There’s bad and then there’s bad. You’re bad if you’ get a worst CEO of 2012 award. You’re bad if you manage to do it based on the four months you worked this year before getting the axe. But if any company’s executive suite could pull it off, it’s Best Buy, the perennially dysfunctional electronics retailer. The company’s former chief executive Brian Dunn, who resigned in April after having held the top position since 2009, was declared the year’s least valuable player by Dartmouth College Tuck School of Business professor and “Why Smart Executives Fail” author Sydney Finkelstein.
During his three year reign, Dunn presided over a precipitous drop in Best Buy’s stock price, revenue, and cash. Customer satisfaction also seems to have taken an equally steep decline, and Dunn capped it all off by exiting unceremoniously amid an alleged sexual misconduct probe. Between, April 1, 2009 and April 10, 2012, the company’s stock price plummeted 47.4 percent under Dunn’s watch from $38.97 to $20.51. Tellingly, the stock actually climbed 3 percent in the first day of trading after his exit. Apparently the market wasn’t terribly sad to see him go.
In Dunn’s defense, he presided over a brutal era for traditional retailers, which saw the failure of thousands of storefronts and nationwide chains, including Borders and Blockbuster. They followed the likes of Circuit City, Tower Records, Sam Goody, Hollywood Video, and Virgin Megastore earlier in the bloody decade. The same trends that weighed down these one-time giants also confront Best Buy. Consumers increasingly consume media in digital form and shop for their consumer electronics online.
What’s really at issue in Dunn’s ignominious award is his lack of innovation. The former CEO’s most ambitious move to right the company’s ship was a series of share buybacks that cost the company $6.4 billion in financial oxygen.
Finkelstein summarized the situation to NPR’s David Greene saying:
“The problem is that people walk into Best Buy, look at the products, look at the TVs, and take a few notes, and then go home and go on Amazon and buy it at a cheaper price. And the solution that Brian Dunn has tried to come up with has really not worked. He’s focused on trying to sell more expensive products, he hasn’t tried to fix customer service and he certainly hasn’t tried to fix the online part of the business.”
The professor could not be more right. Best Buy is essentially running two separate businesses: brick-and-mortar and ecommerce. The bad news is it’s failing equally at both of them. In the real world of atoms and not just bits, it is incumbent upon the company to make up for higher prices – as a result of operating overhead – by excelling in customer service. Visit any message board, forum, or comments section of an article on the company and it’s obvious that it’s failing spectacularly in this regard.
In the digital realm, not only does Best Buy’s actual website leave a lot to be desired, but it’s pricing strategy makes no sense. The one place that Best Buy could conceivably compete somewhat realistically with Amazon is in ecommerce pricing, and yet the cash-strapped retailer remains stubbornly committed to matching its offline pricing online.
You’d think Best Buy shareholders would have been thrilled to see the underperforming executive exit. Unfortunately for those foolish enough to be still holding the stock, the company’s replacement CEO Hubert Joly hasn’t fared any better. As I’ve reported here on PandoDaily over, and over, and over again since August, Joly’s Best Buy remains significantly troubled. The stock is down 45.5 percent during his eight months on the job, closing yesterday at a near 12-month-low of $11.51, and the company’s purported “digital savior” Stephen Gillett resigned just one week ago.
You learn the most about an executive during tough times. Or, as Warren Buffett is famous for saying, “You never know who’s swimming naked until the tide goes out.”
Dunn failed at his task of reinventing Best Buy for the digital and mobile world. Maybe it was him, or maybe it just can’t be done.
[Image source: Scottrsmith Flickr]