Best Buy CEO Hubert Joly is a man who often uses metaphors to make a larger point. He says corporate turnarounds are analogous to riding a bicycle. “If you start veer to the left, you steer the bicycle to the right,” he says. “And if you start to veer to the right, you steer it to the left. The most important thing is to keep moving.”
Joly has certainly pedaled hard, often uphill, during his first year overseeing the world’s largest consumer electronics retailer.
When Best Buy officially announced the hiring of Joly on Aug. 20, 2012, the company was in turmoil. Sales were falling, as was the stock price. Former CEO Brian Dunn had resigned amid allegations of using company resources to carry on an affair. Founder Richard Schulze, who knew of Dunn’s conduct but failed to inform the board, stepped down as chairman and launched a hostile bid to reacquire the company.
Joly, a former CEO at travel and hospitality giant Carlson, likes to keep it simple. Joly skillfully courted Schulze and by February, the founder had abandoned his takeover attempt and endorsed Joly’s “Renew Blue” strategy.
Joly has also cut costs, mostly by laying off hundreds of corporate employees, while spending a good deal of money in retraining store employees and rebuilding bestbuy.com. “I’d like to adjust our say/do ratio,” Joly previously said. “We should say less and do more.”
He also hired top-notch talent like former Williams Sonoma CFO Sharon McCollam and wooed back investors.
“I would definitely say Joly has brought more credibility” to Best Buy, said Brian Yarbrough, a retail analyst with Edward Jones Investments in St. Louis.
Best Buy likes what it sees so far.
“We are pleased with the progress ... but are still in the early innings,” the company said in a statement.
Indeed, sales are still fragile and the company’s promise to match competitors’ prices are eroding profits. The company reports second-quarter earnings on Tuesday and analysts surveyed by Bloomberg expect profits to drop 40 percent from the same period in 2012.
To evaluate Joly’s performance, the Star Tribune examined Best Buy in four areas — financial performance, strategy, culture and reputation — before Joly’s hiring and how the company fares now.
Then: For fiscal 2012 and fiscal 2011, the company’s sales at stores open for at least a year, a key metric for retail health, fell a collective 3.5 percent. Between those two years, Best Buy swung from a profit of $1.27 billion to a loss of $1.23 billion. With fewer sales, Best Buy’s free cash flow dropped from $1.4 billion as of May 2012 to around $900 million today.
Now: The company seems to have arrested its same stores sales decline. In the fourth quarter of fiscal 2013, which includes the key holiday shopping season, Best Buy eked out a 0.8 percent same store sales gain followed by a flat comp in the first quarter. Analysts expect similar numbers from Best Buy on Tuesday.
But those quarters haven’t come cheap. The company is spending heavily to match Wal-Mart and Amazon prices.
Verdict: On the right track but profits remain a big worry. The upcoming holiday season will be crucial.
Then: Under Dunn and former interim CEO G. “Mike” Mikan, Best Buy wanted to shift its focus away from its stores. The company closed 50 big-box stores and Mikan promised further square-foot reductions. The company wanted to grow more in international markets and expand Geek Squad into small businesses, car installation services and home energy consumption.
Now: Joly has adopted the exact opposite approach, focusing most of Best Buy’s attention on fixing its core U.S. stores and exiting noncore operations like its venture capital business and Best Buy’s European joint venture with Carphone Warehouse.
Joly has embraced the store-within-a-store model, striking exclusive partnerships with Samsung and Microsoft to establish their own stores within a Best Buy box. The partnerships form a key part of his overall campaign to reallocate store space away from commodity items like DVDs and toward higher-growth merchandise like smartphones and tablets.
Verdict: Wall Street loves it. After all, Best Buy is predominantly a retailer so fixing the business that generates about 85 percent of annual revenues makes sense. But critics say the company still lacks a long-term vision.
Then: At times, Best Buy appeared indecisive and listless. Analysts privately said Dunn wasn’t up to the job and lamented the absence of strong leadership. And Wall Street was initially skeptical of Joly.
Now: Joly’s hiring of Sharon McCollam, a well-respected retail executive known for never missing an earnings target, did much to boost investor confidence in the company.
Joly also performed well during the company’s Investors Day in New York in November and at this summer’s annual meeting, offering a level of detail and candor largely missing before his arrival.
Verdict: Since Joly joined Best Buy, shares have jumped 72 percent to Friday’s close of $30.37. Enough said.
Then: Former and current employees describe a chaotic workplace where projects were often started and abandoned without any accountability. The company often spent money on travel and parties to entertain employees and suppliers.
Now: Joly has worked hard to instill a sense of discipline and rigor to headquarters and stores. He ended Results Only Workplace Environment (ROWE), which allowed employees to control their schedules, including when or even whether they showed up at the office.
Under Joly, the company has already shaved about $295 million in annualized costs, with another $400 million or so on the way over the next few years. Best Buy has laid off hundreds of corporate employees, including 400 in one fell swoop earlier this year and incrementally ever since March.
Joly has also adopted the Net Promoter Score (NPS) to measure employee performance and customer satisfaction. Using NPS, Best Buy also wants to determine why a shopper left a store without buying something.
Verdict: Layoffs and empty buildings on the Richfield campus have sapped morale but the company reports high “engagement scores” among remaining employees.