Richard Schulze had a splendid summer of 2012 planned. He had made billions starting Best Buy, the chain of electronics superstores, and at 71 was looking forward to relaxing with his wife at their home on Florida’s Gulf Coast, taking a European cruise, and playing plenty of golf. He would shoot up to Minnesota on his private jet for board meetings and to check on the $500 million fundraising campaign he was co-chairing for the University of St. Thomas in St. Paul.
It didn’t work out that way. In April, Schulze’s handpicked CEO, Brian Dunn, was forced out over what the board described as an “extremely close personal relationship” with an employee. Schulze, who knew about the relationship but failed to notify the rest of the board, gave up his chairmanship and then quit entirely after 46 years at the company. But rather than work on his golf game, Schulze did something that didn’t surprise anyone who knows him: He decided to try to buy the company back.
Dick Schulze is a trim, kinetic man. He’s bald and maintains a red goatee. Since opening his first store in 1966, he’s neared bankruptcy twice and confronted larger competitors, fickle suppliers, and, more than once, the company’s own bureaucracy. Each time, he adapted. Since leaving Best Buy in June, Schulze bounced around conference rooms in Minnesota and New York, meeting with former colleagues and potential investment partners, some of whom thought he was nuts, as he tried to raise as much as $10 billion to wrest control of Best Buy.
Schulze declined to be interviewed for this story, but associates say he’s certain he’ll succeed. “He’s got as much energy and enthusiasm as I’ve ever seen,” says Elliot Kaplan, who was Best Buy’s top lawyer and Schulze’s confidant for more than 40 years. “He absolutely gets turned on by these challenges.” The Reverend Dennis Dease, president of St. Thomas and a longtime friend, says: “He has a simple, childlike faith. It’s part of who he is.”
Best Buy is in trouble. In March it posted a $1.7 billion quarterly loss. Same-store sales comparisons have been declining, and a Bloomberg analysis suggests revenue will fall this year. Wall Street, at least as far as Best Buy’s stock price is concerned, does not seem excited by the prospect of Schulze’s takeover. Shares have languished well below the $24 to $26 per share Schulze offered on Aug. 6 to take Best Buy private. Its current management hasn’t shown much enthusiasm for his return either, though new CEO Hubert Joly recently made his public-relations handlers cringe by telling Bloomberg News, “In many ways, all of us work for Dick Schulze and this great company.”
Schulze, who owns about 20 percent of the company, is still Best Buy’s largest shareholder. Even if he can complete a deal, the resulting debt load might sink a rebuilding effort. “Honestly, I think if Schulze takes on Best Buy, they’ll be out of business in a few years,” says analyst Anthony Chukumba of BB&T Capital Markets. For Schulze, however, rescuing Best Buy is only partly about business. “He oftentimes views the company as his child,” Kaplan says. “When your child stumbles, you want to do all that you can to help the child get up.”
The battle for Best Buy is more than a Lear-like attempt to regain control. It’s also about the future of stores in the age of digital goods, same-day delivery, and apps that’ll tell you in an instant whether the 80-inch TV you covet is cheaper somewhere else, turning stores like Best Buy into “showrooms” for online competitors. It’s an expensive way to go out of business: Best Buy pays for the building, salespeople, and cash registers, and Amazon.com rings up the sale. Showrooming hurt Borders bookstores, and chains that sell hardware, toys, clothing, sporting goods, and groceries are vulnerable too.
Best Buy’s response to Amazon and other online threats has been inadequate. The company set up bestbuy.com
as early as 2000, when Schulze was still CEO as well as chairman, but years later, as purchases of TVs, stereos, and microwave ovens shifted increasingly to the Web, the site still lacked such basic features as customer reviews. An Internet unit didn’t get much financial support and was kept walled off from store sales. While e-commerce now accounts for more than 20 percent of U.S. consumer-electronics sales, online is only 6 percent of Best Buy’s domestic revenue.
Staples, Williams-Sonoma, and other retailers have boosted online sales by offering shopping experiences that rival Amazon’s for ease and selection. Analyst Colin McGranahan of Sanford C. Bernstein goes so far as to suggest that Best Buy invent a time machine “so they can go back 10 years and develop the online strategy they need today.”
Instead of figuring out the Internet, Best Buy focused on acquisitions and foreign expansions. It also kept adding giant stores—more than 30 of at least 36,000 square feet since 2008. Today most of the company’s 1,062 big-box stores are as clean, stocked, and well-organized as ever. But they can seem outdated. Until recently, one of the first sales displays visitors saw in the store in Burnsville, south of Minneapolis—the first Best Buy Schulze built—was for car stereos, not smartphones or tablets. A few steps away stood racks of CDs, including $4.99 albums by Kiss and James Taylor. Best Buy just closed the store to make it a training center.http://www.bloomberg.com/news/articles/2012-10-18/the-battle-for-best-buy-the-incredible-shrinking-big-box