The Biggest Problem at Best Buy Is This One Thing

Ever since his appointment last June as the new CEO of Canada’s beleaguered consumer electronics chain, Hubert Joly has been characterized as a relatively unknown commodity to ordinary Americans. At first glance, he didn’t stand out from Canada’s assortment of back-end retailers, the McMichael Group, Holt Renfrew, Mark’s, and Winners.

A native of Montreal, Joly was not a household name in the United States, either, even though Best Buy has been a pillar of the American electronics marketplace for more than 40 years. He was not the cute retail CEO named after the product you were about to buy. Or the one who wore eye shadow.

Still, as a smart, intense, affable operator, Joly could have been a name you might have heard in the early 1990s, when he was CEO of the popular appliance store, Miele. Working with dealers and the press to bring in new customers and capture back the ones they’d given up, Joly cut Best Buy’s operating margin by nearly 100 basis points in five years and finished with sales falling 5 percent and net income plummeting 44 percent in 2004.

So Joly joined Lazard Frères and, after a stint in Germany, became a partner in PricewaterhouseCoopers’ retail operations unit. Then, in 2011, as the global technology sector slowly began to stumble, Joly came out of retirement to take the chief executive position at the venerable retail chain in the U.S. With a war chest of $2.5 billion and no defined target, Joly immediately took on the retailer’s significant real estate and pensions and, with a 50-50 ownership structure, dove into a massive overhaul of the company’s strategy. Joly, since then, has returned Best Buy to relative relevancy in an Amazon-dominated retail landscape, ratcheting up Best Buy’s profits even as it reaffirmed its commitment to the independent business of selling consumer electronics.

Joly has made a tremendous turnaround in a short period of time, bringing Best Buy back into the American consciousness. But can he succeed again, eight years later, with the job at the attention of a more fragmented universe of American retailers that seems to have altered over the last eight years? Can Best Buy reinvent itself and become the new Walmart?

Joly doesn’t necessarily seem to be concerned. In an interview in January with The Wall Street Journal, he said that he was “convinced Best Buy is an American success story.”

“Clearly, I have some reservations,” he added. “I remember stores being of a sort that were quite steeped in American culture, and also the kind of retail approach they took. Obviously, the U.S. is very different than Canada.”

Joly insists that the best way to follow Walmart, an iconic company in U.S. retail that first came to the country in 1882, is to “follow the path laid down by Walmart.” It’s a matter of taking advantage of the company’s “unique costs,” and then using it to fuel expansion into adjacent areas and vertical integration, he believes.

So while Joly’s plans aren’t quite the same as Walmart’s—and seem very different in Canada—he plans to go a long way toward replicating his success in North America by replicating what has worked for Walmart on this side of the pond. That’s a challenge for Joly, however, as there are no similar chains in Canada. This could be the scariest question to some Best Buy investors, since many have come to rely on the hope that a long-struggling Best Buy would return to profitability under Joly.

Last fall, one U.S. investor speculated that Joly would be a candidate to take over Walmart. Even though Joly said he wasn’t interested in a job at Walmart, it should be interesting to see whether Walmart’s board pursues Joly’s name or some other retail executive for its chief. It seems to me a given that Joly will succeed in reviving the company. My guess is that he will manage to top J.C. Penney’s, again.

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