Best Buy CEO out as more shoppers move online
(Reuters) - Best Buy Co Chief Executive Brian Dunn is stepping down from the world's largest consumer electronics chain, which said it is looking for a new CEO to help it better compete against Internet retailers and discounters.
Critics have complained that under Dunn's tenure, which lasted less than three years, Best Buy became a showroom for Amazon.com and other online retailers, with consumers going to Best Buy stores to check out electronics like high-definition televisions, then buying them elsewhere for less.
Best Buy said Dunn's resignation would be effective immediately. Spokeswoman Claire Koeneman said the company was looking internally and externally for a permanent CEO, and that one of its directors, Mike Mikan, was a candidate for that post. Mikan has been named interim CEO.
Koeneman said the company was committed to implementing the turnaround plan it announced in March.
The company, seen as a bellwether in the consumer electronics industry, reported declines in same-store sales in six of the last seven quarters, including during the 2010 holiday season when it bet on technology like 3D television that was not embraced by consumers.
Despite offering bigger discounts and free shipping in the 2011 holiday season, same-store sales fell 2.4 percent in the latest quarter, including a 2.2 percent decline at U.S. stores open at least 14 months.
"I hate to be rude, but I think he (Dunn) was doing a terrible job. This is a company that had a sales guy in charge, and I just don't think they are well positioned to deal with the onslaught from the Internet," said Michael Pachter, an analyst at Wedbush Securities.
"They have a big disadvantage to the Internet retailers because they have a big cost structure. So they need a guy who can fix that rather than trying to sell more stuff."
Best Buy's stock rose as much as 4.8 percent to $23.74 after the news that Dunn would be replaced, but investors took the shares back as low as $21.21, their lowest since December 2008. The stock closed down 6 percent at $21.32.
Tuesday's share activity reflected investor uncertainty over the abrupt departure of the CEO and what it means for Best Buy until a new leader takes over, and how much time that person will need to decide a course of action, Walter Stackow, senior research analyst at Manning & Napier, said. Manning & Napier invests in the retail sector but does not own Best Buy shares.
Best Buy's stock is down more than 32 percent since Dunn became CEO, compared with a 52.7 percent increase in the Standard & Poor's 500 index.
Dunn's departure comes two weeks after Best Buy said it would close 50 of its 1,100 large stores and cut 400 jobs.
"Meanwhile, the challenges that the industry faces probably, by and large, aren't going to change," Stackow said.
Best Buy "has been late to address all industry upheavals. It's been late in closing stores, and most importantly, I think, they've tossed money down the drain repurchasing shares... cash that could have been stored on the balance sheet to address the future of increased online consumption of electronics," said Brian Sozzi, chief equities analyst at NBG Productions.
"What is necessary is for the company to really recognize, and not be in denial, that things are changing," said Michael Yoshikami, CEO of Destination Wealth Management.
Rating agencies Moody's and Standard & Poor's said that Dunn's resignation would have no immediate impact on Best Buy's corporate credit rating.
Mikan has been a Best Buy director since April 2008. He formerly served as executive vice president and CFO of UnitedHealth Group. At one point, he was considered a potential successor to UnitedHealth's CEO, but left the U.S. health insurer to lead a private equity fund.
The company said it would look for a permanent replacement for Dunn, and that Mikan would remain on the board while serving in his new role.
"It probably makes the most sense" to look for another permanent replacement, given the interim CEO's lack of retail experience, Stackow said.
Graphic on Best Buy's shares link.reuters.com/kes57s
The next chief executive will need experience in e-commerce or at least an understanding of how fast the retail market is changing for electronics, and also be able to greatly cut Best Buy's costs, analysts said.
"He would have been a great CEO for Best Buy ten years ago when they were in just growth mode, when they didn't have the Amazon threat, when we had a reasonably good product cycle, and we didn't have Apple becoming a larger and larger supplier to the consumer electronics industry," BB&T Capital Markets analyst Anthony Chukumba said of Dunn.
Dunn started at Best Buy as a sales associate in 1985 and rose through the ranks to become CEO in June 2009.
"There was mutual agreement that it was time for new leadership to address the challenges that face the company," Best Buy said on Tuesday in a statement on Dunn's departure.
Richard Schulze, founder of Best Buy, continues to serve as chairman, the company said.
Best Buy is not the only company to have experienced rough going because of changes in the consumer electronics market. Circuit City went of business in 2009 as it lost business to Wal-Mart Stores Inc and other retailers.
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