Speaker 1: Welcome to Business on the Brink, a production from I
Speaker 1: Heart Radio and How Stuff Works. If you avoided crazy
Speaker 1: Eddie and navigated cities of circuits, you would inevitably find
Speaker 1: yourself there. You might consult with the squad of geeks,
Speaker 1: or lose yourself in aisles of electronic do dads and gizmos,
Speaker 1: and Heaven help you if you happen to be wearing
Speaker 1: a blue Polo shirt at the time. This is best
Speaker 1: Buy in Business on the Brink. Hey everybody, I'm Jonathan
Speaker 1: Strickland and I'm Ariel Casting, and today we're talking about
Speaker 1: best Buy. This topic was requested by to Count them
Speaker 1: to listeners Emily Welch and Ryan MacArthur, both employees the
Speaker 1: Best Buy who wanted to hear how the company avoided
Speaker 1: the pitfalls at all these other big tech and big
Speaker 1: box stores. Hit. Yeah, the retail apocalypse that has closed
Speaker 1: down many stores, like we talked about Borders being one
Speaker 1: of them, and Radio Shack. And then there's also a
Speaker 1: circuit city, which I'm sure we'll cover at some point,
Speaker 1: and we'll talk about a little bit in this episode.
Speaker 1: It does play into the history of best Buy. So
Speaker 1: in the age of Amazon and online shopping. Best Buy
Speaker 1: stories pretty interesting, and you could say that the company
Speaker 1: owed its entire existence to a natural disaster. It's a twister.
Speaker 1: It's a twister. It's like Wizard of All. Yeah. Here's
Speaker 1: the crazy thing is that we're making a joke, but
Speaker 1: that's actually true. The reason why best Buy exists, you
Speaker 1: could argue, is largely because of a rogue tornado. How
Speaker 1: many businesses can say that, I mean, usually they don't create.
Speaker 1: Usually tornadoes don't create industry. They destroy industry. They might
Speaker 1: create opportunities for construction, and that's but they rarely, they
Speaker 1: rarely improve a business. Yes, okay, so uh, how did
Speaker 1: best Buy get started? Jonathan? Well, if you look at
Speaker 1: the name best Buy, that dates back to three but
Speaker 1: the history of the company is older than that. It
Speaker 1: actually goes back another twenty years almost, and that history
Speaker 1: really starts in nineteen sixties six. There was a guy
Speaker 1: named Richard M. Schultz, and he also had a mysterious
Speaker 1: business partner. And no, no, I don't. I don't know
Speaker 1: who the business partner was because every article I read, everyone,
Speaker 1: every single one said Richard Schultz and his business partner. Yeah,
Speaker 1: there was never a point where it actually identified who
Speaker 1: that person was. Now, ultimately we could say that name
Speaker 1: doesn't really play into the history of Best Buy that
Speaker 1: much because Schultz would go on and buy out his
Speaker 1: business partner after about a year, so it was pretty
Speaker 1: early on when that business partner was extricated for the business.
Speaker 1: So I guess it doesn't really matter, but it bugs
Speaker 1: me as a researcher. I'm sure when you've researched some
Speaker 1: of these topics, you've encountered similar things where you Yeah,
Speaker 1: I go down a rabbit hole and I spend hours
Speaker 1: trying to find and then corroborate information, Like, uh, we
Speaker 1: recorded an episode on Blastic and I tried to find
Speaker 1: the stork's name, and I could find one article and
Speaker 1: it was uncorroborated, but I spent so much time trying
Speaker 1: to confirm the information. Yeah, that's the level of detail
Speaker 1: and dedication we bring to you to figure out the
Speaker 1: name of a cartoon mascot stork of a pickle company. Anyway,
Speaker 1: let's get back to Best Buy. So, according to the story,
Speaker 1: Schultz would actually mortgage his own home in order to
Speaker 1: get enough money to really get into this business and
Speaker 1: to open up a store, which was at the time
Speaker 1: a stereo equipment store for car stereos and home stereos,
Speaker 1: and he called it Sound of Music. Oh, Jonathan, I
Speaker 1: know who the mysterious part there was. Are you gonna
Speaker 1: say it was Julie Andrews. I was going to say
Speaker 1: a nun named Maria, but save different. Okay, no, if
Speaker 1: neither of those are correct. Uh. The first store was
Speaker 1: established in St. Paul, Minnesota, and within the first year
Speaker 1: of business he he led the company to go ahead
Speaker 1: and make its first acquisition. I guess you go bigger,
Speaker 1: you go home. And in this case it was actually
Speaker 1: a couple of companies called Kincraft Hi Fi Company and
Speaker 1: the Burgo Company. These were other audio equipment companies, guessing
Speaker 1: in a similar area. You know, this was all in Minnesota.
Speaker 1: It was all in the the stereo business arena. Like
Speaker 1: that was all that he was concentrated on for for
Speaker 1: about twenty years. So he was just cleaning up street
Speaker 1: corners at that point. He was just getting the music
Speaker 1: out to the people by selling them the equipment. So uh,
Speaker 1: the Sound of Music store hit hit a good amount
Speaker 1: of revenue in its first year. And I say a
Speaker 1: good amount of revenue. The figure I have in our
Speaker 1: notes is a hundred sixty thousand dollars. But again, I
Speaker 1: just want to be clear here. There are a lot
Speaker 1: of conflicting reports in the sources, and so while many
Speaker 1: of the sources referred to a hundred sixty thousand dollars,
Speaker 1: not all of them did. Some of them had it hires,
Speaker 1: some lower, and it was a private company so it
Speaker 1: didn't have to report. Yeah, so let's just say it
Speaker 1: was doing okay. Now, that was just in revenue. That
Speaker 1: wasn't in profit. You know, obviously your profit is dependent
Speaker 1: upon your product, and stereo comments a decent profit margin
Speaker 1: if you don't mark it up too high, and if
Speaker 1: your retail space isn't that expensive. Yeah, so I don't
Speaker 1: know how profitable the company was, but it was doing
Speaker 1: good business. Uh. And he was pretty aggressive in those
Speaker 1: early days as a businessman. By nine sixty nine he
Speaker 1: had opened two other locations, also in Minnesota, so now
Speaker 1: there's three stores. And around that same time he bought
Speaker 1: out his mysterious partner person whose name we never learned,
Speaker 1: and became the sole owner of Sound of Music. Again,
Speaker 1: the store, not the musical. The hills were not alive
Speaker 1: with radio equipment. No, it's just the stores at this
Speaker 1: point receivers just trampling all over the yes and and
Speaker 1: having adorable songs as they went to bed. So once again,
Speaker 1: the details of the history are pretty sketchy. No one
Speaker 1: was really chronicling the sound of music chain of stores,
Speaker 1: which means that things probably were not going poorly. No, no,
Speaker 1: they weren't. They weren't remarkable, and they weren't terrible. Uh
Speaker 1: sometime around nineteen sixty, nineteen seventy or nineteen seventy one
Speaker 1: this all happened. That's because again reporting is shaky. Yeah,
Speaker 1: and by the end of nineteen seventies, by the end
Speaker 1: of that they had nine stores from three, right. Yeah.
Speaker 1: They continue to grow throughout the seventies, again still focusing
Speaker 1: on stereo equipment. So he keeps on pushing for the
Speaker 1: company to grow. And uh, yeah, he was doing well.
Speaker 1: He had nine stores open. And and this is when
Speaker 1: we get up to this pivotal moment in with the tornado.
Speaker 1: Do you want me to make the noise again? It's okay,
Speaker 1: I think we can just play it back because we
Speaker 1: haven't recorded. Tari can actually insert that wherever she likes
Speaker 1: into this episode. Every five minutes, you're going to get
Speaker 1: a poor tornado sound could be. She seems pretty excited
Speaker 1: about this possibility. We don't know when it's gonna happen, alright,
Speaker 1: So we get this regular old music stereo store. They
Speaker 1: would do commercials and stuff. Schultz would appear on them occasionally.
Speaker 1: Uh you know, they had their little Sound of Music logo.
Speaker 1: And the tornado in question is a truly historic event
Speaker 1: in this part of Minnesota. It's called the har Mar tornado,
Speaker 1: not the Hardy hard tornado, which is what I first
Speaker 1: read when I looked at the next She thought it
Speaker 1: was like a hilarious tornado from the cat's skills or
Speaker 1: something cartoon tornado. No, No, that it's called the hard
Speaker 1: Mar tornado because it really devastated the area around the
Speaker 1: har Mar mall um At. Some other people called the
Speaker 1: Lake Harriet tornado or the Adina tornado, and a tornado
Speaker 1: by any other name would reak just as much havoc
Speaker 1: as Shakespeare once wrote, or would have if you knew
Speaker 1: about tornadoes. So the tornado touched down. Now this I
Speaker 1: have a lot of information on, because when tornadoes happened,
Speaker 1: people really pay attention to. The Weather Service does keep
Speaker 1: decent notes, yes, so on June four, at three forty pm,
Speaker 1: the tornado touched down in Adena, Minnesota, and then it
Speaker 1: began a fifteen mile journey to the northwest. And in
Speaker 1: case you aren't familiar with the way tornadoes travel, we
Speaker 1: live in Georgia, where tornadoes are not uncommon. Tornadoes tend
Speaker 1: to hop right, they'll they'll touch down, they'll travel along
Speaker 1: the ground for a bit. They tend to hop up.
Speaker 1: They might travel another couple of miles and they might
Speaker 1: touch down again. So you can have In fact, we've
Speaker 1: seen this. We've seen neighborhoods that are completely destroyed, with
Speaker 1: the exception of maybe a house where the tornado just
Speaker 1: hopped over. I was actually in a tornado quite a
Speaker 1: few summers back, I want to say, like six or
Speaker 1: seven summers back, and all around me there was destruction,
Speaker 1: but my little community was fine. Yeah. Yeah, that's happened
Speaker 1: a few times in fact, where I was growing up.
Speaker 1: The same thing. Well, Sound of Music's main store, the
Speaker 1: largest store, not their first one, but their largest and
Speaker 1: most popular store, was not so lucky. It was not
Speaker 1: spared this tornado. So it was a store that was
Speaker 1: near this harmar Mall area and by the way, trying
Speaker 1: to say, harmar mall is very tricky for me. You
Speaker 1: can understand why I thought it was hardy hard It's
Speaker 1: just it's easier, fair enough. And the roof was completely
Speaker 1: torn off of the store. It raised the roof, it
Speaker 1: raised it and then threw it away. Yeah, and this
Speaker 1: is a stereo store, like this is still what they're
Speaker 1: selling is stereos. Around this time, they were also looking
Speaker 1: at getting into other electronics, but still really largely stereo equipment.
Speaker 1: And a lot of the stuff was destroyed, but some
Speaker 1: was salvageable. In fact, all the stuff that was in
Speaker 1: the storeroom was water damaged but not completely destroyed. So
Speaker 1: Schultz got this idea. He said, why don't we have
Speaker 1: a fire sale, Except it's not really a fire sale,
Speaker 1: it's a water damage sale. Tornado sale is what they
Speaker 1: would think of it. And they set up a tent
Speaker 1: essentially across the street in a parking lot from the store,
Speaker 1: because of course the store was not structurally ready for
Speaker 1: people to walk through it, so they set that up,
Speaker 1: and a lot of histories will mention that this sale,
Speaker 1: Schultz was talking about offering up the best buys of
Speaker 1: electronics in the area. So that's how he got the name.
Speaker 1: That's the way a lot of the story tell it,
Speaker 1: But to me it sounds like, uh, it took a
Speaker 1: little longer for that to really take effect, Like maybe
Speaker 1: thinking back on these best buys, because they would refer
Speaker 1: to that again, they would make this an annual sale.
Speaker 1: They would have a tornado sale on the on the
Speaker 1: anniversary of the first one in order to try and
Speaker 1: uh recapture the performance of that because the sale did
Speaker 1: really well. Yeah, in four days they made as much
Speaker 1: in sales revenue as they would in a full month
Speaker 1: at that typical store. Yeah, so that's that was enough
Speaker 1: for Shultz to say, like, well, we should definitely do
Speaker 1: this on the reg maybe not with the tornado but
Speaker 1: with the sale, but with the sales. I mean, if
Speaker 1: you can bring in revenue send selling your goods at
Speaker 1: a lower cost, why not. And there's actually a commercial
Speaker 1: that you can find on YouTube from two I believe
Speaker 1: it is where they refer to getting the best buys.
Speaker 1: But this store is still Sound of Music at that
Speaker 1: point it was or they had changed the name. Uh.
Speaker 1: And so again, this is right around the time they're
Speaker 1: starting to get into other electronics, particularly the brand new
Speaker 1: technology known as the VCR, which predates the Blue Blu
Speaker 1: ray and DVD player for those who do not know, yeah,
Speaker 1: and is no longer in production. As of a few
Speaker 1: years ago, the very last factory making VCRs stopped doing it,
Speaker 1: which is unfortunate because my VCR broke a few years back.
Speaker 1: I know, I know some guys over at uh At,
Speaker 1: a VCR repair company in Wisconsin, who could help you
Speaker 1: open nice Well back to your story. Yes, so comes
Speaker 1: around and at this point, partly because they're no longer
Speaker 1: just carrying stereo equipment, but also because they were looking
Speaker 1: at how the sales event was so successful, Schultz decides
Speaker 1: to rename his company. This is when he calls it
Speaker 1: best buy. Um. I mean it makes sense. You want
Speaker 1: to capitalize on the thing that is bringing you success. Yeah.
Speaker 1: And also you no longer want to send people the
Speaker 1: message that the only thing you're selling is music equipment yea,
Speaker 1: or musicals or children or nuns. You don't want people
Speaker 1: to think that those are all the things you're selling.
Speaker 1: But people didn't because the store brought in around ten
Speaker 1: million dollars in sales revenue. Yep, yep. So this was
Speaker 1: where he had changed the names to all the remaining stores.
Speaker 1: At that point there were only seven left, so he
Speaker 1: had built nine, but h Or had established nine and
Speaker 1: now he was down to seven. He made ten million
Speaker 1: in that time, and that same year he would open
Speaker 1: up a new type of store in a place called Burnsville, Minnesota.
Speaker 1: And this was the superstore model. So you know, it
Speaker 1: would jump into a phone booth and change into a
Speaker 1: cape and you know, I was holding back a Burnsville pun,
Speaker 1: but yours was better and worse at the same time.
Speaker 1: But Chells didn't invent the superstore. No, no, this was
Speaker 1: an idea that had been around since the nineteen sixties.
Speaker 1: In fact, the questionable but probable original superstore was called
Speaker 1: thrifty Acres and it was in Kalamazoo, Michigan, which is
Speaker 1: just fun to say it. And also Circuit City, the
Speaker 1: big competitor to best Buy, had established its own superstores
Speaker 1: in the nineteen seventies, so that the best Buy superstore
Speaker 1: idea was not brand new. But they had a different
Speaker 1: approach than Circuit City. Yes, because that Circuit City, Uh
Speaker 1: for you young uns who never win to a circuit
Speaker 1: city in that era, they did things on commission, so
Speaker 1: they had salespeople who would greet customers as soon as
Speaker 1: they came in the door, and they would try and
Speaker 1: find out what the customers were looking for. They would
Speaker 1: answer questions, they would run through demonstrations. They would typically
Speaker 1: steer people to the most expensive version of whatever it
Speaker 1: was they were looking for that they felt like, Yeah,
Speaker 1: just like when you asked what the best thing on
Speaker 1: a menu is? Yeah, yeah, I let me ask you,
Speaker 1: what do you like the nachos or the filet mignon. Well,
Speaker 1: I like the filet mignon and it goes really well
Speaker 1: with this very expensive line. That's very expensive radio. Yeah.
Speaker 1: And they also could I interest you in the radio set? Yeah,
Speaker 1: So circumstany did this commission thing. Also, their stock was
Speaker 1: almost always just in a stock room. They had demonstration
Speaker 1: models on the floor. But you couldn't just pick up something,
Speaker 1: put in a in a cart and then push it
Speaker 1: to a cashier. Instead, you were kind of joined at
Speaker 1: the hip with the salesperson, who, once they had established
Speaker 1: what you wanted, would arrange for a stock person to
Speaker 1: go and get it, and then they would ring you
Speaker 1: up at one of the mini cash registers throughout the storeroom.
Speaker 1: But Best best Buy let you grab your own stock
Speaker 1: and bring it up to a cash register, right, yeah, exactly.
Speaker 1: So it's it's very much in the model that if
Speaker 1: you've ever been the Best Buy, it was like that
Speaker 1: from the beginning, which I mean to me, I personally
Speaker 1: would rather have that because I'm not going to go
Speaker 1: to a store if i feel like I have to
Speaker 1: buy something. But I'm going to go to a store
Speaker 1: if hey, I kind of need something and I want
Speaker 1: to look at options, I'm more likely to buy it
Speaker 1: than if I'm feeling pressured. Not to say that Circuit
Speaker 1: City employees were pressuring you, they were, but they were
Speaker 1: because it's it's sales. It's what sales does, right, Like
Speaker 1: if you've ever bought anything that had someone working on commission,
Speaker 1: because I mean, the incentive there obviously is to make
Speaker 1: the sale, because that's how you make your money, right,
Speaker 1: You're getting money from every sale you make. You don't
Speaker 1: get money from sales you don't make, so you have
Speaker 1: the incentive to try and get that sale to close.
Speaker 1: Best Buy, by the way, at the time, was also
Speaker 1: working on commission sales. They just didn't use the distributed
Speaker 1: cash register model that Circuit City did, which I mean
Speaker 1: means you still might have pushy salesman. But you can
Speaker 1: also be like, no, I'm going to help myself. You
Speaker 1: also have here that best Buy had lower priced items
Speaker 1: in low margin products like near the door. They still
Speaker 1: do today. Yeah, the whole it was let's get people inside.
Speaker 1: That's the important thing. Get them inside, and even if
Speaker 1: they just buy these low profit margin items, you still
Speaker 1: are making the same And because they were a big
Speaker 1: box store, it was successful for them, unlike Radio Shack,
Speaker 1: who tried to put in more random objects into their
Speaker 1: store and it didn't quite fly. Yeah. It never felt
Speaker 1: like the Radio Shack approach had a coherent strategy to it,
Speaker 1: and best Buy had a much more coherent approach. And
Speaker 1: uh yeah. So while other companies were kind of struggling
Speaker 1: with this transition, best Buy at the time was doing
Speaker 1: pretty well. It had differentiated itself enough from Circuit City
Speaker 1: so that the experience of going into a best Buy
Speaker 1: was much more casual. You could see all the stock there,
Speaker 1: you could you know, you could ask questions. But there
Speaker 1: weren't nearly as many sales people on the floor of
Speaker 1: the best Buy as there were at a typical Circuit City.
Speaker 1: So that was what was setting things apart. But this
Speaker 1: was just the very beginning of best Buy, and we
Speaker 1: haven't gotten into how the company would grow exponentially over
Speaker 1: the next few years or what would happen when the
Speaker 1: retail apocalypse sets in. We will talk about that, but
Speaker 1: first we're going to take this quick break, Okay, So
Speaker 1: so Ariel, you know what we could do. We could
Speaker 1: go year by year of everything the best Buy ever did.
Speaker 1: That sounds tedious, Jonathan, it does, and that's why I
Speaker 1: didn't put it in the notes. So really, let's just
Speaker 1: give the super short version of what was going on
Speaker 1: in best Buy joined the New York Stock Exchange. It
Speaker 1: had previously traded as Sound of Music on the NASDAC.
Speaker 1: So now it's moving up in the world of business.
Speaker 1: In nine they stopped doing commission sales, right. Yeah, this
Speaker 1: is where they got rid of commissions entirely. Uh. This
Speaker 1: is also where they would make sure the entire stock
Speaker 1: of the store was on the showroom floor, so they
Speaker 1: they very rarely had very much in a stock room
Speaker 1: in the back. It was essentially convert the entire floor
Speaker 1: space into the showroom. Yes, this was, by the way,
Speaker 1: called their concept too. Yeah, this was where they the
Speaker 1: original superstore was Concept one. This was concept too that
Speaker 1: rolled out, and again they were like they were looking
Speaker 1: at how to maximize the space for the customer and
Speaker 1: to they eliminated even more salespersons, like yeah, because again
Speaker 1: it it put things on the customers, uh kind of scheduled.
Speaker 1: If they had questions, they could ask salespeople about things,
Speaker 1: but they weren't feeling pressured into buying stuff, which I'm
Speaker 1: sure made some companies unhappy. Absolutely it did, because it
Speaker 1: meant that their products weren't being pushed by salespeople super hard.
Speaker 1: So if your whirlpool or your Maytag or you're one
Speaker 1: of these big companies like Sony, you want the salesperson
Speaker 1: to steer people towards your products so that they are
Speaker 1: more likely to buy them, because obviously that's all you
Speaker 1: make your money. And without the commission sales people, that
Speaker 1: was the fear was customers wouldn't go to these big
Speaker 1: ticket items as frequently, and so some of these companies said, well,
Speaker 1: we're just going to take our refrigerators and washers and
Speaker 1: dryers and we're gonna go home fully on them. Yeah,
Speaker 1: it didn't last long because the concept two stores ended
Speaker 1: up being immensely popular and it turns out that if
Speaker 1: everyone's going there, that's where you got to put your stuff.
Speaker 1: So the companies came I won't say crawling back, but
Speaker 1: they did come back. We also got the yellow tag
Speaker 1: Wogo around this time. Yep. That's when Best Buy would
Speaker 1: adopt that, and the company hit a billion dollars in
Speaker 1: sales revenues in and by it was only behind Circuit
Speaker 1: City in the electronic retail market. And remember a Circuit
Speaker 1: City had been doing all electronics for longer and had
Speaker 1: been more entrenched in that particular market. So this is
Speaker 1: pretty good. Yeah, Now they weren't content just to stick
Speaker 1: with that and and write it out as long as possible,
Speaker 1: because we got the Concept three store, yes, which is
Speaker 1: Concept two but more bigger. As I wrote, Yeah, this
Speaker 1: was where they introduced demonstration areas. If you ever went
Speaker 1: to a Best Buy where they had like the theater
Speaker 1: room where you could sit down and listen to your
Speaker 1: ears get assaulted by whatever usually was the matrix, I
Speaker 1: think that was almost always on h Yeah, that was
Speaker 1: that was those concepts, and then beyond that you would
Speaker 1: get Concept four stores in they were slightly smaller than
Speaker 1: Concept three stores, and they also put cash registers throughout
Speaker 1: the stores, kind of like Circuit City did to distribute
Speaker 1: the points of sale, but you could still bring your
Speaker 1: items to that cash register. Yes, yes, so you could
Speaker 1: have a cash register dedicated for a particular section of
Speaker 1: the best buy. So for example, if you were shopping music,
Speaker 1: or you were shopping you know, camera accessories. I think
Speaker 1: you still sort of can if like if you go
Speaker 1: and you buy a phone. Yeah, it all depends on
Speaker 1: the best Buy and it depends on which blayout it follows,
Speaker 1: but yes, you still can do that. And and during
Speaker 1: this time they were also opening up new locations in
Speaker 1: various markets, including international, uh partially through I read one
Speaker 1: article it says that partnership with Microsoft helped them expand internationally.
Speaker 1: Some Yeah, that was a big deal, was their their
Speaker 1: partnership with Microsoft. That was also seen as a big
Speaker 1: deal just in the industry in general, because here's Microsoft.
Speaker 1: It's just an enormous company making a deal with a retailer.
Speaker 1: I mean that was that was a big deal. That
Speaker 1: was a big Yeah. And then they also bought Magnolia
Speaker 1: Hi Fi. So now you could sit and have your
Speaker 1: ears assaulted by the Matrix, but you couldn't see what
Speaker 1: was assaulting your ears because it all looked like rocks
Speaker 1: or tables. Okay, we're going to ignore that. Best Buy then,
Speaker 1: in two thousand and one had one of its what
Speaker 1: people would in retrospect would call missteps. They bought a
Speaker 1: company called music Land Stores Corporation. And this was a
Speaker 1: company that had several different retail stores under its ownership
Speaker 1: that would operate typically in malls. So there are a
Speaker 1: lot of those music stores that were in malls, things
Speaker 1: like Sam Goodie Music and electronics stores. A lot of
Speaker 1: those belonged to this particular company. And the thought was
Speaker 1: best Buy was singing, well, we can we do this
Speaker 1: really well in retail spaces, so we can do it
Speaker 1: really well in malls too. And the deal cost foive
Speaker 1: million dollars, plus best Buy agreed to assume music Lands debt,
Speaker 1: which was another two hundred seventy one million dollars and
Speaker 1: more than half a billion when you add in the
Speaker 1: the price of the acquisition plus the debt. UH By
Speaker 1: two thousand two, the division was losing tens of millions
Speaker 1: of dollars. Again, the numbers kind of very depending upon
Speaker 1: the source, but it's always in the tens of millions.
Speaker 1: Like sixty seventy million dollars. In two thousand three, best
Speaker 1: Buy would divest itself. It would quote unquote sell music
Speaker 1: Land to Sun Capital Partners. But selling is being very
Speaker 1: generous because they gave it away. Well, I mean, cut
Speaker 1: your losses while you can. I guess Sun Capitol got
Speaker 1: the deal cash free. The only thing that Sun Capitol
Speaker 1: had to agree upon, and this would ultimately collapse that company,
Speaker 1: but that's a different story, was they had to agree
Speaker 1: to assume the debt associated with that company, So Best
Speaker 1: Buy was out the money they had spent to buy it,
Speaker 1: but at least they no longer had the debt from
Speaker 1: music Land on their ledger as well. Well. Around this time,
Speaker 1: Richard Shells also retired the CEO. Right yep, he was
Speaker 1: worth about two billion dollars at that point. Good time
Speaker 1: to retire, Yeah, not not bad. Brad Anderson, who had
Speaker 1: joined Sound of Music back in those days, would become
Speaker 1: the new CEO. He had worked his way up from
Speaker 1: like salesperson all the way up to well now CEO
Speaker 1: of the company. And you would see this, by the way,
Speaker 1: in best Buy you would see a lot of these
Speaker 1: leadership positions were from within the company. Which typically we
Speaker 1: think of as a good thing. In the case the
Speaker 1: Best Buy, as we will ultimately see spoiler alert, it
Speaker 1: wasn't always a good thing. I mean, you want to
Speaker 1: you want to be loyal to your to your employees,
Speaker 1: but at the same time, you may not have the
Speaker 1: best candidate within your employees. And sometimes if there is
Speaker 1: a problem within the company that you grew up with,
Speaker 1: then you won't see it. Yeah, you don't see it
Speaker 1: because it was there the whole time and you were
Speaker 1: You can't see the forest for the trees, is what
Speaker 1: we would say. But Anderson did make a really good
Speaker 1: move because he acquired geek Squad. Yes, and this would
Speaker 1: end up being a very important part of Best Buys
Speaker 1: success ultimately. And geek Squad at the time was an
Speaker 1: independent company that was providing tech support to customers, So
Speaker 1: people would essentially pay geek Squad to fix their electronics
Speaker 1: what weren't working no more. Yes, but you know, not
Speaker 1: super surprising because we see this a lot. When a
Speaker 1: CEO retires, a first CEO, the company started seeing lower
Speaker 1: sales and I don't know if that's because of his
Speaker 1: retirement or just the economy. I think it was a
Speaker 1: combination really, I think it's mostly the economy. Honestly, I
Speaker 1: think that the sales were starting to lag a bit.
Speaker 1: It was just one of those cycles we see. Plus
Speaker 1: we were getting into the recession. And around this time
Speaker 1: in two thousand and eight, Best Buy acquired Napster. So
Speaker 1: you do you know what Napster is A real I
Speaker 1: do know what Napster is. It's I know it for
Speaker 1: music piracy. Yes, yes, So Napster that best Buy acquired
Speaker 1: wasn't exactly the same as that company. So Napster, the
Speaker 1: piracy one that we associate with was a file sharing service,
Speaker 1: but that had been shut down in two thousand and one.
Speaker 1: The government shut it down. Yes, they were like, this
Speaker 1: is illegal, guys, you cannot do this no more. Uh,
Speaker 1: there's no safe harbor for you. You are pretty much
Speaker 1: enabling music piracy and and software piracy. So a company
Speaker 1: called Roxyo ended up getting the intellectual property assets, so
Speaker 1: essentially the rights to use the name and logo of Napster,
Speaker 1: but not like anything else associated with the company. Was
Speaker 1: essentially the the appearance of Napster, but not the souls.
Speaker 1: That's interesting, I guess there trying to appeal to the
Speaker 1: people who like Napster for the illegal stuff. Well, they
Speaker 1: were trying to appeal to young hip folks who were
Speaker 1: associating Napster with digital music, so they took an already
Speaker 1: existing software called press Play, they slapped Napster's name and
Speaker 1: logo on it, and best Buy purchased that in two
Speaker 1: thousand eight for a hundred twenty one million dollars. So
Speaker 1: while you could say best Buy bought Napster, there's a
Speaker 1: big asterisk there because it's not it's not the Napster
Speaker 1: that everyone thinks about from two thousand one. Yeah, in
Speaker 1: two thousand nine we got a new CEO, so yeah,
Speaker 1: we sure did. Anderson was out and Brian Dunn was in.
Speaker 1: And Brian Dunn had also been with best Buy since Nive,
Speaker 1: so he had been there since the after they changed
Speaker 1: the best Buy, but he had been there for for
Speaker 1: two decades and it worked his way up, and now
Speaker 1: I was leaving the company. Uh. In two thousand eleven,
Speaker 1: Done oversaw a deal that led to Napster leaving best
Speaker 1: Buy and it and also would end up merging with
Speaker 1: a different company called Rhapsody. That's a story in its
Speaker 1: own and best Buy we have a small steak in
Speaker 1: that company as part of this arrangement, and really it
Speaker 1: was an attempt to get out of a flailing business
Speaker 1: because there were some companies like Pandora and Spotify that
Speaker 1: were on the rise, and it just looked like Napster
Speaker 1: was not gonna compete against them. And Napster wasn't the
Speaker 1: only thing they're getting rid of. They also closed some
Speaker 1: of their overseas stores at that time. Yeah, they were
Speaker 1: trying to consolidate some of their their assets and get
Speaker 1: rid of some things that were not being terribly profitable.
Speaker 1: Then we get to two thousand eleven, and this is
Speaker 1: where things get ugly. Jeez, you didn't allude to that
Speaker 1: at all when I said Brian Dunn's name when you're like, oh, geez, yeah,
Speaker 1: this was so. Brian Dunn's name would often get listed
Speaker 1: on like the worst CEOs of two thousand and twelve,
Speaker 1: that kind of stuff, And why is that, Jonathan? So
Speaker 1: the board of directors had an inquiry into Brian Dunn's
Speaker 1: behavior because there were reports that he was having an
Speaker 1: inappropriate relationship with a fellow best By employee. So he's
Speaker 1: CEO this woman who was twenty nine years old at
Speaker 1: the time, he was fifty one, not that that necessarily
Speaker 1: should match. The problem. The problem was that he was CEO,
Speaker 1: she was also working for him, and that this was
Speaker 1: a relationship that he should have just closed to HR.
Speaker 1: Plus He's also was also married, so there was some
Speaker 1: other Now. Granted, he has always maintained that it was
Speaker 1: never a romantic relationship, but there are a lot of
Speaker 1: people who thought that perhaps that was not entirely true
Speaker 1: because they were frequently seen together. Yes, and then he
Speaker 1: would eventually resign in the spring of two thousand twelve
Speaker 1: under intense pressure from the Board of directors, and not
Speaker 1: very long after that, Richard Schultz, who had no longer
Speaker 1: been CEO but had maintained his role as Chairman of
Speaker 1: the board, was asked to design because it became clear
Speaker 1: he knew about Brian Dunn and this employee but had
Speaker 1: not disclosed it to the Board of Directors or the auditors.
Speaker 1: But despite that, and despite his retirement, he tried to
Speaker 1: buy Best Buy back. Yes, he cut the he got
Speaker 1: the honorary title of Chairman emeritus, and then he said, hey,
Speaker 1: you know what I'm gonna do. I'm gonna turn Best
Speaker 1: By private again. I'm going to lead a buy out
Speaker 1: of Best Buy. But it turned out he was not
Speaker 1: able to raise the financing he needed in order to
Speaker 1: achieve that, so that ultimately went nowhere. Yeah, and by
Speaker 1: two twelve, best Buy was really kind of spiraling. Yeah,
Speaker 1: it was not in a good space space. So you
Speaker 1: had this controversy, you had the departure of the CEO,
Speaker 1: you had the departure of the chairman of the board.
Speaker 1: The stock price had fallen to its lowest point in years.
Speaker 1: The sales of the stores, like the sales at the
Speaker 1: actual individual retail stores, were on the decline. They were
Speaker 1: either not growing at all or they were actively falling.
Speaker 1: Other retailers were starting to close up shop. This is
Speaker 1: what we were referring to with the retail apocalypse is
Speaker 1: where companies like Borders and Radio Shack we're really having trouble.
Speaker 1: And it looked like Best Buy was going to join them,
Speaker 1: but it didn't. But we'll tell you guys how it
Speaker 1: didn't after this quick break. Okay, so here's the interesting
Speaker 1: part of this story. Now. We have said that usually
Speaker 1: we like companies that promote from within. It tends to
Speaker 1: be good for morale. It gives incentive for people who
Speaker 1: are working within the company to strive for leadership positions,
Speaker 1: but it can also blind you from what's going on
Speaker 1: and failing in a company. So in this case, the
Speaker 1: board of directors ended up reaching out to an outsider
Speaker 1: to come in and lead Best Buy, and that would
Speaker 1: be Hubert Jolie. And he came from like the uh,
Speaker 1: the sort of the hospitality industry and things like that. Like,
Speaker 1: he came from a totally different world in retail, but
Speaker 1: it seems like a good compliment to the retail world
Speaker 1: because so much of your product is hospitality to your customers. Yes,
Speaker 1: and he thought that the first thing he needed to do,
Speaker 1: and I think this is incredibly insightful, was to talk
Speaker 1: to actual Best Buy employees and find out what's working,
Speaker 1: what's not working, what are you concerned about, what are
Speaker 1: you seeing Because you're the ones operating these stores. You
Speaker 1: see what's what's happening day by day, and I want
Speaker 1: to make sure that we figure out how to best
Speaker 1: move forward. And that ended up by itself helping a
Speaker 1: lot with employee morale because it showed that he was
Speaker 1: taking a direct interest in the frontline employees. He he
Speaker 1: was using the ever important and business emotional intelligence. Yes,
Speaker 1: good old EI, good old Ei. So he initiated some
Speaker 1: really big behind the scenes changes for Best I. It
Speaker 1: was called renew Blue. It was actual initiative that's referred
Speaker 1: to it. Yeah. This is also why I said, Heaven
Speaker 1: help you if you wear a blue Polo shirt walking
Speaker 1: into Best Bike, because everyone will think you work there.
Speaker 1: It's like wearing a red shirted target. Yeah. Yeah. So
Speaker 1: he did a total redesign of the shipping infrastructure to
Speaker 1: make it easier for stores to to not just know
Speaker 1: what their individual stock was inside the store, like you know,
Speaker 1: how much of each item did they have, they also
Speaker 1: could quickly figure out where other products were and then
Speaker 1: order them more efficiently. So in other words, he was
Speaker 1: really streamline the supply chain side. And that can get
Speaker 1: really dull and boring when you're talking about it, like
Speaker 1: from numbers perspectives, but it is so incredibly important for
Speaker 1: retail establishment particularly but really all companies two have a
Speaker 1: really strong handle on your supply chain, so you know
Speaker 1: where everything is and so you don't lose money from
Speaker 1: over stalking even or or having you know, having a
Speaker 1: demand in one store that cannot be met because they
Speaker 1: can't get hold of the product. Meanwhile, another store has
Speaker 1: an excess on it and nobody wants it. Yes. In
Speaker 1: addition to this, he also really improved the customer experience
Speaker 1: as well. So he did that by giving them the
Speaker 1: option to look at an item in the store and
Speaker 1: play with it in the store and then decide whether
Speaker 1: to buy in store or online. Yeah. And this was
Speaker 1: in response to something that was already happening and I'm
Speaker 1: sure all of you out there have done it. It's
Speaker 1: called show rooming in the industry. This is the habit
Speaker 1: of customers going into a physical location to get that
Speaker 1: hands on experience with various products, then more often than not,
Speaker 1: pulling up Amazon on their smartphone and seeing how much
Speaker 1: it costs on Amazon versus wherever they are. Yes. So,
Speaker 1: instead of fighting it, he embraced it. Yes, and so
Speaker 1: as part of that, in order to embrace that, he
Speaker 1: so instituted a price matching philosophy, saying that if you
Speaker 1: could find a product for a lower price at say Amazon,
Speaker 1: best Buy would match that price because rather than you know,
Speaker 1: deal with the loss of a sale, He's like, well,
Speaker 1: it's better for us to have a lower profit margin
Speaker 1: than to not get the sale at all, which is
Speaker 1: kind of how best buy started in the beginning by
Speaker 1: having that Yeah, it's just that this case, the tornado's
Speaker 1: name was Amazon. Yes, it was a metaphorical tornado. And
Speaker 1: this was a good move because it caused best Buy's
Speaker 1: sales to grow incredibly. It grew so fast it reached
Speaker 1: uh to the point where the online sales for best
Speaker 1: Buy would make up six of their total revenue, which
Speaker 1: was already incredible. So this was also a really important strategy.
Speaker 1: It wasn't just that he was making the store experience better.
Speaker 1: He was making the online experience better too, and that
Speaker 1: was where they were really able to compete. So you
Speaker 1: could use you could marry the two right, You could
Speaker 1: go to us by look at the stuff, make your decision,
Speaker 1: you order it online, or maybe you order it online,
Speaker 1: you go to the store, you pick it up, that
Speaker 1: kind of thing, so it's ready at the moment that
Speaker 1: you purchase it. This was the other way to fight Amazon.
Speaker 1: It was saying, yeah, you could order it from Amazon.
Speaker 1: You're gonna get the same price as what we do.
Speaker 1: You might also have to pay for shipping. Plus you're
Speaker 1: gonna have to wait three or four days. And then
Speaker 1: if you get something that somehow got destroyed in the
Speaker 1: shipping process, you would have to return it and wait
Speaker 1: for a new one. You could go look and see
Speaker 1: what you were picking up at the best Buy store.
Speaker 1: Yeah yeah, And if it was a delivery thing, it
Speaker 1: was a delivery thing from a store that was down
Speaker 1: the street, as opposed to a warehouse that might be
Speaker 1: in another part of the state. So it was incredibly effective.
Speaker 1: But on top of this, Julie didn't just fight Amazon,
Speaker 1: he actually played nice with them a little bit too. Yeah,
Speaker 1: this was a very This could have gone either way
Speaker 1: to He started using parts of best Buy stores to
Speaker 1: act as sort of many stores for companies that would
Speaker 1: typically be competitors or maybe direct vendors to best Buy.
Speaker 1: So you could find a little section that was essentially
Speaker 1: sponsored by Amazon or sponsored by another company, and best
Speaker 1: Buy was earning revenue this way because they were essentially
Speaker 1: churching rent. So in this case, best Buy became a landlord.
Speaker 1: And these other companies like Google and Amazon, they took
Speaker 1: advantage of it because they lacked that capability that best
Speaker 1: By had, which was they didn't have a physical space
Speaker 1: where you could go in and take a look at
Speaker 1: these products. Even companies like Apple, which does have its
Speaker 1: own stores, it was using places like best Buy because
Speaker 1: they don't have stores everywhere, but best Buy is far
Speaker 1: more widespread than Apple stores are. Yeah. Now, another champ
Speaker 1: pole of these these changes he was putting in was
Speaker 1: customer service, and one of the ways he improved that
Speaker 1: was by expanding geek squads milieu. I suppose, yeah, yeah,
Speaker 1: geek Squad became not just tech support but also sort
Speaker 1: of ambassadors and evangelists and ultimately salespeople and in home consultants. Yep, yep.
Speaker 1: So you know the philosophy under geek squad, it's it's
Speaker 1: all very let's don't put any pressure on the customer,
Speaker 1: like your your goal is always trying to sell more,
Speaker 1: but not in a way that's going to make the
Speaker 1: customer feel like the experience is an unpleasant one. It's
Speaker 1: rather you really do need to use your expertise. So
Speaker 1: let's say you go into a person's home and they said, yeah,
Speaker 1: I want to make a home entertainment center, and this
Speaker 1: is the room that I have, and you're you're supposed
Speaker 1: to really use your expertise to say, well, based upon
Speaker 1: the size of this room, how much light is coming in,
Speaker 1: here's the television I would recommend, here's the sound system.
Speaker 1: I would recommend that kind of thing because it's it's
Speaker 1: real frustrating when you go and you buy a solution
Speaker 1: for your home that you think will work, it doesn't
Speaker 1: quite fit, or it doesn't quite hook up correctly, or
Speaker 1: maybe there's so much glare from the window that you're
Speaker 1: not not able to watch it very well. Also, there's
Speaker 1: always the problem of the s you see in the
Speaker 1: store have been specifically tuned so that they look really
Speaker 1: good in the store, but when you get one home,
Speaker 1: it hasn't been tuned yet, and it can be a
Speaker 1: bit daunting to do that. Again, Geek Squad would do
Speaker 1: this sort of stuff. They would not just hook everything up,
Speaker 1: but they would set it so that the settings of
Speaker 1: the television would be or whatever would be best a
Speaker 1: best match with the space. And this ended up really
Speaker 1: helping set Best Buy apart as well, because these other
Speaker 1: companies didn't have that. And then uh Julie put in
Speaker 1: he used his emotional intelligence again because he improved employee benefits. Yes, yes,
Speaker 1: one of the things that they had lost in recent
Speaker 1: years was a really hefty discount on Best Buy products.
Speaker 1: He brought that back so now employees could actually buy
Speaker 1: best Buy products for a significant discount um. He also
Speaker 1: was looking at other ways to help. Largely he was
Speaker 1: trying to avoid layoffs as best he could. Occasionally he
Speaker 1: still had to do it. He said, it's always, you know,
Speaker 1: something that you may have to consider, but it should
Speaker 1: be very far down the list of considerations. You should
Speaker 1: be able to, you know, try and exhaust other options first.
Speaker 1: And uh, this ultimately did improve employee morale at least
Speaker 1: if you look at employee turnover, because before he took
Speaker 1: the role, employee turnover was like of Best Buys employees
Speaker 1: we're leaving every year, which you know, a company having
Speaker 1: to attract and higher fifty percent of its workforce every
Speaker 1: single year, I mean just to maintain, not even to grow.
Speaker 1: That's an incredible expense. He got that down to thirty percent,
Speaker 1: which is still pretty high, but much lower than fifties. Better.
Speaker 1: All of these changes, all these things are what really
Speaker 1: has helped best Buy survived this this retail apocalypse, and
Speaker 1: not just survive but thrive. Yes, this is where we're
Speaker 1: seeing best Buy do really well. I mean, if you
Speaker 1: look at any Google search of best Buy performance, you're
Speaker 1: going to see lots of articles that go into an
Speaker 1: analysis on this, and they all pretty much agree with
Speaker 1: the things that I've stressed that Jolie had brought in
Speaker 1: the the turning the Best Buy stores into show rooms,
Speaker 1: acknowledging the problem of the show rooming experience and making
Speaker 1: sure that the price matching and the app experience mitigates
Speaker 1: that as much as possible. You know, having the geek
Speaker 1: squad really sets it apart. And now we've seen best
Speaker 1: By reporting revenues of forty two point one billion dollars
Speaker 1: in in the fourth quarter of eighteen. So that's good.
Speaker 1: I don't know they're operating costs, but that's pretty good. Well,
Speaker 1: they cut their their debt in half, so that's nice too.
Speaker 1: So it tells you that not only are they doing well,
Speaker 1: but they're addressing the problems they have with their debt.
Speaker 1: So yeah, this has been um a pretty bumpy ride
Speaker 1: for Best Buy, but I would say that upon uh,
Speaker 1: the the emergence of Jolly as CEO, things have really
Speaker 1: turned around. In fact, I guess because Brian Donne ultimately
Speaker 1: sort of caused this, you could argue you could call
Speaker 1: it a done deal. Oh, Jonathan, all right, I'm going
Speaker 1: to move on to a fun fact because that wasn't
Speaker 1: one that was. It was a fun pun. So one
Speaker 1: of the things that we didn't talk about in all
Speaker 1: these initiatives and changes that Jolly put into place was
Speaker 1: all of the electronics and recycling, appliance recycling that best
Speaker 1: Buy does. Since two thousand nine, as of recording this,
Speaker 1: best Buy has recycled two billion pounds of electronics and appliances,
Speaker 1: and recently they've made a change so when the geek
Speaker 1: squad comes out to your house, they can take away
Speaker 1: the old equipment and chords and cables and things like
Speaker 1: you don't want and bring them back to best Buy
Speaker 1: for free recycling. Now, if you've got like a big
Speaker 1: appliance or something, you still have to call them to
Speaker 1: pick it up for a fee. But yeah, but if
Speaker 1: it's something like the smaller stuff, that's gray. Because electronics
Speaker 1: recycling is a real problem. I mean, there's a lot
Speaker 1: of stuff that goes into electronics that is potentially environmentally
Speaker 1: harmful also biologically harmful to people and animals and stuff.
Speaker 1: So it's a real challenge, especially in an age where
Speaker 1: you know, a lot of us have been conditioned to
Speaker 1: want to replace our electronics on a fairly regular basis.
Speaker 1: Um so yeah, that's that's admirable. I uh really enjoyed
Speaker 1: looking into this, Like it's been a long time since
Speaker 1: I've set foot in the Best Buy. There's one that's
Speaker 1: not too far from my house, but I don't ever
Speaker 1: go into it. I go fairly fairly often because my
Speaker 1: husband likes to spend his reward points. Oh I just
Speaker 1: I remember when there used to be like the big
Speaker 1: section of music and the big section of like the
Speaker 1: giant boxes of computer games. And obviously those industries have
Speaker 1: changed dramatically too. Now we have far more digital downloads
Speaker 1: for both games and music, so that definitely impacted Best
Speaker 1: Buy as well, but the company has been able to
Speaker 1: shift with the change is in the marketplace. So yeah,
Speaker 1: it's done well. Yes, So thank you Emily and Ryan
Speaker 1: for the suggestion. Thank you for suggesting a company that
Speaker 1: did not spiral and implode to bankruptcy. Yeah, because we've
Speaker 1: done a lot of those recently, so it's nice to
Speaker 1: talk about the other side of it. Yeah, And if
Speaker 1: you guys have if anybody else out there has topics
Speaker 1: they want us to cover or companies they want us
Speaker 1: to look into, you can email us at Feedback at
Speaker 1: the Brink Podcast dot show yep, and you can visit
Speaker 1: our website that's the Brink podcast dot show. You'll find
Speaker 1: an archive of all of our past episodes, plus information
Speaker 1: about your beloved hosts. That's us and we will talk
Speaker 1: to you next time. I have been Jonathan Strickland and
Speaker 1: I have been aerial casting. Business on the Brink is
Speaker 1: a production of I Heart Radio and How Stuff Works.
Speaker 1: For more podcasts for my heart Radio, visit the I
Speaker 1: heart Radio app, Apple Podcasts, or wherever you listen to
Speaker 1: your favorite shows. Two Fi