November 24, 2012

Old pilot aims to right Best Buy boat

The company's founder took a failing chain to a dominant position and he thinks he can do it again.

By THOMAS LEE, DAVID SHAFFER and PAUL MCENROE Star Tribune

Allen Lenzmeier stared hard at the numbers, trying to absorb the long line of zeros.

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A shopper looks at televisions at a Best Buy store in Franklin, Tenn., after the store opened at midnight, kicking off Black Friday. Former executives are attempting to buy the troubled chain to take it private.

The Associated Press

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Children take a break Thursday from waiting in line at Best Buy in Carbondale, Ill. Richard Schulze, a former executive, is expected to offer as much as $8 billion to buy the company. His message is simple: His team created Best Buy – and only they can save it.

The Associated Press

You want $475 million in sales? In just five years? This company barely had five months left to survive, he thought.

The 39-year-old accountant had arrived in St. Paul, Minn., in 1982 to interview for a job at an electronics retailer that was literally in ruins. A tornado had destroyed the Sound of Music's flagship store in Roseville, Minn., forcing employees to hawk turntables and speakers out of a large tent in the middle of the State Fairgrounds.

But the company's founder, Richard Schulze, was far from calling it quits, Lenzmeier recalled. Schulze pulled out a piece of paper and described how Sound of Music, which he would later rename Best Buy, would soon dominate the world of consumer electronics.

"I thought, 'That guy is goofy,"' Lenzmeier said.

And yet, there was something about the brash Air Force veteran -- the confidence, the fierce will -- that won over Lenzmeier. "You get a one-in-a-million chance to participate in something like that," said Lenzmeier, who would rise to president and chief operating officer.

Together, Schulze, Lenzmeier and former CEO Brad Anderson would build a global retail empire that generates $50 billion in sales and has more than 100,000 employees.

But the empire is showing cracks, as Internet-focused businesses have broken through the monopoly Best Buy long enjoyed over gadget-hungry consumers. The company's stock price has plummeted, and its vaunted sales machine has lost steam, forcing it to shut down stores and lay off employees.

Schulze resigned from Best Buy in a leadership shakeup back in June, but like that day in 1982, he is hardly ready to give up. Within a month, Schulze is expected to offer as much as $8 billion to buy the company and restore Anderson and Lenzmeier to their old roles.

His message is simple: His team created Best Buy -- and only they can save it.

Investors and analysts, however, question whether the old guard has the skill and vision to lead the company in a new digital era.

Interviews with former executives, including Lenzmeier and Anderson, reveal how the Schulze team built a Fortune 500 company on guile, loyalty and the relentless pursuit of sales.

But Schulze and Anderson also created a corporate bureaucracy that suppressed innovation and failed to engage female shoppers, former executives say. Most importantly, the Schulze team could never agree on how to react as the Internet was changing the way consumers purchased their electronics, missing golden opportunities to transform itself before it had no choice.

"Schulze couldn't see the digital age coming," said Wade Fenn, Best Buy's former president of new business development and strategic alliances, who worked at the company from 1980 to 2002.

Yet throughout its nearly 50-year history, Best Buy has demonstrated remarkable resilience. The company always seemed to find something new to sell, whether the latest piece of technology (smartphones, tablets) or the expertise on how to use it (Geek Squad). That sales-minded culture can drive a companywide renaissance, former executives and competitors say.

"Best Buy has always been willing to make significant changes," said Alan Wurtzel, a former chairman and CEO of Circuit City. "As the world changes, so will (Schulze)."

Blue Shirts, Best Buy store employees long known for their royal blue tops, gritty work ethic and aggressive sales acumen, have dominated the company's leadership. Many Best Buy executives, including former CEOs Anderson and Brian Dunn and former chief administrative officer Tim Sheehan, cut their teeth hawking VCRs, stereos and extended warranties.

The company thrived on what Anderson called a "cowboy culture," where high energy and improvisation offset the company's lack of experience and a clear system of control.

(Continued on page 2)

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