Best Buy CEO Dunn Steps Down10 Apr, 2012 By: Erik Gruenwedel, Chris Tribbey
Reuters reports CEO was the focus of personal conduct issues
Best Buy CEO and director Brian Dunn has resigned, the company announced April 10, less than two weeks after the retailer reported a fourth-quarter net loss of nearly $1.7 billion.
Best Buy stressed that there “were no disagreements between Mr. Dunn and the company on any matter relating to operations, financial controls, policies or procedures” and that “there was mutual agreement that it was time for new leadership to address the challenges that face the company.”
According to Reuters, Best Buy confirmed that Dunn had been the focus of an internal investigation regarding undisclosed personal conduct issues and chose to resign prior to the completion of the probe.
Best Buy previously had announced plans to shutter 50 stores in the current (2013) fiscal year and to cut $800 million in costs through 2015, including $250 million this year. Best Buy plans on opening 100 smaller Best Buy Mobile stand alone stores this year.
Best Buy director G. Mike Mikan has been named interim CEO while the retailer searches for a new CEO. Mikan has been a Best Buy director since April 2008 and previously served as EVP and chief financial officer of United Health Group and CEO of health services company Optum.
Best Buy founder Richard Schulze will continue to serve as chairman.
“I have enjoyed every one of my 28 years with this company, and I leave it today in position for a strong future,” Dunn said in a statement. “I am proud of my fellow employees and I wish them the best.”
Best Buy has created a search committee consisting of Schulze and members of the retailer’s nominating, corporate governance and policy committee to search for a new CEO.
“We thank Brian Dunn for his many years of service to the company and wish him well in his next endeavors,” Schulze said. “As we move forward, we are very pleased to have a strong leader with Mike Mikan's credentials as interim CEO.”
Mikan added: “The Best Buy team and I will be extremely focused on successfully managing this period of transition. I want to assure our employees, customers and other key stakeholders that we will work together to achieve our company's growth and profitability goals.”
Michael Pachter, analyst with Wedbush Securities in Los Angeles, foreshowed Dunn’s departure imfamously telling Bloomberg.com last month that changes in technology had left Best Buy a retail relic.
In an April 10 note, Pachter reiterated that keys to Best Buy’s turnaround centered on consumer electronics and entertainment instead of computing and mobile phones – the latter a ubiquitous commodity with Starbucks-type retail availability.
Without the launch of a major new CE device, Best Buy must look internally to adapt to the rapidly evolving marketplace, including being more flexible on pricing, according to Pachter. He said the new CEO must adapt quickly to the changing consumer, who increasingly can price-shop on Amazon via a smartphone while inside a Best Buy store.
“Until another major product cycle or a significant revision of its premium pricing strategy occurs, we believe Best Buy will continue to lose share in its core business segments to cheaper online and big box competitors, and slowing store traffic will challenge its ability to grow in its focus segments,” Pachter wrote.
Steven Baker, VP industry analyst, with The NPD Group, said the rise in connected mobility among the very tech-savvy customer Best Buy covets has become a double-edged sword.
"Consumers can 'test drive' products in stores then shop for the best price without ever having to leave the store," Baker wrote in a post. "This type of transparency is great for consumers, but a nightmare for retailers."
Pachter contends Best Buy’s current 10% premium pricing compared to ecommerce options continues to impact the bottom line as does its big box footprint. The Minneapolis-based retailer must downsize its brick-and-mortar presence 50% to 80% while charging no more than 2% to 5% premium on Internet pricing to remain competitive, Pachter said.
“Best Buy can compete with Internet retailers only if the higher prices it must charge because of its brick and mortar overhead are justified by increased convenience and better service,” he wrote.
The analyst said that with the average Best Buy store lease around 14 years, it could take upwards of 5 years to shudder enough stores to remain competitive. Pachter said Best Buy should emulate Apple Stores by focusiong on smaller CE products rather than mobiel phones — the latter typically replaced only every two years.
“Until Best Buy shows us a plan for substantially reducing its store level overhead, we cannot recommend its shares,” Pachter wrote. “Dunn’s replacement must be prepared to manage the transition from big box to small box format. A CEO with this experience will be difficult to find.”