Can a New Guy Save Best Buy?
May 29th 2012 6:40PM
Updated May 30th 2012 10:33AM
Mikan's not in an enviable position, given that he's Best Buy's temporary leader assuring analysts that he is "focused on running the business and on developing a plan for the future."
The customer experience is what's really killing Best Buy now. Mikan admitted this but implied the landscape has changed with the digital revolution. Although the digital revolution has changed the playing field, I'd argue that the bigger problem is that Best Buy lost its way. Amazon.com (AMZN) is no new rival, after all, even though recent conventional wisdom seems to imply that all of a sudden Amazon got better. It didn't; Best Buy just got worse.
Mikan acknowledged that Best Buy stores once "wowed customers" and now, "Best Buy's customer experience is no longer unique as it once was."
Indeed, Best Buy has forgotten to stock excitement on its shelves. Maybe the bankruptcy of its loser rival Circuit City helped cool Best Buy's ardor to compete and innovate. Every time I've visited a Best Buy store in recent memory, I didn't find anything that seemed particularly cool or exciting; it all felt terribly generic.
Meanwhile, Best Buy has plenty of haggard bricks-and-mortar competition from the likes of Conn's (CONN), hhgregg (HGG), and RadioShack (RSH), not to mention massive big-box discounters. These three stores in particular all suffer from the same customer-experience problem (I recently popped into a local hhgregg store and was shocked to realize an electronics store could seem even more underwhelming than Best Buy does.). RadioShack lost its edge as a tech-whiz hangout a long time ago, and Conn's has some more showroom-resistant products like mattresses and lawn equipment, but that assortment puts it up against even more competent bricks-and-mortar operators.
Can Best Buy really get better?
Mikan said Best Buy management "must take a fresh look at our investments and the entire business," and that "there will be no sacred cows." He talked about "relevance" and "deeper relationships with customers." He mentioned the need to be "nimble" and "adapt to the new realities of the marketplace," and her spoke of being "better, not just bigger." All of these sound like the right words.
Granted, to be fair, Mikan is the temporary top guy at Best Buy. There's no concrete turnaround strategy at the ready yet, and he clarified that his comments describe a foundation for change, with more specific plans to come later this summer. He also talked about changes in the management suite, describing the quest to "bring in new talent with fresh perspectives ... coupled with promoting from within."
All of this leaves a lot of questions for investors, though. Best Buy needs more extraordinary vision than relentless cost-cutting. As it was, before Dunn's resignation, many people were already accusing him of sacrificing Best Buy's key differentiators to drive shorter-term profitability.
So which is it going to be? For Best Buy to succeed over the long haul, it's going to have to get its specialness back, and I'd say the chances of achieving that end while slashing costs are slim.
Granted, miracles can happen; McDonald's incredible turnaround under leaders Jim Cantalupo and Jim Skinner is a perfect example. But such outcomes are rare. My Foolish colleagues Eric Bleeker and Jeremy Phillips recently discussed the idea that Best Buy actually has no future at all. Even if it does have one, it might be a pretty pathetic one. Investors should continue to avoid the shares.
Best Buy's a big gamble, but our analysts have identified 3 Stocks That Will Help You Retire Rich. Follow the link to access the report, absolutely free. What do you think? Is Best Buy about the buy the farm, or can it get back on track? Sound off in the comments box below.
At the time this article was published Alyce Lomax owns no shares of any of the companies mentioned. The Motley Fool owns shares of RadioShack, Amazon.com, and Best Buy. Motley Fool newsletter services have recommended buying shares of Amazon.com, hhgregg, and McDonald's. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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