By Hubert Joly
When I joined Best Buy BBY -0.25% on September 4, 2012, the mood was grim. The previous CEO had been fired, embroiled in a scandal, and the share price was plummeting. Founder Dick Schulze had just launched his offensive to take the company private. Article after article predicted that the company would die, unable to weather market changes and low-cost online competition.
I had spent my career in technology, videogames, travel and consulting so I was new not only to Best Buy, but to retail in general. I had a lot to learn. I also knew that listening to front liners was the best way to do that. On my first day as CEO I drove about 60 miles north of Minneapolis to St. Cloud, a town hugging the Mississippi river. My plan was to spend my first three days on the job working in a Best Buy store on Division Street.
Wearing my khaki pants and Best Buy’s uniformed blue polo shirt with a “CEO in Training” tag, I spent my first day meeting the staff, listening, asking questions, walking the store and visiting every department. After my shift, I had dinner with the store management team at a local pizzeria. They knew a lot about what was really going on at Best Buy. A lot! During that dinner, for example, one employee pointed out that the bestbuy.com website’s search engine was a problem. She demonstrated just how bad by typing “Cinderella” in the search bar. Inexplicably, the search engine spat out a list of Nikon cameras. I couldn’t believe it. Over dessert, I found out that employees were also unhappy about a reduction in worker discounts —a perk they valued since many loved electronics.
The next day, while having lunch with store general manager Matt Noska, I grabbed a napkin and asked Matt if he would draw a rough picture of the store’s floor plan. His sketch showed that about a fifth of the floor space was dedicated to physical media, which was fast losing ground to online streaming. Mobile phones, on the other hand, occupied only a tiny piece of the store space (4%), even though demand for them was booming. Small appliances, such as juicers, blenders and coffee machines, were also popular and profitable—a market worth some $16 billion in the U.S., and growing. Unfortunately, they were virtually invisible in St. Cloud. I found one lonely blender on a shelf hidden at the back of the store. All this was clearly a great opportunity.
Another question came up: what did we offer that other retailers didn’t? The company had not given the “blue shirts”—the name we used for employees who work in our stores—clear answers to this critical question. That meant customers couldn’t possibly know why they should turn to Best Buy, either. After a few days of listening and observing, I had gotten many ideas about what we could do—and do quickly—to start fixing the business. Best Buy’s turnaround started with the blue shirts in St. Cloud.
‘This is crazy!’
Shortly after I started, the board of directors made it clear we needed to come up with a plan by November 1, i.e., in less than 60 days. “This is crazy!” said the CEO of the company advising me on corporate communications.
Our deadline did not trouble me. We didn’t need a long-term strategy. We needed a plan to “stop the bleeding” and to quickly and tangibly improve our operational performance. And for that, eight weeks were enough. We could at least frame the problem we had to solve, set a broad direction and get going.
Everyone had to roll up their sleeves. In a series of workshops, about 30 of us from all parts of the business gathered around a U-shaped table in a conference room on the ground floor of Best Buy’s headquarters. Our approach? People—business—finance. We looked at the employee discount. We looked at the stores’ floor plans—I had kept the napkin drawing from my visit to St. Cloud. We looked at pricing. We identified gaps and bottlenecks in our operations. During these intense workshops, I became known as the camel, turning down water and coffee breaks. And before the deadline, we had our turnaround plan—coded named Renew Blue.
The company had only two problems: revenues were down, and margins were down. Only two problems? How hard could it be to solve just two problems? Everyone had to keep their eyes, brains and energy on these two prizes. We would tackle the worst roadblocks first, and then focus on the next ones.
Flat screen and green pens
Some analysts had been clamoring for the blood sport—counseling Best Buy to shut down stores and slash head count. Cut, cut, cut. But closing down stores wholesale wasn’t the answer. Instead, we decided to take the Amazon bull by the horns.
In October 2012, ahead of the crucial holiday season, we announced that we would match online retailers’ prices—including, of course, Amazon’s. We would turn the same foot traffic into more sales. We had quietly tested the idea in our Chicago stores, analyzed the results and concluded it was worth the gamble: the boost in sales would compensate for the cost of matching prices.
As time went on, we also revamped our website and our online shopping approach. No more Cinderella searches spitting out Nikon cameras. One of our most dramatic moves was to ship online orders directly from our stores. As 70 percent of the U.S. population lives within 10 miles of a Best Buy store, this would dramatically cut down the time it took us to deliver online purchases, which would help boost online sales. We also overhauled store floor plans. Growing categories like phones, tablets, and appliances expanded their footprint. Square footage for media like CDs and DVDs shrunk dramatically.
Instead of slashing head count, we attacked nonsalary costs with intensity. Televisions are a good example. Flat screens break easily, and about 2 percent of our TVs end up damaged, costing us some $180 million a year. Reducing even a fraction of that breakage would save significant costs.
We worked with manufacturers to find ways to design more damage-proof TVs and printed clear instructions on the package showing how to store them—standing, not flat. We trained our warehouse and sales staff to store them low to the ground, reducing the chance they would fall. We even offered to deliver TVs to customers free.
At the same time we loosened our rules to prevent goofy, crazy and stupid waste. One such opportunity resulted from an April 2013 visit to one of our return centers in Kentucky. On one of the conveyor belts, I spotted a green marker returned by one of our stores. That pen had traveled hundreds of miles at great expense, vastly outweighing any benefit that the return center might extract from its recovery.
I took a photo of the lonely green marker and showed it at our next meeting of store managers. I told them that if anyone saw anything like a green marker being returned from a store they should override whatever policy was in place. If you see something, say something and do something.
No cost saving was too small: We turned to double-sided black and white printing instead of color. Executive trips on private planes were also nixed. In January 2013, I happily walked to seat 36B in economy class to fly to the Consumer Electronics Show. This sent a clear message.
We did reduce head count. But our philosophy was to do it as a last resort. We also streamlined at the top. Anyone and everyone appeared to have a chief of staff, for example. That wasn’t necessary. And we exited certain foreign markets.
Since 2012 Best Buy has saved more than $2 billion in costs, and about two-thirds of that came from nonsalary expenses—far beyond the $725 million we initially targeted.
This philosophy of cutting personnel as a last resort held true during the coronavirus pandemic. Best Buy paid employees who weren’t working for as long as it could and then, temporarily, furloughed many store workers once enhanced federal unemployment legislation was passed. In the end, nearly all the furloughed employees were asked to return and Best Buy laid off a small percentage of its workforce, part of what it believes to be a permanent adjustment to a new digital shopping landscape.
Another important task I had when I became CEO of Best Buy was to mend fences with an important figure: founder Dick Schulze, who had launched an offensive to take the company private and was battling with the board.
A company fighting with its founder seemed crazy to me. I greatly admired what Dick had accomplished and said so to our employees. I wanted to build a positive relationship with him. A month after my stint in St. Cloud, I headed to Dick’s foundation office a few minutes from Best Buy’s headquarters. I entered Dick’s office, wearing a suit and tie, and handed him my résumé. “Under normal circumstances, you would have interviewed me,” I explained. “So I wanted to introduce myself properly.” Dick later told me that my gesture had touched him.
Dick and I couldn’t have been more different: He had spent his entire life building a retail business, and I had no retail experience. He knew Best Buy inside out, and I was an outsider. Still, we managed to find common ground. He was simply worried about the trajectory of the business he had built and wanted to do something about it. I shared with him some of my basic philosophies about people and customers. I also shared that I had no intention of blindly slashing stores or head count, both of which I considered Best Buy’s great strengths. By the end of our conversation, the ice had been broken.
The next month, at Thanksgiving, I flew to Dick’s home in Florida. It was clear that we all were willing to act in the company’s best interest. But it was also clear we weren’t yet totally aligned. Dick generously offered to keep me as CEO, should his attempt to buy out the company succeed. He then added that my mission would be to execute the plan he had developed with the company’s former CFO and COO. “I am really very good at taking input,” I told him. “But I am terrible at taking directions. As, I suspect, you are!” We all laughed, which further lightened the mood.
The feud ended in April 2013 when Dick agreed to rejoin the company with a new title of chairman emeritus and agreed to provide his sage counsel to me. The Best Buy family was reunited. The war was officially over.
No one does their best work when under severe stress or when driven by fear. Creating optimism, energy and confidence in our future started with me. I had to be upbeat and optimistic, no matter what. Looking on the bright side and celebrating wins doesn’t mean glossing over what wasn’t working, however.
In January 2013, we had excellent news to announce: Compared with the previous year, our sales were flat. Flat sales! We were thrilled! It was far better than the slump analysts expected. It suggested that we had stopped the hemorrhage. The share price started to recover. We had turned a corner. The change of mood within Best Buy was palpable.
To this day, many Best Buy employees tell me that Renew Blue was one of the best times of their professional lives. We were supposed to die. But even now, people who went through it still remember that we had only two problems, and we solved them.
Hubert Joly was chief executive officer of Best Buy Inc. from 2012 to 2019, and chairman until June 2020. Best Buy shares increased from roughly $18 when he started as CEO to more than $65 when he stepped down from that role, a jump of more than 263%.
Adapted from “The Heart of Business: Leadership Principles for the Next Era of Capitalism” by Hubert Joly, to be published by Harvard Business Review Press on May 4. Copyright © by Hubert Joly. All rights reserved. Printed by arrangement with Harvard Business Review Press.
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Appeared in the April 24, 2021, print edition as ‘Lessons From a Former ‘CEO-in-Training’.’