Instead of closing stores, Hubert Joly wants to grow sales, a philosophy closer to founder Richard Schulze than Wall Street.
Best Buy CEO Hubert Joly's tenure at the company is less than a week old. But the 52-year-old Frenchman is already pooh-poohing the two most commonly held beliefs about what ails the struggling consumer electronics retailer.
Showrooming -- the practice of consumers viewing products in a store only to buy them cheaper online -- is a myth, he says. Same goes for the idea that Amazon.com threatens Best Buy's very existence.
"I believe showrooming is one of the greatest falsehoods about our company," said Joly, who gave the Star Tribune his first sit-down interview since winning the CEO job last month. "If there was a lot of showrooming, I don't think we would have $50 billion in revenue. We must have at least a few people buying in our stores."
"Our market share is stable," he continued. "Of course, Apple and Amazon have gained share in consumer electronics in recent years. It's the smaller and independent guys that have gone away."
Best Buy hired Joly, who previously led hospitality and travel giant Carlson, to replace Brian Dunn, who resigned amid allegations of an improper relationship with a female employee. Joly orchestrated turnarounds at Carlson and Vivendi's video game business, a streak he hopes to continue at Best Buy.
Donning a blue shirt and "CEO in Training" badge while learning the ropes at the Best Buy store in St. Cloud, Joly seemed eager to show off his skills as a salesman in more ways than one.
As a temporary store employee, he tried to sell a reporter a blender and widescreen television. As CEO of a Fortune 50 company, Joly suggested Best Buy still has plenty of room to grow.
"I'd like to adjust our say/do ratio," Joly said. "We should say less and do more."
For example, Joly said Best Buy could sell more small appliances and expand into home security through its Geek Squad unit. The company also has discussed opening an app store like Apple and ways to offer more digital content like movies, music and television shows.
"I pay Comcast $120 a month for cable," Joly said. "That's a lot of money. How do we participate in that?"
Joly also cited the growth of Best Buy Mobile. The concept, founded by former Best Buy International CEO Robert Willett, now controls about 7 percent of the U.S. mobile market, a feat Amazon can't match, Joly said.
Some call for reinvention
Investors and analysts argue Best Buy needs to dramatically reinvent itself. Sales at stores open for at least a year have fallen two of the past three years as more shoppers flock to the Internet to purchase televisions and computers, the very heart of Best Buy's business. At $3 billion, Best Buy's online sales make up just 3 percent of its annual sales, a number even Joly admits could be higher.
"People are changing the way they are buying things," said Jonathan Gaw, an analyst with IDC. "Best Buy is not well-suited to take advantage of these buying habits."
Joly bills himself as a turnaround specialist who takes decisive action. His first priority is to not necessarily craft a long-term strategy but to "stop the bleeding." That doesn't mean slashing costs or closing stores. In fact, Joly would prefer to not shut down stores but rather squeeze more sales out of them.
"I'm not a big fan of shrinking the company," Joly said. "Most of our stores have long-term leases, so we should maximize what you can do with the space."
Joly's aversion to downsizing, along with his beliefs on showrooming and Amazon, put him directly at odds with not only Wall Street but the man he succeeded: G. "Mike" Mikan.
"Ending [showrooming] is a top priority for our team," Mikan, a board member who served as interim CEO, told investors during the annual shareholders' meeting in June. He also stressed the importance of getting smaller.
"We're also going to make some tough decisions about shrinking the company's physical footprint," Mikan said.
A source close to Best Buy told the Star Tribune before Joly's hiring the company will soon announce plans to reduce its retail space by at least 1 million square feet, mostly by shrinking stores but also a few closings.
Analysts scratching heads
Laura Kennedy, an analyst with Kantar Retail, a consulting firm outside of Boston, said she found Joly's remarks, especially on showrooming, somewhat puzzling.
"I don't think he's right," Kennedy said. "I think there's plenty of evidence of people doing that."
Said Gaw, the IDC analyst: "Where does he think the Internet sales are coming from? The consumer electronics pie has not been getting any bigger."
Kennedy wonders if Joly intended his remarks for Richard Schulze. Best Buy's founder and largest investor is trying to buy back the company for about $9 billion and has recruited former CEO Brad Anderson and former chief operating officer Al Lenzmeier to serve on his manaement team.
The Star Tribune previously reported that Joly, who is close to Anderson, could very well stay on as CEO should Schulze succeed in taking Best Buy private. A source close to the situation, however, said Schulze has rebuffed Joly's effort to contact him.
Schulze has yet to disclose his plan for revitalizing Best Buy. But Schulze and Anderson's history at Best Buy suggests the two men, like Joly, are loath to close stores and also want to focus on sales growth.
At the end of his interview with the Star Tribune, Joly said he wanted to directly address the Schulze matter.
"It's very odd for a company to be at odds with its founder," Joly said. "Dick is the founder of this amazing company. I have a lot of respect for him, though I've never met him. He is also the company's largest shareholder. He may or may not [purchase Best Buy], but at the end of the day, he is still going to be our largest shareholder whether Best Buy is public or private.
"I think it's important to settle things down a little bit," Joly said.
Thomas Lee • 612-673-4113