Amid increasing online competition and declining sales, observers on Wall Street and beyond were wondering if the big-box electronics retailer would survive. Competitor Circuit City had gone out of business and liquidated in 2009.
A Forbes magazine story in January 2012 summarized the bleak view: “Why Best Buy Is Going Out of Business … Gradually.” The article gave the company low marks on everything from management to customer service and projected that the retailer would continue to “sputter on fumes” before collapsing.
Best Buy CEO Brian Dunn resigned in April of that year amid a cloud of ethics concerns about his relationship with a company employee. For several months, interim CEO Mike Mikan worked to stabilize the company. Then, in August, the Best Buy board announced the unlikely selection of Hubert Joly as the company’s new president and CEO. Joly was then CEO of Minnetonka-based Carlson—a hospitality and travel company. Why would Best Buy tap someone with zero retail experience? The stock dropped 10 percent on the day Joly’s selection was announced.
“A lot of people thought that Best Buy was going to die,” recalls Joly. But after some due diligence, Joly saw a future for the company. “They had gone sideways, but there [were] enough assets that you could do a turnaround. The combination of that and loving challenges attracted me to the place. A lot of people in the Cities thought I was either crazy or suicidal.”
But here’s the crazier thing: Joly has succeeded beyond anyone’s wildest dreams. He engineered the “Renew Blue” turnaround, and the company is now seen as one of the healthier brick-and-mortar survivors. Employees are bullish, and customers are again filling stores. Revenue is up, comparable-store sales are climbing, and the company’s stock appears propelled by rocket fuel. At the end of August 2012, its stock was trading at $17.74 per share; at the end of August 2018, it closed at $79.56 per share, up 348 percent in six years. Maybe more retailers need leaders with no retail experience.
“Under Hubert’s leadership I think Best Buy has executed one of the great all-time turnarounds in retail. I think the outlook for Best Buy is quite favorable,” says Peter Keith, senior research analyst for Minneapolis-based Piper Jaffray Cos., who has followed Best Buy for more than 13 years. “Best Buy over the last year has posted some of its best same-store sales growth in over a decade.”
The company’s second-quarter numbers for fiscal 2019, announced in August, underscore its transformation. While other retailers are closing hundreds of stores or filing for bankruptcy, Best Buy saw a 6 percent increase in domestic comp store sales for the quarter. Another retail rarity: The company raised its financial outlook for the full year and now forecasts revenue of $42.3 billion to $42.7 billion for its fiscal 2019, with sales gains in all product categories. Renew Blue has been declared a success. The new charge? “Best Buy 2020: Building the New Blue.”
When Joly landed, Best Buy’s founder and longtime leader, Richard “Dick” Schulze, was at war with the company, working to raise billions in financing to take the company private. That effort fizzled, but Schulze rejoined the company as chairman emeritus in March 2013, a signal that he had warmed to Joly. Schulze remains Best Buy’s largest shareholder and has high praise for Joly’s stewardship of the company Schulze started as Sound of Music in 1966.
“To say the least, I’m a strong believer and a strong supporter,” says Schulze. “He’s truly a gifted CEO. ... He’s insightful, he’s thoughtful, he’s a good listener, he loves the company. I think, candidly, he now bleeds blue.”
There are no large TV screens in Hubert Joly’s office. There is not a preponderance of tech gadgets. There are, however, many framed vintage maps on his walls, bookshelves holding a small library of books, and a Magic 8 Ball on his desk. Sitting down for an interview in his office, he’s sporting a blue blazer, a nod to the company colors. But Joly did not start his time at Best Buy in the corporate office. Instead, he went up to St. Cloud and worked in one of the stores for a week.
“It was a great way to learn about the situation of the company from the frontlines. ... Listening to the associates, I was able to learn a lot,” says Joly. “People were talking about ‘showrooming’ at the time: People were coming to our stores, then talking to the associates, and then leaving to buy online.”
The experience among the rank and file drove many of Joly’s early, pivotal decisions. To combat showrooming, the company announced it would match online prices. “If we could take price off the table, then they would buy from us,” says Joly.
Associates also told him that the company’s technology was not up to speed: It was difficult and frustrating to search for items on the website. He also heard griping about previous management’s decision to reduce the employee discount; Joly quickly restored the program.
“It was an act that showed that he was listening to the employees,” says Brad Anderson, Best Buy CEO from 2002 to 2009. Anderson knew Joly from serving on the Carlson board when Joly worked there and also served a second stint on Best Buy’s board when Joly was at the helm.
“He’s one of the smartest people that I’ve ever known,” says Anderson. “He has a terrific ability to listen. He’s a leader that does not take up all the oxygen in the room. He leaves plenty of room for other people to shine or be able to show their gifts.”
A native of Nancy, France—a riverfront town known for its 18th-century architecture and rich arts scene—Joly brought an atypical resume to lead Best Buy, where all previous leaders had been company lifers. He spent more than a decade as a consultant with McKinsey & Co. working with a range of business clients. He left in 1996 to lead the French division of Electronic Data Systems, his first turnaround project. He had several roles for Paris-based Vivendi, including leading its video game division. He was CEO of Carlson Wagonlit Travel from 2004 to 2008, then CEO of Carlson from 2008 to 2012.
Kathy Higgins Victor has been on the Best Buy board since 1999 and is its longest-serving director. She chaired the board’s nominating committee when Joly was selected. It was clear from his first meeting with the board that Joly had done his homework and had visited several stores. But Joly also has an innate ability to connect with people.
“Hubert really saw and articulated a clear path forward for Best Buy,” says Higgins Victor. “He clearly had the intellect and the experience necessary to be the CEO, but it was his personal integrity and his humility that made him the most attractive candidate. ... We knew that he had the ability to build trust with our investors, our customers, our employees, and our vendors. It was a pivotal time for Best Buy.”
It hasn’t been all smooth sailing. The company laid off approximately 2,000 middle managers in early 2014 and selectively closed about 50 stores over the last five years, including its store at the Mall of America. It exited a European retail joint venture in 2013 and sold off its stores in China in 2014 as it focused on reviving its U.S. business, moves that took significant sales off its books. Earlier this year, the company pulled the plug on its Best Buy Mobile business, closing the remaining 257 small standalone stores. Total sales are far from the peak of $50.7 billion for fiscal 2012, but that still included operations in Europe and China.
But Laura Kennedy, vice president in the retail sales and shopper practice for Kantar Consulting, a global firm with U.S. headquarters in Boston, says that Joly has done a good job of zeroing in on Best Buy’s core business.
“The answer is not necessarily to try more stuff, it’s ‘What do we do best?’ That seems to be his MO,” says Kennedy.
Joly has raised expectations. Best Buy posted revenue of $42.15 billion in fiscal 2018, its highest in five years. For the year, the company’s comp store sales gain of 5.6 percent was its best showing since fiscal 2004. For its fourth quarter, including last year’s holiday seasons, domestic comp store sales were up 9 percent. The company’s sales today are higher than they were 10 years ago when it saw revenue of $40 billion.
Wall Street lives and dies on the numbers. But while Joly has delivered stellar stats, he would tell you that’s the result of not focusing on financials. Joly often cites lessons he learned working as a McKinsey consultant to business operators more than 20 years ago.
He had a job to do, but he became an ardent student of leadership practices. He says company leaders need to consider employees before talking money.
“Every management meeting we have, we don’t start with the financial results. We start with people. Then we talk about the customers, and last we talk about the financial results,” says Joly. “I learned that from a client. ... If you start with financial results, you’ll never have time for the people discussion. If you start with the people discussion, you will always have time for the financial discussion.”
Best Buy’s CFO, Corie Barry, is among many women who have joined the company’s top leadership ranks since Joly took the helm. Early in his tenure, he lured Sharon McCollam out of retirement to become CFO. McCollam, a veteran of Williams-Sonoma Inc., was widely seen as Joly’s co-pilot of the company’s turnaround. McCollam was a mentor to Barry, who succeeded her as CFO in 2016.
“One of the most meaningful things for me is that Hubert is a very purpose-driven leader, and it shows up in a number of ways,” says Barry. “It resonates in everything that he does. And it resonates not just in the business aspects and the financial aspects, which are easier to see from the outside looking in; it also resonates in how he motivates people here.”
While many companies pay lip service to diversity and adding women to management ranks, Best Buy actually follows through. Six of the 11 members on its current board of directors are women. The last four directors appointed to the board are all women; the three most recent are women of color.
“When Hubert came, he made it very clear that diversity in leadership, whether that’s your executive team or your board, is proven to result in better business and financial outcomes,” says Barry, noting that Joly’s former employer McKinsey has done extensive studies on the issue. “Diversity only happens if you’re committed to diversity.”
In a talk in 2016, Joly outlined some of his leadership philosophy: “Be clear about your role. IQ is highly overrated. The role of the leader is not to be the smartest person in the room. The role of a leader is at least two things: One is to build a team. And two is to create an environment in which others can thrive—in which others can find and pursue their purpose.”
Joly stresses the importance of individual coaching and training for employees. “It’s one employee at a time,” he says. In response to a recent employee survey, the company is adding a range of new benefits—paid caregiver leave, backup child care, paid time off for part-time employees, and mental health resources.
Joly is not the average Fortune 500 CEO. “I don’t believe that the purpose of a company is to make money. It’s an imperative. It’s a necessity. But it’s not the purpose,” says Joly.
He’s not joking.
“I believe the purpose of a company is particularly to contribute to the common good: its customers, its employees, and to the community in which it operates. That’s how you have to manage the company,” he says. “If you can connect the search for meaning of the individual with the purpose of the company, then magical things happen.”
It’s tough to quantify how Joly’s management style leads to better financials, Barry says, but she strongly believes there’s a connection. If your employees feel inspired by their jobs and there’s less turnover, that translates to better relationships with customers.
“Leading with people in every conversation leads to, I believe, phenomenally differentiated financial results,” says Barry. “When I walk into a store now, the level of attention and the level of commitment that I see in our general managers and our store associates is phenomenally different.”
Historically, big-box retail stores have been akin to warehouses, with products stacked to the ceiling and few staffers to be found. Under Joly, Best Buy has a new philosophy. Store associates are meant to be trusted advisors who can help customers navigate the often-confusing world of new technology.
The company’s emphasis as a go-to source for expert tech info is paying dividends in new categories such as smart-home products and appliances.
“The smart-home space is such a complex space,” says Kennedy. “Right now they stand out from even the home improvement retailers.” Smart-home devices have been one factor in increasing consumer electronics sales for Best Buy.
Appliances were never a Best Buy staple, but that’s changing. While the category accounted for only 10 percent of all fiscal 2018 domestic sales, comp store sales of appliances saw impressive growth of 11.4 percent.
Piper Jaffray’s Keith says that historically Best Buy’s business has ebbed and flowed with the popularity of certain products, but he’s now seeing solid results across the store.
“The business momentum for them really started to pick up in 2017,” says Keith. “Last year almost the entire store began to do well. ... I think it was the result of several years of effort under Hubert Joly.”
A pair of unlikely deals announced in 2018 offer a few clues to Best Buy’s future. In April, Best Buy unveiled an exclusive multiyear agreement with Seattle-based Amazon.com to be the exclusive retailer of the latter’s Fire TV Edition smart TVs. In a statement announcing the deal, Amazon founder and CEO Jeff Bezos said, “We could not have a better partner in this endeavor.”
A brick-and-mortar retailer teaming up with the store-killing e-commerce giant? What gives?
Joly says Best Buy has a long history of selling Amazon products in its stores.
“A lot of other retailers have been reluctant to sell their products. The reason we’ve sold their products is because we’re customer-driven,” says Joly. “Yes, Amazon is a competitor, but they’re also a developer and provider of great technology products. ... They’ve been investing in our stores. ... They’re spending millions with us.”
Best Buy has partnerships with a wide range of vendors to spotlight products in their stores. Other major partners include Apple, Microsoft, Samsung, Google, LG, Canon, Nikon, AT&T, Sprint, and Verizon.
In August, Best Buy announced another unexpected move, with a deal to acquire San Diego-based GreatCall Inc. for $800 million. GreatCall is not a retailer; it provides devices and services offering health care and emergency services for older people.
In a parallel move, in early October, the company named Cindy Kent to its board of directors; her expertise is in health care. Kent most recently was president and general manager of the Infection Prevention Division for Maplewood-based 3M Co., and she previously worked for Medtronic and Eli Lilly & Co.
Joly sees health care as a potentially big market for Best Buy as technology increasingly becomes a tool to help an aging population remain independent longer in their homes. The retailer already sells Fitbits and other wellness-related products, including items like a high-tech blood pressure monitor.
“Health is a very exciting space,” says Joly. “We think it’s a huge white space where we can be really helpful to customers.”
Given the freshness of the deal, it’s too soon to say how it will unfold, but, says Keith, “I think it will ultimately prove to be a very smart acquisition.”
On a sunny October afternoon, Joly arrives at a Best Buy Teen Tech Center in the Hope Community center in South Minneapolis and warmly greets executive director Shannon Jones. They also know each other from the Minneapolis Institute of Art board, where both serve as trustees. They chat briefly about an upcoming exhibition.
Funded by the Best Buy Foundation, the Teen Tech Centers offer hands-on tech education for underserved teens. There are 20 of the tech centers, including three in Minneapolis and one in St. Paul. The goal is 60 in the U.S., Canada, and Mexico by 2020.
Joly seems at ease here. As he sits among a group of kids in front of computers, one of them pointedly asks him, “What was your first job?”
Joly doesn’t hesitate. “When I was 14 I worked in a BMW body shop repairing cars,” he says.
The tech centers resonate with Joly’s goals to serve the larger community. Beyond Best Buy, he is plugged into the arts community; besides serving on the MIA board, he is also on the Minnesota Orchestra board.
“One of the reasons he’s a great leader is that he’s so humble and self-effacing, but also terribly effective,” says Kaywin Feldman, president of MIA. “He has a huge passion for our mission: Hubert loves art. He also is passionate about community and the way that he knows that art can help transform lives.”
Management experts think other executives could learn a lot from Joly.
“He’s an extraordinarily authentic leader,” says Bill George, the former Medtronic CEO now known nationally for his books on leadership. “He’s brought to Best Buy that level of authenticity in all of their relationships in the firm with their customers, their suppliers, and particularly with all of the employees of the company. I think it’s been infectious and it’s rubbed off, and it’s been a big part of the transformation of Best Buy.”
Joly touts the Twin Cities’ “world-class business community” anchored by many Fortune 500 companies, as well as the cultural climate and quality of life.
“I’ve lived in Paris, I’ve lived in New York twice, in California twice, now Minneapolis,” says Joly. “Minneapolis is an upgrade.” He seems to have found a home here.
33% Consumer electronics
45% Computing and mobile phones
8% Entertainment (includes gaming)
All statistics for Best Buy fiscal 2018 ending Feb. 3, 2018.
Burl Gilyard is senior writer for TCB.