Best Buy (NYSE:BBY) hired outsider Hubert Joly as its CEO in 2012, perplexing many investors given his background in hospitality, not retail.
In this segment from Industry Focus, Vincent Shen and Motley Fool contributor Daniel Kline break down how Joly brought the big box chain out of turmoil before looking at the company’s roadmap for the future.
A full transcript follows the video.
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This video was recorded on July 17, 2018.
Vincent Shen: Around the time that Hubert Joly took the reins, the company was in a tough spot in terms of negative same-store sales being reported for many quarters, starting in late 2008. They didn’t really recover to consistently positive levels until 2014, years and years later. You have to keep in mind, this is also a very challenging period when profitability was hurt by weaker operating margins. Shareholders had to have an iron will to stomach the stock, and it lost 80% of its value.
Dan Kline: This is where we should bring up the word “showrooming.” Around this time, as Amazon was becoming ubiquitous, and most people had accounts, you weren’t going to buy a TV sight unseen. There wasn’t this level of trust where, on Prime Day, we’re all buying stuff we’ve never seen, we don’t know what it is. You would go to Best Buy and waste Best Buy resources by having the salesman show you the TV, take you through the features. Then, you’d go, “Hmm. I’ll come back tomorrow and buy it.” And you wouldn’t. At that time, in 2012, you’d probably go home and buy it on your computer rather than buy it on your phone. But, there was a decent chance that you were doing all this work. When I ran a toy store, as we’ve talked about, we experienced this sometimes. Someone would take us through two hours on a $1,200 train set, and then we’d never see them again, until a year later, they came with a broken train, and they had bought the train set somewhere else.
That was happening. Best Buy had to take major steps to deal with that. They dealt with it in two ways. Price matching was one of them. We’ve both talked about it off-air that their price matching is sketchy because it doesn’t include delivery, and it’s not as convenient as Amazon. But, the other one they did — and, again, we were just talking about this upstairs — is, they lowered some of their prices. It used to be, you’d need something — batteries, a cable, a printer cable, whatever it is. You’d go to Best Buy, and the price would be 15 times higher than Amazon. It would be $40 vs. $2. They took a lot of those items and made them $6, $8, $10. Things like headphones, that are a commodity — if you break your $12 headphones, you don’t want to wait until two days from now to get them. But if you go to Best Buy and they’re $35 like they are at the airport, then, well, you’re going to wait and order them. They corrected a lot of that stuff.
They also took salespeople off…