It was a lonely holiday season last year for David Strasser, an analyst at Janney Montgomery Scott. Of the 25 analysts covering the electronics retailer Best Buy, he was the only one to make a buy recommendation. And the stock kept going down.
“Everyone thought Amazon was going to put them out of business,” Mr. Strasser told me this week. “I’d go into a meeting with clients and the minute I said the words ‘Best Buy,’ they’d look at their watch and say, ‘Gotta go.’ ”
No wonder: Many retail chains were reeling from Internet competition. Best Buy’s former rival Circuit City had already gone bankrupt. Best Buy’s stock had dropped to $11.29 last Dec. 28, from over $50 in 2010.
Mr. Strasser clung stubbornly to his conviction that Best Buy would be an exception. Analysts at Janney aren’t allowed to invest in the companies they cover, but “if I could have dropped the coverage and bought the stock, I would have,” Mr. Strasser said.
But not even Mr. Strasser believed Best Buy could pull off one of the biggest turnarounds in retail history, which may be what it’s doing if the stock price is any measure.
Best Buy stock has gained nearly 240 percent so far this year, putting it among the top three performing stocks in the Standard & Poor’s 500-stock index. Now every struggling chain, from J. C. Penney to Barnes & Noble, is scrutinizing Best Buy to figure out how the company did it.
Hardly anyone on Wall Street knew Hubert Joly when he was installed as Best Buy’s chief executive in August 2012. A French-born graduate of the prestigious École des Hautes Études Commerciales and the Institut d’Etudes Politiques in Paris, Mr. Joly was chief executive of Carlson, which owns the travel service Carlson Wagonlit, the Radisson Hotel chain and T.G.I. Fridays restaurants.
Because Carlson, based in Minneapolis, is privately held, Mr. Joly wasn’t known in the investment community. And given the length of the search that resulted in his selection at Best Buy — nine months — many investors assumed that numerous others had rejected the job.
“Everyone assumed they had to scrape the bottom of the barrel,” Mr. Strasser said. “But my brother’s in the hotel business and he knew this guy. He said, ‘He’s the smartest guy in the room, even if he does speak with a French accent.’ ”
Best Buy at the time was in turmoil, its staff demoralized from declining same-store sales, its stock price falling, the previous chief executive ousted in a sex scandal and a leveraged buyout attempt underway by the founder, Richard M. Schulze. That effort later collapsed.
In his first major presentation to analysts, Mr. Joly coolly analyzed Best Buy’s strengths and weaknesses — which included the perception that Best Buy was not the low-price leader. In one survey, only 23 percent of respondents thought Best Buy’s prices were “lower than others,” far behind Walmart (71 percent), Amazon (56 percent) and Target (38 percent). The result was that many shoppers were browsing in a Best Buy store, using their phones to compare prices and then ordering online from a competitor.
Like many ideas that seem brilliant in hindsight, “the strategy is very simple,” Mr. Joly said in 2012, soon after he took the job. “We believe that price-competitiveness is table stakes. The way we want to win is around the advice, convenience, service.”
By matching the lowest price and enhancing service, he was determined to make sure that a customer who came to Best Buy as a showroom had no reason to buy anywhere else.
Mr. Strasser attended a conference where Mr. Joly spoke. “It jumped out at me,” Mr. Strasser said, “that the most important thing they said was, ‘If we get someone in the store and they don’t buy, then shame on us. If we get them in the store, they’re going to buy.’ ”
A few other analysts also took note.
“Embracing the showroom — that was brilliant,” said Anthony Chukumba, an analyst at BB&T Capital Markets, and the first analyst to upgrade Best Buy to buy, which he did in January of this year. “Customer traffic was never the problem. It was conversion. Best Buy said it would match any price. The knee-jerk reaction was that that would kill the margins. But Best Buy took out a lot of costs, and it can make back the margins on volume.”
Date: December 13, 2013