Can Best Buy founder save his former company?

Richard Schulze makes a bid for the big-box retailer, promising far-reaching changes to vault it back to the top spot in the electronics business.

By TheWeek.com Aug 7, 2012 1:37PM

This week, Best Buy (BBY) founder Richard Schulze made an $8.8 billion offer for his former company, saying he could deliver a dramatic overhaul that would stop the retailer's years-long slide. 


Facing increased competition from Amazon (AMZN), eBay (EBAY), and other internet retailers, Best Buy's share price has dwindled from a high of $58 in 2006 to its current level of about $20. Best Buy has even suffered the ignominy of becoming a "showroom" for its online competitors -- with customers checking out products in its warehouse-like stores, only to buy them at a cheaper price from Amazon on their smartphones. It remains unclear if Schulze, who stepped down as Best Buy's chairman this May, can even finance the deal -- under which he would take the company private with $1 billion of his own money and investments from unspecified private equity firms -- but Best Buy's share price soared by nearly 20% on the hopes that Schulze could pull off a turnaround. 


Can Schulze save Best Buy?


Yes. But it will be an uphill battle: Best Buy's only hope for survival is a "massive physical restructuring," says Farhad Manjoo at Slate. Best Buy needs to ditch its model of being a supermarket for electronic goods, since it will never be able to compete with the almost infinite selection of its online competitors. The "runaway success of Apple's retail stores proves that a small, curated product line doesn't necessarily hurt sales," and Best Buy would be better off transforming itself into a boutique featuring top-of-the-line products at the best prices. "It's not guaranteed to work," but if Best Buy "sticks to its current course, it's certain to die."


Best Buy has to offer competitive prices: Improving the store's selection and customer service "would certainly help," but "product pricing, not service, is the key to success," says Caroline Winter at Bloomberg Businessweek. Customers always find the lowest prices, and unless Best Buy narrows the gap with Amazon, it will always come in second place. Best Buy's best option is to cut down on its huge physical presence, flip to smaller stores, and use the savings on real estate and staff to offer better deals. "No matter what, Schulze's hope of turning around Best Buy is a long shot."


No. Best Buy is a relic from another era: Even if Schulze implements a raft of reforms, "there are forces beyond Best Buy's control which make retailing electronics a generally less profitable business to be in," says Christopher Matthews at TIME. In addition to competition from online retailers, the world of electronics is changing. "Technological innovation has allowed consumers to get as much done on fewer devices," meaning Best Buy can expect its sales volume to decline. "Media and video game sales will continue to migrate to online venues," chipping away at another source of Best Buy's revenue. Best Buy's best days are behind it


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2Comments
Aug 8, 2012 9:01AM
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Good luck Dick, however I think you are too emotionally attached to your "baby".  Your Best Buy has went the way of the USPS.  The only difference is you can't tap the taxpayer to keep it afloat.
Aug 8, 2012 9:11AM
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 Couple months ago I bought a washer from Best Buy. Was on sale at a cheaper price than Amazon's partner. Amazon's partner had some bad reviews. Best Buy delivered the washer, set it up and took the old one with them. Free of charge. Can Amazon do that? With Amazon they charge you if you want your old appliance picked up. A week ago I bought a Pur water filter on Amazon's website. I paided extra money because it was a stainless steel unit. I received a completly different model . The model I received I can buy locally cheaper than their price. Still waiting for instructions on returning it.

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