Best Buy CEO plows on, tunes out critics

  • Article by: THOMAS LEE , Star Tribune
  • Updated: April 8, 2012 - 8:10 AM

Brian Dunn is guiding the retailer through big changes. Observers say his job appears to be safe, for now.

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New Best Buy CEO Brian Dunn answered media questions after the shareholder meeting.

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Best Buy Co. Inc. CEO Brian Dunn has been busy this year: He is shepherding the biggest restructuring in the company's history, hand-picking key executives, and overseeing the rollout of new store formats crucial to the retailer's future.

For a guy who is perpetually in the hot seat, Dunn is making decisions like someone who is expecting to stick around.

Through most of his three-year tenure, the beleaguered Best Buy CEO has endured criticism for his stewardship of the struggling consumer electronics giant. Despite frequent calls for his dismissal, Dunn is presiding over some of the biggest changes in Best Buy's history.

"I'm excited about the strategy we have for the future and the specific actions we have put in place to improve the business," Dunn recently told analysts. "We are well positioned to grow earnings more meaningfully over time, during our continued transformation in fiscal 2013 and more fully in the years ahead."

Best Buy declined to make Dunn available for this story.

Last month, the company said it would close 50 big-box stores and cut 400 corporate positions to save $800 million over three years. It is also expanding in China, more quickly rolling out smaller Best Buy Mobile stores and testing its experimental "Connected Store" format.

The retailer, which boasts about 1,100 stores in the United States, has been losing market share to Wal-Mart and online competitors like Amazon. The company's core market, big-ticket consumer electronics items like PCs and flat-panel televisions, has been rapidly shrinking as more consumers migrate to the Internet for their shopping.

Dunn has also reshaped the company's senior leadership team. He tapped Sheri Ballard, who previously co-led the retailer's North American businesses, to lead Best Buy International. Dunn also recruited Starbucks' former chief information officer, Stephen Gillett, to the newly created position of executive vice president in charge of digital operations.

"Dunn is going to make decisions until his last day as CEO," said Carol Spieckerman, president of Newmarketbuilders, a retail consulting firm.

When that day will come is open to debate. But given the scope and complexity of the company's restructuring plan, some analysts expect Dunn to last at least until 2013.

Dunn's employment "won't be an issue this year," as long as there are no major blowups, said Jeremy Brunelli, a retail analyst with Consumer Edge Research in Stamford, Conn.

Sales at stores open for at least a year continue to fall. And Best Buy's restructuring plan wasn't greeted enthusiastically by Wall Street. Investors were either upset the plan didn't cut more deeply or that the company is not planning to return any of that $800 million to shareholders, analysts say.

Since the announcement, Best Buy stock has fallen 8.5 percent to Thursday's close of $22.65. Last week, Standard & Poor's said it might cut the retailer's credit rating to noninvestment grade, or "junk."

Through it all, Dunn has publicly shrugged off criticism.

"I don't give [critics] any time or attention," Dunn previously told the Star Tribune. "I've been at this company for 28 years. I'm sure our strategies are right."

Dunn also has the one supporter who counts: Richard Schulze, Best Buy's founder, chairman and largest shareholder. Former executives say Schulze has long championed Dunn, a hardworking, enthusiastic lifelong Best Buyer who rose from store employee to upper management.

The company declined to make Schulze available for an interview.

When former Best Buy CEO Brad Anderson retired in 2009, Dunn was the only serious candidate to replace him, former top executives said. But Dunn's appointment raised eyebrows among employees and analysts who said he lacked vision and strategy.

"Brian doesn't have a strategic bone in his body," Flora Delaney, a retail consultant and former Best Buy executive, said recently.

Even Dunn seemed to have his doubts. Speaking at a leadership conference in March, Dunn spoke of the night before he officially became CEO. It was 10:30 p.m. and Dunn decided to take a walk across the Best Buy campus.

"It was a surreal moment," Dunn recalled. "I remembered thinking: 'I hope I wake up smarter.'"

During the next three years, Schulze stuck by his protégé, even as the company's declining share price has eroded the value of Schulze's 19 percent stake in Best Buy retailer.

But there are signs that Schulze's patience may be wearing thin. At a tense board meeting in January, Schulze and other directors criticized Best Buy's performance, according to two sources close to the company. It was at this meeting, the sources say, that the board crafted the restructuring plan, which is not so much a new strategy but rather a accelerated version of Best Buy's previous plans.

In any case, it will take time to implement the plan, which should give Dunn some breathing room, at least through the rest of the year, Brunelli of Consumer Edge Research said.

And some analysts have praised Best Buy's better sense of urgency.

"Best Buy gets it," Christopher Horvers, an analyst with JP Morgan, wrote in a research note. "We applaud Best Buy's management's more aggressive posture to address the structural weakness of big-box consumer electronics."

But, Horvers added, "how steep is the slope?"

Dunn says he's prepared to find out.

"You have to be able to adapt and change," Dunn told the leadership conference. "You have to embrace change, or you are rapidly in trouble."

Thomas Lee • 612-673-4113

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