Hire Wire Apr 10 2012

Once a Store Manager, Best Buy CEO Dunn Steps Down

By miguel bustillo

Best Buy Co. Chief Executive Brian Dunn resigned abruptly on Tuesday, just weeks after announcing a turnaround strategy for the slumping consumer electronics retailer, which has been struggling to adapt its big-box business model amid fierce competition from Internet merchants such as Amazon.com Inc.

The Richfield, Minn., retailer said there were no disagreements between the board and Dunn, a one-time store manager who worked his way to the company's top ranks over a 28-year career, "on any matter relating to operations, financial controls, policies or procedures."

But, the company said, "there was mutual agreement that it was time for new leadership to address the challenges that face the company."

Board member G. Mike Mikan will serve as interim CEO until a replacement is found.

"I want to assure our employees, customers and other key stakeholders that we will work together to achieve our company's growth and profitability goals," Mikan said in a statement.

Dunn wasn't immediately available for comment.

Shares rose more than 3% immediately after the announcement, but then slid into negative territory.

Best Buy once outmuscled rivals with big-box stores as big as 58,000 square feet, but the world's largest specialty electronics chain has run into trouble in the past 18 months as consumers armed with smartphones are changing the relationship between shopper and retailer.

Consumers are increasingly using their phones to compare the prices they see in stores with those online, a practice known as "showrooming," which especially affects Best Buy because electronics are expensive enough to make such comparisons worthwhile.

After Best Buy announced a $1.7 billion quarterly loss on March 29, Dunn outlined a plan to move the retailer away from the big-box strategy. The company said it would close 50 large stores this year, and test remodeled store formats in San Antonio and Minneapolis, while adding hundreds of small stores focused on selling mobile phones.

It also disclosed plans to lay off 400 workers as part of a plan to trim $800 million in costs.

"While we know 'showrooming' happens, we continue to be the No. 1 player in consumer electronics," Dunn said in an interview last month. "Really, if a customer comes into our store to see something, I like our odds."

Analysts, however, were generally unimpressed with the company's turnaround strategy, with some questioning whether the retailer was moving rapidly enough to address the changes revolutionizing its business.

Best Buy shares have lost more than half of their value in the past five years.

The company's revenue in the latest quarter rose 3.4% to $16.63 billion. But Best Buy's sales at stores, websites and phone-order centers open at least 14 months fell 2.4% compared with the year before.

The decline, largely due to declining TV and laptop sales, came despite a 21% gain in online sales.

Best Buy sells many of Apple Inc.'s popular devices—a recent survey by Consumer Intelligence Research Partners found that 13% of U.S. iPhone buyers over a three-month period bought the phones at Best Buy. But competition from Apple and the stores of phone companies has left Best Buy with a smaller share in the new hot electronics category than it has traditionally had in former best-sellers such as flat-screen televisions and DVD players.

Best Buy's dominant position appeared secured during the recession when archrival Circuit City declared bankruptcy and liquidated, but declining movie and CD sales caught up with the company. It cut back on the merchandise, leaving huge spaces in its cavernous stores, most of which are 30,000 to 45,000 square feet.

The company earlier projected earnings of between $3.50 to $3.80 a share for its new fiscal year, and generally flat revenue of $50 billion to $51 billion.

Dunn, who started as a store associate of Best Buy in 1985, was named CEO in June 2009. He took over as Best Buy began facing increased competition from online platforms like Amazon.com Inc.

The announcement of Dunn's departure "happened pretty abruptly, but this is part of Best Buy's desire to move in more of a digital direction," said David Strasser, an analyst at Janney Montgomery Scott. "Brian [Dunn] was more of a retail guy."

Strasser added: "Brian was never the big problem and the person who comes in will not be the big solution. ... "It's going to take some time to turn this company around. It's not going to happen overnight."

Mikan, who will remain on the board while serving as interim CEO, has been a Best Buy director since April 2008. He formerly served as executive vice president and chief financial officer of UnitedHealth Group Inc. and chief executive officer of Optum, a health-care services company and affiliate of UnitedHealth.

Best Buy said it the board has formed a search committee for a new CEO. The committee consists of the founder and members of the nominating, corporate governance and policy committee.

This story first appeared on WSJ.com.

Steve Russolillo contributed to this article.


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