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Best Buy is dying – Schulze launches rescue bid

Founded in 1966, Best Buy enjoyed around 40 years of success. However, its decision to rapidly expand across the globe – just as the globe was beginning a nightmare financial meltdown – has left it on life support with a very poor prognosis from the financial spin doctors. KitGuru ponders where it all went wrong and what’s next for the electronics giant.

If you were a business man, working in the low-margin consumer electronics market, would you attack Amazon et al by employing almost 200,000 people and setting up state-of-the-art stores across the globe?  The honest and simple answer seems to be ‘No’.

Both companies buy on a huge scale. Both enjoy huge sales. They engage in logistics, ordering products to be moved across the globe and they have customer service/support in place. All things being equal, the major difference is the number of customer-facing staff that are required to run Best Buy – as well as the mega stores that are needed for all the displays.

Stores like Asda/Walmart do very well in the electricals market, because customers are driven there to buy groceries. Send in a husband and wife team for milk and essentials and you can be sure that the bloke will lose interest, wander into the gadgets area and emerge with ‘something cool, relatively useless and totally unplanned’. Best Buy, in comparison, needs a special trip to a retail park – and people are fundamentally lazy. Why drive to a huge store and ask a disinterested 19 year old college kid for advice when you can scan KitGuru, click an advert and get your expertly-advised purchase delivered to your door.

Best Buy founder and former CEO Richard Schulze is set to be making a multi-billion dollar approach for Best Buy, in the emotional hope that it can be turned around. When announcing his intention to bid for the company’s shares, Schulze said “now is the moment of truth” – indicating that if his bid is unsuccessful, then the company will disappear completely. In any event, it’s unlikely that Schulze can massively increase sales in a flat market, so the solution will no doubt involve multiple store closures and a huge number of redundancies.

Best Buy was famous for cutting prices, but its share price has now been cut too much and it's bleeding to death

Carphone Warehouse boss Charles Dunstone is eagerly awaiting the outcome, because a Schulze takeover would mean Dunstone can reclaim Best Buy’s share of his communications business for £500m less than he sold it.

KitGuru says: Right now, Amazon and eBay must be licking their chops in anticipation. Losing a major player like Best Buy will mean that a big chunk of loyal customer’s money will now be available to the online giants. One shareholder’s suicide-inducing loss is another investor’s reason for rubbing their hands gleefully together. Customers have little loyalty, as long as the brand/price/service offering are right, we’ll buy. Welcome to modern capitalism.

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