Best Buy Eyeing More Service Partnerships to ‘Reposition Leadership’

The “market place changed” and Best Buy “didn’t recognize the changes taking place,” interim Best Buy CEO Mike Mikan told shareholders at the annual meeting in Richfield, Minn., Thursday. So Best Buy is working on a plan to “reposition its leadership” in the retail market by changing the way “we think and act” and connecting with customers “in a much deeper way,” Mikan said. Calling Best Buy’s operating performance “well below our full potential,” Mikan said he spent the last few months visiting stores across the country talking to employees and customers. While he praised the company’s people, assets and potential, Mikan said “we could have done a better job of demonstrating that."

The plan will be presented in coming weeks and months, Mikan said. The goal is to reach a broader set of customer needs with “personalized solutions,” he said: “As their needs have changed, we unfortunately, have not, and now we need to.” Store associates need to become “trusted advisors” that solve problems and anticipate future needs, he said. He stressed the need for a “seamless experience” whether customers are shopping by phone, in stores or online, which will be driven by digital solutions the company is developing with “world-class e-commerce capability” for the U.S. and abroad.

Mikan said the alliances Best Buy has created in recent weeks with AARP and “a leading technology company” show the company is already finding new ways to reach additional customers. The retailer is working on more alliances that it plans to bring to market “in the near future,” he said. AARP members can pay $169 a year for advice and technical support via telephone, online and in-store, the company said. “Personalized technology services” will offer “counter-cyclical business,” delivering recurring revenue during “slow product innovation cycles,” he said.

The new store strategy is based on a “mandate” to move the customer experience from “one of transaction to one of relationship,” Mikan said, calling it a “fundamental shift” that’s more than about selling “connections and tech repair.” Best Buy Blue Shirt and Geek Squad members will be “problem solvers” that enable customers to “unlock the knowledge customers need to take full ownership of their technology,” he said. Sales staff will receive training and better sales tools, including tablets and smartphones, to steer customers toward purchases, he said. Price remains a key to the Best Buy strategy, he said. The company’s goal is to put an end to customer “show-rooming,” where shoppers visit a store for a hands-on look at a product and then buy for a cheaper price online.

Mike Vitelli, president of Best Buy’s U.S. operations, said the company’s new training program is based on the “induction training” model that includes “weeks of training” in advance of working in stores. It was first used successfully in Best Buy Mobile several years ago and was “materially different in focus, intensity and requirements” from other training efforts, he said. From August until the beginning of the holiday season, the company will put 50,000 employees through the induction training program at a “significant investment,” he said. Classes are being put into place now, Vitelli said.

As to how the company can find assurance that the floor staff can meet new expectations, Stephen Gillett, president-Best Buy Digital and Global Business Services, said it’s up to management to be sure Geek Squad and Blue Shirt staffers are equipped with devices they can use to show customers product information, reviews and ratings from CNET or other sources to be sure “they're having the discussion directly with the customer.” Technology being put into stores later this year that’s at the company’s Richfield store now will ensure that customers, too, “are armed with technology” as they shop so they can explore information themselves through review sites, social media and their friend networks, he said.

Best Buy has “not lost market share,” Vitelli said in response to a shareholder question. Citing NPD data, he said Best Buy actually gained share last year in big-growth categories such as smartphones, tablets, e-readers and appliances, and maintained its number-one position in computers, TVs and cameras. Best Buy has also gained share in online sales, he said.

Total square footage for Best Buy stores will drop as part of cost-cutting measures, as the company makes “tough decisions to shrink the company’s physical footprint,” Mikan said. The total number of storefronts may stay the same or even “grow somewhat” but with a more focused presence, he said, as the company tries to “substantially reduce its cost structure.” As part of that, Best Buy is moving from a “big box store growth model” to a “return on investment orientation,” he said. “We can no longer just focus on the box,” he said. As the company takes a fresh look at investment strategy, there will be “no sacred cows,” Mikan said.

On a shareholder question regarding how the company will avoid a similar “fiasco” to last holiday season’s product shortages, Vitelli said product shortages are always “potentially an issue.” Of more concern, he said, was the “speed with which we could tell people the product they ordered was not available.” That’s where the company “fell down last year” and process changes have been made to ensure the speed of notification is in place for the coming year, he said. Mikan said management spent a lot of time studying the issue and committed to “do better."

In response to a shareholder question about the effectiveness of Best Buy’s recycling program that charged consumers $10 for a TV, computer monitor or laptop that was brought in, in exchange for a $10 gift card to be used in store, Chief Administrative Officer Tim Sheehan said Best Buy recently changed its recycling program to eliminate fees and make it “as easy as possible to recycle.” Best Buy is halfway to its goal of collecting $1 billion of recycling goods, Sheehan said.

Chairman Hatim Tyabji opened the meeting thanking Best Buy founder Dick Schulze for his “enormous contribution and service to the company.” But there were no further references to Schulze or speculation he will leverage his huge Best Buy stake to try and take the company private. Earlier this month, Schulze resigned from the Best Buy board to “explore all available options” for his 20 percent of the company. The board announced Thursday it had approved a 6 percent quarterly dividend increase to 17 cents a share. Best Buy shares ended the day 4 percent lower to $19.48.