Best Buy CEO's exit linked to "personal conduct"

Brian Dunn (File) / Getty Images

(AP) NEW YORK - Best Buy (BBY) CEO Brian Dunn abruptly resigned on Tuesday after the embattled consumer electronics chain launched an internal investigation into his "personal conduct."

Best Buy released a statement late Tuesday saying that it is conducting the probe after earlier only saying the departure was a "mutual decision." The chain would not give any specifics on the circumstances surrounding the investigation of Dunn, a 28-year Best Buy veteran who had been CEO since 2009.

"Certain issues were brought to the board's attention regarding Dunn's personal conduct, unrelated to the company's operations or financial controls, and an audit committee investigation was initiated," according to a company statement issued late Tuesday. "Prior to the completion of the investigation, Mr. Dunn chose to resign."

Dunn, who started his career at Best Buy as a sales clerk in the 1980s, could not be reached for comment about the investigation. But earlier on Tuesday, the 50-year-old said in a statement that he was leaving Best Buy poised "for a strong future."

Best Buy Co. hasn't disclosed the terms of Dunn's severance package. But Dunn's annual compensation for fiscal 2010, the latest figures available, was worth about $5 million - half of what it was in the prior fiscal year.

The resignation adds to Best Buy's mounting problems. Up until a few years ago, the nation's largest consumer electronics retailer was the place Americans went to grab TVs and cameras. But the chain has suffered in the economic downturn and has been widely criticized for not being quick to respond to growing competition and the changing shopping habits of Americans.

While industry watchers had been calling for changes at Best Buy, news of the investigation didn't sit well with Wall Street. On the news of the probe, Best Buy's shares fell almost 6 percent, or $1.33, to close at $21.32, after initially climbing higher on news of Dunn's departure. Best Buy's shares have lost more than half of their value since April 2006, when they were trading at $56.66 per share.

"It's good news that he's gone," said Brian Sozzi, chief equities analyst at NBG Productions, an independent research firm. "But this adds another layer of uncertainty."

Best Buy said Tuesday that board member Mike Mikan, 39, will serve as interim CEO while the company searches for Dunn's permanent replacement. A new CEO will face a big challenge trying to usher Best Buy into a new era.

Sales of TVs, digital cameras and video game consoles - once the bread-and-butter of Best Buy - have weakened, while sales of lower margin items like tablet computers, smartphones and e-readers have increased. Adding to that, people increasingly use the stores of big-box retailers like Best Buy as showrooms to browse for products and then go online to Amazon.com and other sites to buy items at lower prices.

Best Buy, based in Minneapolis, was expected to benefit from the liquidation of the company's main competitor Circuit City, which was overcome by growing competition in 2009. But instead, the company has continued to struggle even in the absence of its rival.

Best Buy's revenue at stores opened at least a year - a key measure because it excludes results from stores that open and close within the year -; has declined in three of the past four years. In the most recent fiscal year ended March 3, the figure fell 1.7 percent. That's on top of a 1.8 percent decline in the prior fiscal year.

The chain also lost $1.23 billion, or $3.36 per share, in the most recent fiscal year. That compares with a profit of $1.28 billion, or $3.08 per share, in the prior year

"Best Buy's operational strategy has been way off the mark and late to address the fundamental industry upheaval," Sozzi, the analyst at NBG Productions, said. "Big-box stores can't be fixed. They have to be re-invented."

Best Buy, which has 1,400 U.S. stores, has been trying to revamp its business. In the past few years, the company has cut its square footage by 15 percent in about 43 stores. It did that by either subletting the space to other merchants or giving it back to the landlords.

And a couple weeks ago, the chain unveiled a massive restructuring plan that calls for closing 50 of its U.S. big-box stores and opening 100 small-format stores focusing on its burgeoning mobile business that focuses on cell phones. It's also planning to cut $800 million in costs over the next five years.

But analysts say there's more work to be done. Gary Balter, an analyst at Credit Suisse, says the company should close even more stores and take better advantage of its fast-growing mobile business. After all, Best Buy's mobile business makes up nearly one-third of the retailer's profits, he says, but accounts for less than 10 percent of the overall square footage.

"Best Buy faces an uphill battle to find the right CEO," said Michael Pachter, an analyst at research firm Wedbush Securities. "Mr. Dunn's replacement must be prepared to manage the transition from big box to small box format. A CEO with this experience will be difficult to find."

[Big_Ragu]

Best Buy you get what you deserve! I spent 6 loyal years working in the stores as a Product Process Manager in the Houston market. I was unjustly fired for reporting my GM to the company loss prevention hotline for taking a cell phone that belonged in our inventory and use it for his personal use outside the store. He was using it to call his girlfriend and didn't want his wife to find out about it. I was let go because I involved store employees in my investigation of the stolen product. My main role as a PPM is to control inventory and minimize loss, conduct investigations regarding loss of company assets. Your loss by firing me was obvious by the results shown in the store the following year when inventory was taken.
As long as you keep pushing extended warranties nicely worded as "Service Plans", pushing your Best Buy credit card that you make enormous amounts of money from the credit card company for late fees and sign up, holding performance meetings cleverly worded as "trainings" for the employees that do not push this on every customer you will continue to under perform. What happened to customer centric stores where you listened to what the customer and employees wants and you modeled your business around this? You failed in China and overseas because you did not listen to the market needs and you thought you could shove the US Best Buy model down their throats. By the way you have a high margin department in the store called the Appliance Department. You continue to fail because you don't market it or give it enough store square footage. Also you staff it with teenagers that have never used the products except for microwaves and refridgerators trying to sell them to homeowners. Another high margin department is car audio. Once again a goldmine but you fail to market it properly.

[Captain Katz]

All big retailers will be spiralling to an end soon, so long as government insists on putting so much under sales tax. There's nothing unethical about the browser customers because they KNOW they are being cheated. Unfortunately they DON'T know it isn't really the store's fault. They feel they are being gouged when really it's toll&transporation fees coupled with multiple sales and luxury taxes. Until the companies wake up and realise they need to combat the gov directly, Amazon will continue to murder them. Amazon even does groceries now if some of you don't know, and what you get is possibly at least twice as good as from the local grocer, because you are buying direct, and therefore they know you can complain direct if you receive a damaged or poorly delivered product!
If giant retailers wish to succeed after 2010, they need to promote candidates for office the same way less sensible businesses like the MPAA promote anti-piracy scum. They need to shore up behind anyone who will fix the tax codes. The impact on consumers from these archaic tax codes will continue to drive nearly all business online.
(How many of you drive around a bit until you find a 'favourite gas station' that charges less? This is exactly the same thing.)

[roselandpete]

I guess it's popular to criticize companies and rejoice in their failure, but I find it sad to see any person or any company fail and people lose their jobs.

Circuit City used to be my first choice for electronics and when they went under, I turned to BB. It seemed that I always got a little better deal at CC.

I do not consider myself to be an early adopter. I pretty much buy new electronics only when something breaks, so I don't spend a lot of time in BB perusing the latest and greatest gadgetss. Having said that, the last few times I've been to BB, I usually found the people to be helpful and informative. Perhaps that's because I go during the day when it's not so crowded.

[hypnotoad72]

Interesting final paragraph; transitioning from big to small box.

In the past, "big box" and "small box" pertained to business types. The latter being SMBs. Best Buy will still be a big box brand, but why co-opt "small box"? To look like a small business, perhaps as means to look more authentic and wholesome compared to their current standing? People will eventually see through that tactic...

[ScottOnCapeCod]

Brian is a personal friend and colleague (We started together at Store #4) I have known him to be a solid individual and the interaction that he had with both his team members and customers via social media was a model for those CEOs who are distant form both their own employees and customer base. I left BBY in 1987 when we were a rocket heading to the top... But Times, Economies and Business Models change and eventually all things return to earth...
Good luck BBY, Brian I trust that when the dust settles you'll find something rewarding to do with your free time...

[hypnotoad72]

You're probably older than me, yet your use of the comma - or lack of it - suggests a more recent education, if not re-education... "But times, economies, and business models..." is probably what you mean... (capitalizing each letter is a lesser nitpick, too... I don't see what warrants the capitalization as such...)

[duney69]

Karma for their immoral support of Citizens United and donating to candidates that promote inequality.

[Osprey4]

Thanks, troll.

[hypnotoad72]

I doubt it...

[Phxfire]

Don't change too much. I buy there for a couple reasons. Local returns, no shipping costs and someone to actually talk to face-to-face, the Geek Squad.

[hypnotoad72]

The Geek Squad can be turned into a Dork Troop the moment a knowledgeable customer comes in and asks simple questions...

Shipping costs are already factors into the sticker price at the brick'n'mortar store.

Exchanges are a heck of a lot easier and there's no bleepin' restocking fee.

If only they'd sell a wider range of products (more hard drives, better quality monitors, etc, but given the very small markup they can put on these products to help themselves even stay afloat (mail order vs local for a laptop HDD is $15 in raw price and almost $0 after shipping is factored in...)

Either way, I'm focusing on the supply-side too much. There are plenty of other factors that are responsible, and - yes - some of those include unethical behavior on the side of customers (going to look, get assistance, and then just buy online. That's as much leeching as anything else the definition allows.)