How Best Buy’s outgoing CEO, Hubert Joly, rescued the company
For nearly seven years, Best Buy chief executive Hubert Joly gave a master class on how old school retailers can thrive in the online shopping era.
Joly steered the retailer through turmoil in the industry by dropping prices, beefing up customer service and turning stores into modern-looking showrooms during his run as chief executive. On Monday, Best Buy announced he will step down as CEO in June.
Under Joly, Best Buy’s stock price has quadrupled, and the company has posted five consecutive years of sales growth in stores open at least a year, including a 4.8% revenue increase in 2018.
“Joly’s strategy has been an example many retailers have been working to replicate,” said Joseph Feldman, analyst at Telsey Advisory Group.
Corie Barry, a longtime Best Buy executive who is currently the company’s chief financial and strategic transformation officer, will replace him as CEO in June. Barry, 43, will be one of a small handful of women leading a Fortune 500 company.
“There’s no room for mediocrity in retail,” Barry said Monday on a call with reporters. “Anytime it’s easier to do something digital— whether that’s booking a plane ticket or purchasing a TV — your expectations as a customer are constantly rising.”
Best Buy’s decision to tap Barry likely reflects the retailer’s pivot to services. Barry oversaw the company’s recent push into offering technology help at customers’ homes and connected health care for aging Americans.
On Monday, Joly emphasized that Barry would offer “continuity” in the company’s leadership ranks and its growth strategy. He said elevating Barry “represents the kind of seamless leadership transition that companies aspire to.”
Analysts praised both Barry and Best Buy’s succession plan, although the company’s stock dipped slightly on Monday. “Barry is a strong choice to be Best Buy’s next CEO. She is a strategic thinker who helped develop the turnaround strategy,” Feldman said.
Joly is stepping aside at a moment of strength for Best Buy. Its stock is up close to 40% this year. He is not retiring, though: He will transition in June to the newly-created role of executive chairman of the company’s board of directors.
‘Make Best Buy great again’
Best Buy is one of the elite retailers in the industry, outlasting former consumer electronics rivals Circuit City, RadioShack and HH Gregg.
“Best Buy should have been first in the firing line from the rise of internet retailers,” said Neil Saunders, managing director at GlobalData Retail. “Joly’s decisive action meant that it not only survived, but has become an online giant in its own right.”
When Joly took over in 2012, Best Buy’s future was in doubt. Sales and profit were sliding. The company’s CEO had resigned and its stock tanked. Shoppers were going to Best Buy to check out TVs and laptops and then buying them on Amazon for cheaper prices.
Best Buy turned to Joly, a hospitality executive, to halt its slump. He had no prior retail experience. Joly’s message to skeptical investors shortly after taking over as CEO, well before Donald Trump used something similar on the campaign trail, was “Make Best Buy great again.”
As part of that goal, Joly quickly rolled out a price-matching guarantee at stores to prevent shoppers from leaving for Amazon, and the company improved its website and mobile app. He made Best Buy’s stores serve a dual purpose, transforming them into warehouses that could quickly ship deliveries to customers and collect online pickup orders. 40% of Best Buy’s online orders today are picked up in the store.
Shoppers used to see stacked boxes of CDs and DVDs at Best Buy, but Joly developed stores into mini-shops for Apple, Amazon, Google and Microsoft to show off their products.
“Stores are a wonderful asset,” Joly said in a December interview with CNN Business.
But Joly’s biggest focus has been strengthening Best Buy’s customer service, its key advantage over Amazon. The retailer retrained sales workers so they could offer better advice to puzzled customers deciding which model TV or camera to buy. Best Buy has raised wages and expanded paid leave and childcare benefits to keep store workers. In 2013, Best Buy’s store turnover rate was in the mid fifties. It was in the low thirties last year.
Joly has recently taken risks.
Best Buy partnered with Amazon last year to sell exclusive lines of Alexa-enabled Fire TVs in stores and on Amazon. Last year, Best Buy bought GreatCall, which makes Jitterbug cell phones with big buttons for elderly citizens, for $800 million.
“Retail is a business where the bar is being raised and there’s increasing differentiation between the winners and the losers,” Joly said last year. “We’re clearly positioned to be a winner. This is not a zero-sum game between Best Buy and Amazon.”
Tech services and health care
Although Best Buy is in strong shape,Barry will face challenges in her new role.
Computers and cell phones still make up 44% of Best Buy’s nearly $43 billion in sales, leaving it vulnerable to volatile product cycles.
Innovation in TVs, gaming and mobile phones is “a little less exciting than it’s been over the last few years,” UBS analyst Michael Lasser said in a note to clients on Monday. Most critically, iPhone sales are slowing down.
Best Buy’s fate is also tied closely to its top suppliers, like Amazon, Apple and Samsung, which are opening up new physical stores and changing their retail distribution strategies. For example, Apple and Sony have recently started to sell to Costco, which some analysts believe is a blow to Best Buy.
Best Buy hopes to reduce its dependence on outside suppliers by providing tech consultations at customers’ homes and expanding into new areas like health care for elderly Americans. The company’s two most recent additions to the board of directors have health care backgrounds.
“We want to go beyond just selling products through transactions to selling solutions and building relationships,” Joly told CNN Business last year. “We want to be the CIO for your home, and we’re uniquely positioned to do this.”
The retailer has rolled out services like In-Home Advisor, a home tech consultation service, and Total Tech Support, an annual membership for on-demand repairs. Best Buy has around 530 advisers who travel to customers’ homes and help them figure out how to set up their speaker systems and outfit their houses with smart tech.
But services only make up 5% of revenue today.
Barry will also face difficult decisions on Best Buy’s store footprint. Best Buy runs close to 1,000 stores in the United States and has avoided mass store closures like other retailers.
“Stores, while still extremely relevant to Best Buy, need investment and must be continually evolved to remain relevant to consumers,” Saunders said.