Best Buy Finds Stability in Schulze
Just as quickly as he jumped into the fray, Best Buy founder Richard Schulze is out of the bidding war. The company announced Schulze's appointment as chairman emeritus on Monday, and said that he would be bringing a few of his buddies with him. Brad Anderson and Al Lenzmeier -- who both advised Schulze on his attempted buyout -- have been added to the board. Anderson, in particular, is an interesting addition, as he was CEO of Best Buy from 2002 through 2009, when the company was on top of the world.
Anderson was instrumental in the addition of the Geek Squad, the company's acquisition of Five Star in China, and the introduction of Best Buy Mobile. Since his departure from the board last June, Schulze has been pressing for a change at the company. Best Buy has continued to see its comparable sales fall in both U.S. and international markets. While investors have fled the company in recent years, the past few months have seen the stock surge, rising 96% since the beginning of the year. Here's what to watch for with Schulze's return to the board.
Focus on stability
It's not a coincidence that Schulze is bringing back some previous employees. Best Buy has been through a lot of ups and downs, and the company is having a hard time finding its footing. Bringing Anderson back is a big step toward stabilizing the lineup at the top. That desire for stability was also seen in Schulze's announcement of his return, where he praised the work of CEO Hubert Joly, saying, "Over the past several months, I have come to know and respect Hubert, and have a high regard for the work he and his executive team are doing to revitalize Best Buy for the benefit of all stakeholders."
That highlights the stability that Schulze is looking for with his return to the company. While this is conjecture, I believe that Schulze ultimately decided not to make a bid so that the apple cart wouldn't be overturned. Instead, he's returning to the board with a longtime CEO, and Joly is going to stay right where he is, doing what he's doing.
The showroom conundrum
What Joly is doing is trying to turn Best Buy into a real store again. Investors and customers alike are treating the company's locations like testing grounds for products that will be purchased from Amazon.com and other online retailers. Best Buy has already found success with its Geek Squad and mobile offerings. Those are things that work really well face-to-face, and are less susceptible to showrooming. Last quarter, the company's comparable U.S. sales for services grew 6%, while computing and mobile grew 13%.
That growth combined with the cost-cutting and price-matching measures Joly put in place has helped staunch the bleeding. The next step will be to find ways to actively grow sales, and that will likely involve a move away from some of the consumer electronics and entertainment products that Best Buy now carries. Sales of those items -- TVs, stereo equipment, DVDs, etc. -- have been falling, as customers come in to see the items in action, only to order them from Amazon later. The price-match policy may help prevent some sales loss, but it's doubtful the company will ever be able to gain a major share of those products.
In addition to showrooming, Best Buy is also going to be fighting streaming digital content and digital movie delivery. Customers are looking online for movies, and shunning physical media. That's one of the reasons that Best Buy is going to start turning space dedicated to CDs and DVDs over to mobile phones and appliances, another strong category.
The bottom line
The return of Schulze isn't a bad thing. The stability that he and Anderson bring to the company should help it navigate the changes that it makes over the course of 2013. By no means does it make Best Buy a sure winner, but the move isn't going to seriously hurt, either. I'm looking for Schulze to make the biggest impact on the company's brand image, which hasn't caught back up to its recent changes and focuses. Hopefully, investors will see more ads focusing on Best Buy's mobile offerings and services. Those are the things that the company is doing right, and the places where some stability is going to make a big difference.
The brick-and-mortar versus e-commerce battle wages on, with Best Buy caught in the middle. After what might have been its most tumultuous year in history, there are now even more unanswered questions about the future for the big-box electronics retailer. How will new leadership perform? Will a smaller store format work out for both the company and its brave investors? Should you be one such brave investor? To help answer all these questions, The Motley Fool has released a new premium research report detailing the opportunities -- and the risks -- in store for Best Buy. Simply click here now to claim your comprehensive report today.
The article Best Buy Finds Stability in Schulze originally appeared on Fool.com.Fool contributor Andrew Marder has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.