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CEO Brian Dunn's Resignation Is Good News for Best Buy

Best Buy Co. shareholders are lucky that CEO Brian Dunn pulled a “Mark Hurd” and resigned as a result of allegations of an inappropriate relationship with a staffer. Dunn was not the right person to lead Best Buy into battle against online-only competitors that use the company’s spacious stores as showrooms for their products. Dunn and the current management team were going about their business as if they were still competing against Circuit City Stores and Wal-Mart Stores. They did not wake up to two paramount realities: Best Buy cannot have lower prices than its online competitors, and its stores lack the breadth of selection of, putting it at a permanent competitive cost disadvantage.

The new strategy Dunn announced a few weeks before his resignation — of closing big stores and opening a lot of smaller stores — made little sense. It was basically turning Best Buy into RadioShack Corp. It would have been great if this approach had worked for RadioShack, but it hadn’t.

Best Buy’s strategy for the brave new world requires thinking that cannot be delivered by somebody who spent 28 years in the Best Buy box. It requires the strategy of an Amazon or Netflix, where management was willing to bring forward and execute a disruptive new approach that undermined its current cash-cow business. Amazon did this by bringing electronic readers to the masses. Netflix did it by streaming movies and TV shows.

The new plan for Best Buy must involve a much tighter collaboration of physical stores and the company’s Internet presence — the stores need to be turned from a liability into an asset. Maybe Best Buy should become the intentional showroom for electronics manufacturers. Yes, you read it right. It should take a page from drug distributors’ playbook.

A decade ago McKesson Corp. and Cardinal Health found themselves with a broken business model. For a long time they’d bought drugs from manufacturers ahead of planned price increases, held them for a few months and then sold them to retailers at the higher prices. Drug companies started to stuff distribution channels to “make” their quarterly numbers, Bristol-Myers Squibb Co. got into trouble with the Securities and Exchange Commission, and this practice was banned. Distributors had to figure out a new way to make money. Lacking the scale to deliver their own products, pharmaceuticals companies needed distributors, and therefore a new model was created: fee for service. Drug companies started to pay distributors a volume-based fee for handling their products.

Leave a Comment    (2)

  • POST

Well written piece, Vitaliy. I like the thesis, but if you were Dell et al, wouldn't you rather just wait a few months more for BBY to be valued at zero... then Dell can own the new post-BBY enterprise that features their products... it'll be a more efficient model by letting the free market take down the BBY shell.

Jun 25 2012 at 12:55 PM EST

Arne Alsin

Why not keep the instant gratification option and have in each category some items available in store, at if need be a premium compared to the next day 'online' prices. Cash and carry being more expensive than delayed delivery may initially puzzle buyers, but less so than a store where you can't actually buy things!

Jun 15 2012 at 7:14 AM EST