Whenever Hubert Joly meets with large groups of Best Buy employees, inevitably there are fist bumps, high-fives and selfies. The amiable chief executive doesn’t wear a tie. He laughs, he listens, he gives pep talks.
On the kickoff to this year’s holiday season, Joly strode into the Best Buy store in Eden Prairie on Thanksgiving with arms raised in a victory salute. Standing atop a broad countertop, he urged the sales force to have fun and proclaimed, “I’m having the time of my life!”
It’s not hard to see why. Best Buy’s darkest days seem like a distant memory since the polished, French-born executive arrived at corporate headquarters in Richfield in fall 2012. Gone are negative quarterly sales results and sinking profit margins. The stock price has shot up fivefold. Market share has widened, and employee turnover has plummeted. Consumers actually like the company now.
“Joly brought more financial rigor to the business,” Piper Jaffray analyst Peter Keith said. “He brought a great, energetic, hardworking personality for people to get behind.”
Over the past four years, annual earnings per share have more than doubled. Same-store sales comparisons have risen for seven consecutive quarters. With the basics buttoned up, Best Buy’s CEO now is focused on building what he believes is a new company with a fundamentally different mind-set.
“Here’s the scoop,” Joly said this fall, sitting at a conference table in his sixth-floor office. “We’re not in the business of selling TVs and computers. We’re a company that’s in the happiness business.”
Joly repeats this phrase to a lot of audiences in a lot of places. His goal, he said, is to make Best Buy into a company “that’s purpose-driven and is fueled by human magic.”
Joly’s view is that as our lives become ever more dominated by technology — in our homes, cars and hands — we will need trusted and experienced people to help us figure out how to make it work together.
To position itself to deliver this, the company beat back Amazon by matching its prices. It laid off a couple thousand middle managers at stores, pulled out of Europe and China and convinced vendors to do a better job showcasing their products and training Best Buy salespeople.
Best Buy improved training to build a more loyal workforce that is capable of understanding complex technology and the nuances of working with customers in new ways.
The company has formed an elite corps of 530 employees who make free house calls and, in theory, aren’t there to make a sales pitch. These in-home advisers are full-time and salaried, with special training to assess technology, understand specific tech needs and help simplify and improve consumers’ wired worlds.
Customers say they value the service and appreciate talking to someone in a familiar environment. Best Buy research shows they are also more likely to become repeat customers, make more store visits over time and spend a little more money — which plays into Joly’s goal of building long-term relationships.
“Most consumers today don’t necessarily just buy on price,” said Stephen Baker, a technology industry analyst with the market research firm NPD Group. “They buy based on product availability, usefulness of product, ease of use.”
Best Buy rolled out an enhanced service it calls Total Tech Support nationwide in May. For $200 a year, subscribers can receive unlimited help in stores, online or the phone from the Geek Squad staff.
Meanwhile, the company is pushing more aggressively into products and services targeting an aging population. With its $800 million purchase of GreatCall, a monitoring and emergency call service that helps older adults live more safely in their homes, Best Buy opened up a complementary but distinct market in technology services to support baby boomers for decades to come.
While the Best Buy of old tried to make money off of services, Joly draws a distinct line. Today’s services aim to establish a long-term relationship with customers.
“In our darkest hour, we had a bad reputation,” he said. “We had the reputation we were forcing people to buy the warranties, get the credit cards and so forth. Those days are over.”
Services account for just 5 percent of Best Buy’s revenue, and Joly isn’t overtly aiming to increase it. The true measure of success, he said, is “brand love” — or revenue per customer.
Right now, Best Buy’s own customers spend just a quarter of their total technology budget there, leaving plenty of room for more sales.
“My friend Jeff at Amazon does not make money on Prime,” he said referring to Jeff Bezos, founder and CEO of Amazon, and its subscription-based premier shopping and shipping service. “In fact he loses millions of dollars on Prime. But for him it’s a way to build a relationship. And build a flywheel.”
This is perhaps what Joly means by “human magic.” In machines, the flywheel is a heavy wheel that fuels a machine’s momentum. It provides more stability and becomes a power reserve when there are interruptions.
Joly was the first outsider to run Best Buy, just as he had been the first nonfamily member to lead Minnetonka-based Carlson and its suite of hotels and restaurants.
His “happiness” strategy is not surprising, given his background. Making people feel special and important is the hospitality industry’s raison d’être. At Best Buy, Joly started with his own people.
He arrived at a time when the company’s blue-shirted store employees had become demoralized by plummeting sales. The CEO had resigned amid a scandal, after which the company’s founder mounted a takeover attempt to try to fix things.
Joly has been hands-on in addressing the culture. “He could never be on ‘Undercover Boss’ because every blue shirt in the country knows what he looks like,” Chief Financial Officer Corie Barry said. “The minute he walks into a store, it’s like a movie star is there.”
With extra training, and job opportunities that come with more challenges and better pay, Best Buy has cut its turnover rate from 60 percent, the retail industry average, to 30 percent, Joly said.
Joly — who is set to take the stage at the National Retail Federation trade show on Sunday — encouraged the top management ranks to approach their roles with a deeper mind-set.
“He’s gone so far as to have each of his leaders sit down and talk to each other about what is our purpose, what drives us, what do we want to accomplish. How do we create a work environment that reflects that purpose,” said Barry, whom Joly selected to take on the additional role of strategic transformation officer in November. “It’s a uniquely interesting way to help people attach themselves emotionally to what can feel like a corporate grind if you’re not careful.”
It’s a basic leadership tenet that too often gets forgotten, said Paul Grangaard, a former Minneapolis investment banker who pulled upscale shoe retailer Allen Edmonds out of a death grip and made it profitable
“Many a turnaround artist treats employees like they’re part of the problem,” he said. “That leads the best people to leave and the downward spiral continues.”
In the year since Joly set the company on a defined path to sell expertise rather than stuff, Best Buy has turned in strong performances, including its best second-quarter sales boost in 15 years in August.
In November, the retailer raised its full-year earnings forecast by 15 to 17 percent, from $5.09 to $5.19 per share. Fourth-quarter results — which include the holidays and account for more than half of annual profits and more than a third of revenue — are scheduled to be announced Feb. 27.
“Best Buy needed to get back to what they did really well, which is allow people to come in and play, to touch, see and feel,” said Kim Sovell, who teaches marketing at the University of St. Thomas. “The only way any retailer’s going to beat Amazon is to offer what Amazon cannot.”
With talks of tariffs and trade wars in the winds, Joly seems mindful of potential immediate threats to the business. The current tariffs cover about 7 percent of the company’s costs, he told investors in November. Apple’s recent announcement about the precipitous drop in iPhone sales, which it tied to China’s weakening economy and potential ill feelings about American-made goods, reflects the hot-and-cold nature of devices and an interrelated global economy.
Like a man on a mission, Joly focuses on the flywheel.
“If you look at the last few quarters since we officially announced this strategy, our growth has significantly accelerated,” he said. “And yet we’re just at the beginning. It’s a long-term play.”