On January 16, Best Buy’s CEO Brian Dunn announced a re-organization he said was designed to improve the company’s results. In political circles, this is like putting lipstick on a pig.
The origins of that phrase are uncertain - but the long and the short of it is about trying to make something or someone look more appealing when it clearly will not work.
In the statement released by Best Buy, Dunn said that these “leadership changes would accelerate its strategy by aligning the company’s senior operating talent with its highest priorities.” It went on to describe how two of the company’s senior honchos would now have better titles (one is now Executive Vice President and President of Best Buy International, the other is Executive Vice President and President of Best Buy U.S.) which would result in far greater performance including the creation of a “seamless customer experience” and a “drive of greater synergies” between the companies various operating divisions around the world.
I’d consider this at best to be a Hail Mary play. Probably designed to get analysts writing good things about the company after poor results over the retail-critical Christmas period and some disastrous public relations hassles due to their customer promises being far greater than their technologies were capable of executing.
Let’s take a minute to noodle about the retail sector that Best Buy trades in:
They sell short markup products. And those same items are often used as loss leaders by other retailers. In those cases, the more Best Buy sells the more it loses. (I heard a great line from the former CEO of the then-largest retailer in Canada, Eaton’s. He said, “How do we offset the fact that we lose money on every one we sell? Volume!”
Rents are too high for the sales performance of the average store. They’ve been trying to lease space to other retailers inside their stores to get the ratios right, but it’s not like there isn’t a lot of empty space in most cities and malls today.
The industry is littered with death and destruction. Historically, electronics is a product where nobody makes much money except the manufacturer. In the early days, sales were dominated by small local “mom and pop” retailers who bought and sold quickly. They had low operating costs and paid commission salesman to push certain products. That group got squeezed out by local chains like Crazy Eddy’s, The Good Guys and Ultimate Electronics. Each tried to maintain low costs of operating and commissioned staff who don’t get paid if they don’t sell. Then Circuit City took over with not-so-great stores, lower prices and commissioned people. But they still sold low profit items and that chain went bankrupt too when Best Buy created many superstores and cut back on commissioned salespeople so more people preferred to deal with them.
The future is now
Most people are aware that they can buy electronics for less money on the Internet today. The Internet retailer has very low costs of operating, compared to Best Buy. And the customers can use Best Buy as a showroom before going back to Amazon to place their orders.
Typically when organizations are failing, the CEO incorrectly reaches for the organization chart to fix the big problems. Brian Dunn’s actions will do little to stop the trend the company is on. His strategy will fail and it’s probable that he will be replaced shortly afterward.
However, unless someone has some new ideas about moving it forward, even that action won’t save Best Buy.
How likely is it that Best Buy is on the right track for success?
Here’s to the future!