Can a New Guy Save Best Buy?

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Mike MikanBest Buy (BBY) reported another pretty dismal quarter last week, but some investors got excited anyway. Interim CEO Mike Mikan headed up the conference call for the first time since Brian Dunn's departure; Mikan talked some interesting strategy, but should investors buy any of it?

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.

But here's the rub, and part of the problem with talking and walking Wall Street with analysts. Mikan proceeded to discuss significantly reducing Best Buy's cost structure, and later, when asked about the difference between himself and Dunn, he talked about his own focus on "productivity," "keeping score," being a "metrics-based individual," and other attributes that seemed to focus more on numbers than on strategic vision. Uh-oh.

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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isavass

Once Best Buy will give some better customer services, maybe the company will go back to what used to be! They are so misleading in their insurance policies, that is not funny. When they sell you their Geek Squad insurance, they don't disclose the whole story. When is time to use it and collect what they own you, is just another blah blah blah, they not committed to fullfill their promises.
Not good services. Be aware! Please close THEM!!!!!!!!

June 04 2012 at 3:16 PM Report abuse rate up rate down Reply
ja10w

Hey TORPECKER,
My sentiment exactly........

May 31 2012 at 7:36 PM Report abuse rate up rate down Reply
Al

The last time I visited a BB--over a year ago; most of its customers were there for Geek Squad services.

May 31 2012 at 7:07 PM Report abuse rate up rate down Reply
stuvantine

Mr. Mikan: First, good luck. BB used to be my first stop for computers, cameras, electronics, appliances, and software. I hated Circuit City for hard selling extended warranties, routine experiences that resembled "bait-and-switch" (e.g. sale items sold out by second day of sale) and, mostly, terrible customer service. It seems that when CC went belly up, BB hired all their surly, incompetent staff, who brought the CC culture with them to BB. You will have a big problem correcting a corporate cultural malaise in a short period of time. The economy is tough, and you sell nothing that can be considered a necessity of life. A big challenge.

I'm neither a retailer nor an HR person, so I can't offer any advice there. I can suggest one thing with confidence. Lose CAIR. I believe recently becoming a Platinum Sponsor is a PR disaster. Look up CAIR on Wikipedia. Read from the top, as most of your customers will read. While it's stated goals are laudable, being listed as an unindicted co-conspirator in a major trial of money laundering in support of Hamas is near the top of page 1. CAIR's rebuttal is far into the entry, and many readers won't bother to read that far. I think their defense is rather lame. The fact that the trial ended without a verdict is not a vindication under the law, in my opinion. Many other disturbing allegations are unrebutted, including its support for H Rap Brown, an anti-American radical with two felony convictions now doing life in prison for cop killing. CAIR demanded that an anti- Osama bin Laden billboard be taken down post 9/11 because it was offensive to Muslims, and it criticized the prosecution of the 9/11 terrorists. CAIR has done many positive things, all set out on Wikipedia. But CAIR is controversial, for God's sake! (Pun intended) I understand that BB support for CAIR has resulted in one or more boycotts. Why on earth would a national retailer place itself in the middle of a public controversy with religious and political overtones? The loss to gain ratio must be enormous. Will Muslims flock to BB to save its corporate bacon? I doubt it. Many Muslims despise CAIR for what they perceive to be ultra-orthodox pronouncements, apparent ties to the Muslim Brotherhood, and major funding from Saudi Arabia. Will Jews stay away in droves? You betcha. Anti al Qaeda people of all faiths? Sure bet. Veterans like myself? Oh, yeah. If I were a betting man, on an over-under play, I'd wager that CAIR loses BB 100 customers for every one it gains. Just my opinion, plus some speculation, of course. I think CAIR is a stinking, dead Albatross hung around BB's neck. I'd cut it loose.
.

May 31 2012 at 5:36 PM Report abuse rate up rate down Reply
imjustsayin

I appreciate some of the comments that people have had about the way things work at Best Buy. When I worked in the store I cross trained in as many departments as I could. I have not work in the store for nearly seven years now.

I agree with Bill Rose in saying if you are selling a product know what it is and the differences in technology from one product to the next.

But with any company when you need to save money where do you look first? The answer is labor, labor is a companies biggest expence. For example I am a full time employee, all of last year Best Buy was running great promotions and driving in-home installations so we were very busy for nearly seven months. In that time overtime was almost manditory. Around december of last year we had a district realinment and we no longer had our bosses that cared. What is the first thing that happened to us? The OT went away and so did our 40 hour work weeks. Best Buy has a minimum 32 hours for full-time employees, well when you get cut from 40 hours to 32 hours THATS A 20% PAYCUT. The sad thing is they still have the same expectations from every employee.

My manager tells me if I want my hours back to work for it, but tells me I need to manage my time as not to exceed 32 hours... Anyone see the problem here.

Even at the store level if you cut back on hours, what is getting cut back on? First of all fewer employees are on the floor to assist all of you. Second the more time is spent selling rather then training. Being that the stores have fewer employees and less time to train, who is suffering? Unfortunatly our customers are suffering and this post is the proof.

I wish I could tell you all to hang in there and dont send Best Buy to the wolves, but the way the company is going I cannot blame you. Just pray for us employees that have worked at Best Buy and made a career out of it only to watch the ground erode under our feet.

May 31 2012 at 11:36 AM Report abuse rate up rate down Reply
Sweetsound Recordss

YOU NEED TO CLOSE BEST BUY FOR EVER.....................

May 31 2012 at 11:36 AM Report abuse rate up rate down Reply
Sweetsound Recordss

yes ALINCO235DR REAL COOL ADDED TO HIS RESPOND : I WENT TO BEST BUY LIKE IN THE LOS ANGELES AREA THIS YEAR. FIRST OF ALL I BROUGHT A OPEN BOX ITEM. WHEN I GOT HOME THE **** DID NOT WORK I WAS PISS'T OK . I WENT BACK THERE MY FRIEND WHO I WENT WITH SAID HE WILL STAY IN THE CAR SO I LEFT MY WALLET IN THE CAR. THEN I WENT TO RETURN IT. I GOT THERE AND THE LADY BITCH SO BAD ABOUT ME HAVING MY ID. I SAID WELL I BROUGHT THE **** WITH OUT IT. SO I CUZ S THE BITCH OUT AND GOD TO FOR GIVE ME LATTER OK. I GOT MY MONEY. BUT WHY I SAY ALL THAT . I WENT TO OHTER STORES AND BROUGHT THINGS AND RETURN THEM WITH OUT NO PROBLEMS . AND BEST BUY HAD TO BITCH ABOUT SOME DAM ID TO RETURN IT BACK. **** I'M STILL PISST I FILL ITS A RAISAL CALL I'AM A BLACK AMERICAN AND I DO OWN MY BUSINESS AND WORKING HARD TO. LET THE MOTHER **** CLOSE DOWN. I HOPE THEY WONT BUILD ONE NEVER IN MY HOOD. MIGHT HAVE TO BITCH YOU KNOW OK. PEACE OUT . HEY WHEN YOU GET DONE LIKE ME SPEAK OUT OK. I WENT TO FRYS ANY WAY AND GOT TO SAME **** FOR $29.00 FROM A $ 109.00 THERE **** IS TO HI. LIKE SOME ON IS SMOKEIN WEED.............GOD DAM.

May 31 2012 at 11:35 AM Report abuse rate up rate down Reply
alinco235dr

I don,t like Best buy either. tier prices are way to high thier staff are rude, thier stores way to big i feel like am walking a marathon just to get arond thier stores. To be honest when circuit city was around i shoped there I found thier people to be honest and helpfull. and thier prices were resanoble. I am not a Big fan of these Big box stores any way I like it when we aere in the decade of Mom and Pop stores they at least would help you if you kneded it, and go out of thier way to find what you were looking for. SO Best buy you have a long long way to go beforte you win my loyalty.

May 31 2012 at 6:21 AM Report abuse rate up rate down Reply
Cathy Jayne

I wouldn't go back into *Best* Buy if they were hosting the Second Coming. They don't need to generate *excitement* on their shelves, they need to generate TRUST in their customers. I feel sorry for the folk who work there. They can't honor their agreements, even the one's in print, with their customers. They apparently MUST find some reason not to exchange, return or repair ANYTHING. They are in the unenviable position of having to carry out their marching orders, which apparently is to march as many people out the door as is humanly possible. As to Conn or Gregg ~ don't know the one and have been treated well by the other. I don't go to these stores to be entertained ~ I go to be served. So you don't need popcorn, balloons and clowns ~ you need to represent yourselves as being aware of who is overhead and who is profit. O and in case you're unaware ~ the folk who aren't coming back, and who are talking about why ~ they were the one's who were profit.

May 31 2012 at 6:12 AM Report abuse rate up rate down Reply
lifehub

There are currently many reports indicating that BB is responsible for selling defective merchandise. Big companies refuse to realize that the best method of advertising is word-of-mouth. This fantastic way of getting the word around is also effective when someone sells bad goods.

May 31 2012 at 6:11 AM Report abuse rate up rate down Reply