of U.S. online sales from 7 percent to 18 percent, the market share of its stores, he said in the interview today.
Of the 1 billion visitors to Best Buy’s website last year, 1.3 percent bought something while another 9 percent wanted to and didn’t, according to a company booklet handed out at the analysts’ meeting yesterday. They didn’t buy because the site lacked product information, the product wasn’t available and prices were too high, according to the pamphlet.
Best Buy plans to “put the pedal to the metal in digital” to generate repeat Web visits, Joly said today. The retailer might consider add-ons like Amazon Prime, a $79-annual service that gives Amazon shoppers free two-day shipping and instant streaming of movies and television shows.
Joly will take a “very sharp look” at the Best Buy’s international business, which generates 25 percent of revenue and includes stores in Canada, Europe and China. While Best Buy must decide whether being global makes sense given that the international operations are lagging behind the U.S., it’s premature to discuss whether the assets will be sold, he said.
Asked whether he’s committed to the international operations, Joly said, “I have a very, very strong commitment to our shareholders.”
Schulze, who resigned as chairman in June, offered to take the company private at $24 to $26 a share two months later. Schulze, 71, later reached an agreement with the company on conducting due diligence on a possible deal.
While Joly has spoken with Schulze, Joly is focused on turning around the company, he said.
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