The Homa Files

Excerpted from WSJ, “Best Buy Confronts Newer Nemesis” By Miguel Bustillo, March 16, 2009

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Finally victorious over longtime archrival Circuit City Stores Best Buy  is now gearing up to fight an even more powerful foe: Wal-Mart.

Leading the challenge will be Brian Dunn, the company’s chief operating officer … His new strategy is to head off Wal-Mart Stores Inc.’s brutal price competition by giving consumers something the discounter cannot: more interactive stores, where customers can step into the world of a new videogame or see their faces captured by a high-definition video camera, instead of trolling aisles stacked with merchandise.

Analysts expect Best Buy to pick up at least half of the business of Circuit City, which closed its doors earlier this month, a victim of management and sales miscues as well as the recession.

Mr. Dunn won’t have time to celebrate. Wal-Mart has ratcheted up its once-tiny selection of big-brand television sets, videogames and mobile phones to become a fierce contender … Best Buy remains well ahead of Wal-Mart in U.S. electronics sales, but Wal-Mart is gaining in critical growth areas such as flat-panel TV sets … By contrast, Best Buy’s sales have shrunk during the recession, and it has cut inventory to compensate, perhaps too sharply …

At a meeting of store managers from the Southwest earlier this month, managers complained to Mr. Dunn that they had lost sales of flat-panel TVs because of a lack of inventory, a sore point for the chief operating officer … Mr. Dunn hopes to leapfrog growing competition from Wal-Mart by transforming the retailer’s stores into lively showrooms for the latest gadgets …

Focusing on showmanship and service to combat Wal-Mart’s low-price draw is risky in a recession where consumers are clamoring for no-frills bargains. But Mr. Dunn said he intends to win customers by matching Wal-Mart on prices, and then offering something more, building on Best Buy’s existing strategy of helping customers navigate increasingly complicated technology. The key will be making the most of Best Buy’s tech-savvy sales force, he said …

Mr. Dunn hasn’t always agreed with some of the ground-breaking changes at Best Buy; most notably, he opposed the 1989 decision to do away with commissioned sales in favor of salaried staff, which was widely opposed by sales workers who feared losing income. He now concedes it was the most important shift in company history, lowering worker costs and changing the core model of electronics retailing. Best Buy expanded across the U.S., and Circuit City eventually followed by eliminating sales commissions …

Right now, retailing needs leaders who can guide companies through troubled times, not visionaries, said Advance Auto Parts Inc. Chief Executive Darren Jackson, a former Best Buy vice president …  “Brian is someone who can still command respect from the rank and file.”

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Full Article:
http://online.wsj.com/article/SB123715878814235117.html?mod=djemMM

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