Bad to worse
Best Buy is in bad shape. The electronics retailer is still Valhalla to nerds and technophiles, but its corporate house is in disorder. Capping a tumultuous summer, the company's founder Richard Schulze offered last week to take the electronics retailer private at $24 to $26 a share. (Schulze had stepped down as chairman in June after a scandal involving his knowledge of the former CEO's alleged relationship with a female employee.) Schulze's offer represents a price at least 36% higher than Best Buy's closing price Aug. 3. The midpoint of the offer values the company at about $8.5 billion. While it remains unclear what will ultimately happen, it is clear Best Buy is in trouble. It faces pressure to close stores as sales lag as well as cutthroat competition from online retailers such as Amazon. Here are five elements of a possible turn around strategy for the struggling company.
Step 1: Take Best Buy private
Call it a shield. Taking Best Buy private would protect the company from the pressures of meeting quarterly goals -- not to mention sustaining the assault on its stock price when things get rough. Schulze and his private equity partners are going to need some cover for the next step.
Step 2: Stop downsizing
Current management plans to shutter stores and pull back from Best Buy's previous, aggressive expansion. The new plan? Slow down the closures. For now.
Step 3: Cut prices
Online retailers are making it hard for Best Buy to compete on price. To make matters worse, consumers buying electronics equipment are some of the most likely to "ROPO" -- research offline, purchase online -- checking gear out in-person in stores, but finding Web outlets that sell products at a discount. To combat this, Best Buy will have to lower prices.
Step 4: Improve customer service
Providing Apple-like customer service is something many retailers aspire to. Achieving that won't be easy, but it could help Best Buy keep customers from walking out without buying anything. Better customer care could help drive foot traffic to poorly performing stores. Luckily, Best Buy has some experience in this domain. It owns the Geek Squad, which provides IT services. It also hosts mini-Apple Stores selling Macs and iPods within some of its own outlets.
Step 5: Focus
Finally, Best Buy has suffered from fits and starts as a result of its boardroom drama. The company's board appears to not have been properly prepared to deal with a sudden departure of the company's CEO. That raises questions about its ability to oversee the complexity of a turnaround. To have any hope of succeeding, management is going to need to focus on execution.