How Best Buy Survived the Amazon

Buy in Business on the Brink. Hey everybody, I'm Jonathan Strickland and I'm Ariel Casting, and today we're talking about best Buy. This topic was requested by to Count them to listeners Emily Welch and Ryan MacArthur, both employees the Best Buy who wanted to hear how the company avoided the pitfalls at all these other big tech and big box stores. Hit. Yeah, the retail apocalypse that has closed down many stores, like we talked about Borders being one

of them, and Radio Shack. And then there's also a circuit city, which I'm sure we'll cover at some point, and we'll talk about a little bit in this episode. It does play into the history of best Buy. So in the age of Amazon and online shopping. Best Buy stories pretty interesting, and you could say that the company owed its entire existence to a natural disaster. It's a twister. It's a twister. It's like Wizard of All. Yeah. Here's the crazy thing is that we're making a joke, but

that's actually true. The reason why best Buy exists, you could argue, is largely because of a rogue tornado. How many businesses can say that, I mean, usually they don't create. Usually tornadoes don't create industry. They destroy industry. They might create opportunities for construction, and that's but they rarely, they rarely improve a business. Yes, okay, so uh, how did best Buy get started? Jonathan? Well, if you look at the name best Buy, that dates back to three but

the history of the company is older than that. It actually goes back another twenty years almost, and that history really starts in nineteen sixties six. There was a guy named Richard M. Schultz, and he also had a mysterious business partner. And no, no, I don't. I don't know who the business partner was because every article I read, everyone, every single one said Richard Schultz and his business partner. Yeah, there was never a point where it actually identified who

that person was. Now, ultimately we could say that name doesn't really play into the history of Best Buy that much because Schultz would go on and buy out his business partner after about a year, so it was pretty early on when that business partner was extricated for the business. So I guess it doesn't really matter, but it bugs

me as a researcher. I'm sure when you've researched some of these topics, you've encountered similar things where you Yeah, I go down a rabbit hole and I spend hours trying to find and then corroborate information, Like, uh, we recorded an episode on Blastic and I tried to find the stork's name, and I could find one article and it was uncorroborated, but I spent so much time trying to confirm the information. Yeah, that's the level of detail and dedication we bring to you to figure out the

name of a cartoon mascot stork of a pickle company. Anyway, let's get back to Best Buy. So, according to the story, Schultz would actually mortgage his own home in order to get enough money to really get into this business and to open up a store, which was at the time a stereo equipment store for car stereos and home stereos, and he called it Sound of Music. Oh, Jonathan, I know who the mysterious part there was. Are you gonna say it was Julie Andrews. I was going to say

a nun named Maria, but save different. Okay, no, if neither of those are correct. Uh. The first store was established in St. Paul, Minnesota, and within the first year of business he he led the company to go ahead and make its first acquisition. I guess you go bigger, you go home. And in this case it was actually a couple of companies called Kincraft Hi Fi Company and the Burgo Company. These were other audio equipment companies, guessing in a similar area. You know, this was all in Minnesota.

It was all in the the stereo business arena. Like that was all that he was concentrated on for for about twenty years. So he was just cleaning up street corners at that point. He was just getting the music out to the people by selling them the equipment. So uh, the Sound of Music store hit hit a good amount of revenue in its first year. And I say a good amount of revenue. The figure I have in our notes is a hundred sixty thousand dollars. But again, I

just want to be clear here. There are a lot of conflicting reports in the sources, and so while many of the sources referred to a hundred sixty thousand dollars, not all of them did. Some of them had it hires, some lower, and it was a private company so it didn't have to report. Yeah, so let's just say it was doing okay. Now, that was just in revenue. That

wasn't in profit. You know, obviously your profit is dependent upon your product, and stereo comments a decent profit margin if you don't mark it up too high, and if your retail space isn't that expensive. Yeah, so I don't know how profitable the company was, but it was doing good business. Uh. And he was pretty aggressive in those early days as a businessman. By nine sixty nine he had opened two other locations, also in Minnesota, so now

there's three stores. And around that same time he bought out his mysterious partner person whose name we never learned, and became the sole owner of Sound of Music. Again, the store, not the musical. The hills were not alive with radio equipment. No, it's just the stores at this point receivers just trampling all over the yes and and having adorable songs as they went to bed. So once again,

the details of the history are pretty sketchy. No one was really chronicling the sound of music chain of stores, which means that things probably were not going poorly. No, no, they weren't. They weren't remarkable, and they weren't terrible. Uh sometime around nineteen sixty, nineteen seventy or nineteen seventy one this all happened. That's because again reporting is shaky. Yeah, and by the end of nineteen seventies, by the end of that they had nine stores from three, right. Yeah.

They continue to grow throughout the seventies, again still focusing on stereo equipment. So he keeps on pushing for the company to grow. And uh, yeah, he was doing well. He had nine stores open. And and this is when we get up to this pivotal moment in with the tornado. Do you want me to make the noise again? It's okay, I think we can just play it back because we haven't recorded. Tari can actually insert that wherever she likes into this episode. Every five minutes, you're going to get

a poor tornado sound could be. She seems pretty excited about this possibility. We don't know when it's gonna happen, alright, So we get this regular old music stereo store. They would do commercials and stuff. Schultz would appear on them occasionally. Uh you know, they had their little Sound of Music logo. And the tornado in question is a truly historic event

in this part of Minnesota. It's called the har Mar tornado, not the Hardy hard tornado, which is what I first read when I looked at the next She thought it was like a hilarious tornado from the cat's skills or something cartoon tornado. No, No, that it's called the hard Mar tornado because it really devastated the area around the

har Mar mall um At. Some other people called the Lake Harriet tornado or the Adina tornado, and a tornado by any other name would reak just as much havoc as Shakespeare once wrote, or would have if you knew about tornadoes. So the tornado touched down. Now this I have a lot of information on, because when tornadoes happened,

people really pay attention to. The Weather Service does keep decent notes, yes, so on June four, at three forty pm, the tornado touched down in Adena, Minnesota, and then it began a fifteen mile journey to the northwest. And in case you aren't familiar with the way tornadoes travel, we live in Georgia, where tornadoes are not uncommon. Tornadoes tend to hop right, they'll they'll touch down, they'll travel along the ground for a bit. They tend to hop up.

They might travel another couple of miles and they might touch down again. So you can have In fact, we've seen this. We've seen neighborhoods that are completely destroyed, with the exception of maybe a house where the tornado just hopped over. I was actually in a tornado quite a few summers back, I want to say, like six or seven summers back, and all around me there was destruction, but my little community was fine. Yeah. Yeah, that's happened a few times in fact, where I was growing up.

The same thing. Well, Sound of Music's main store, the largest store, not their first one, but their largest and most popular store, was not so lucky. It was not spared this tornado. So it was a store that was near this harmar Mall area and by the way, trying to say, harmar mall is very tricky for me. You can understand why I thought it was hardy hard It's just it's easier, fair enough. And the roof was completely torn off of the store. It raised the roof, it

raised it and then threw it away. Yeah, and this is a stereo store, like this is still what they're selling is stereos. Around this time, they were also looking at getting into other electronics, but still really largely stereo equipment. And a lot of the stuff was destroyed, but some was salvageable. In fact, all the stuff that was in the storeroom was water damaged but not completely destroyed. So

Schultz got this idea. He said, why don't we have a fire sale, Except it's not really a fire sale, it's a water damage sale. Tornado sale is what they would think of it. And they set up a tent essentially across the street in a parking lot from the store, because of course the store was not structurally ready for people to walk through it, so they set that up, and a lot of histories will mention that this sale, Schultz was talking about offering up the best buys of

electronics in the area. So that's how he got the name. That's the way a lot of the story tell it, But to me it sounds like, uh, it took a little longer for that to really take effect, Like maybe thinking back on these best buys, because they would refer to that again, they would make this an annual sale. They would have a tornado sale on the on the anniversary of the first one in order to try and uh recapture the performance of that because the sale did

really well. Yeah, in four days they made as much in sales revenue as they would in a full month at that typical store. Yeah, so that's that was enough for Shultz to say, like, well, we should definitely do this on the reg maybe not with the tornado but with the sale, but with the sales. I mean, if you can bring in revenue send selling your goods at

a lower cost, why not. And there's actually a commercial that you can find on YouTube from two I believe it is where they refer to getting the best buys. But this store is still Sound of Music at that point it was or they had changed the name. Uh. And so again, this is right around the time they're starting to get into other electronics, particularly the brand new technology known as the VCR, which predates the Blue Blu ray and DVD player for those who do not know, yeah,

and is no longer in production. As of a few years ago, the very last factory making VCRs stopped doing it, which is unfortunate because my VCR broke a few years back. I know, I know some guys over at uh At, a VCR repair company in Wisconsin, who could help you open nice Well back to your story. Yes, so comes around and at this point, partly because they're no longer just carrying stereo equipment, but also because they were looking at how the sales event was so successful, Schultz decides

to rename his company. This is when he calls it best buy. Um. I mean it makes sense. You want to capitalize on the thing that is bringing you success. Yeah. And also you no longer want to send people the message that the only thing you're selling is music equipment yea, or musicals or children or nuns. You don't want people to think that those are all the things you're selling. But people didn't because the store brought in around ten

million dollars in sales revenue. Yep, yep. So this was where he had changed the names to all the remaining stores. At that point there were only seven left, so he had built nine, but h Or had established nine and now he was down to seven. He made ten million in that time, and that same year he would open up a new type of store in a place called Burnsville, Minnesota.

And this was the superstore model. So you know, it would jump into a phone booth and change into a cape and you know, I was holding back a Burnsville pun, but yours was better and worse at the same time. But Chells didn't invent the superstore. No, no, this was an idea that had been around since the nineteen sixties. In fact, the questionable but probable original superstore was called thrifty Acres and it was in Kalamazoo, Michigan, which is

just fun to say it. And also Circuit City, the big competitor to best Buy, had established its own superstores in the nineteen seventies, so that the best Buy superstore idea was not brand new. But they had a different approach than Circuit City. Yes, because that Circuit City, Uh for you young uns who never win to a circuit city in that era, they did things on commission, so they had salespeople who would greet customers as soon as they came in the door, and they would try and

find out what the customers were looking for. They would answer questions, they would run through demonstrations. They would typically steer people to the most expensive version of whatever it was they were looking for that they felt like, Yeah, just like when you asked what the best thing on a menu is? Yeah, yeah, I let me ask you, what do you like the nachos or the filet mignon. Well, I like the filet mignon and it goes really well

with this very expensive line. That's very expensive radio. Yeah. And they also could I interest you in the radio set? Yeah, So circumstany did this commission thing. Also, their stock was almost always just in a stock room. They had demonstration models on the floor. But you couldn't just pick up something, put in a in a cart and then push it

to a cashier. Instead, you were kind of joined at the hip with the salesperson, who, once they had established what you wanted, would arrange for a stock person to go and get it, and then they would ring you up at one of the mini cash registers throughout the storeroom. But Best best Buy let you grab your own stock and bring it up to a cash register, right, yeah, exactly.

So it's it's very much in the model that if you've ever been the Best Buy, it was like that from the beginning, which I mean to me, I personally would rather have that because I'm not going to go to a store if i feel like I have to buy something. But I'm going to go to a store if hey, I kind of need something and I want to look at options, I'm more likely to buy it than if I'm feeling pressured. Not to say that Circuit City employees were pressuring you, they were, but they were

because it's it's sales. It's what sales does, right, Like if you've ever bought anything that had someone working on commission, because I mean, the incentive there obviously is to make the sale, because that's how you make your money, right, You're getting money from every sale you make. You don't get money from sales you don't make, so you have the incentive to try and get that sale to close. Best Buy, by the way, at the time, was also

working on commission sales. They just didn't use the distributed cash register model that Circuit City did, which I mean means you still might have pushy salesman. But you can also be like, no, I'm going to help myself. You also have here that best Buy had lower priced items in low margin products like near the door. They still do today. Yeah, the whole it was let's get people inside.

That's the important thing. Get them inside, and even if they just buy these low profit margin items, you still are making the same And because they were a big box store, it was successful for them, unlike Radio Shack, who tried to put in more random objects into their store and it didn't quite fly. Yeah. It never felt like the Radio Shack approach had a coherent strategy to it, and best Buy had a much more coherent approach. And

uh yeah. So while other companies were kind of struggling with this transition, best Buy at the time was doing pretty well. It had differentiated itself enough from Circuit City so that the experience of going into a best Buy was much more casual. You could see all the stock there, you could you know, you could ask questions. But there weren't nearly as many sales people on the floor of the best Buy as there were at a typical Circuit City.

So that was what was setting things apart. But this was just the very beginning of best Buy, and we haven't gotten into how the company would grow exponentially over the next few years or what would happen when the retail apocalypse sets in. We will talk about that, but first we're going to take this quick break, Okay, So so Ariel, you know what we could do. We could go year by year of everything the best Buy ever did. That sounds tedious, Jonathan, it does, and that's why I

didn't put it in the notes. So really, let's just give the super short version of what was going on in best Buy joined the New York Stock Exchange. It had previously traded as Sound of Music on the NASDAC. So now it's moving up in the world of business. In nine they stopped doing commission sales, right. Yeah, this

is where they got rid of commissions entirely. Uh. This is also where they would make sure the entire stock of the store was on the showroom floor, so they they very rarely had very much in a stock room in the back. It was essentially convert the entire floor space into the showroom. Yes, this was, by the way, called their concept too. Yeah, this was where they the

original superstore was Concept one. This was concept too that rolled out, and again they were like they were looking at how to maximize the space for the customer and to they eliminated even more salespersons, like yeah, because again it it put things on the customers, uh kind of scheduled. If they had questions, they could ask salespeople about things, but they weren't feeling pressured into buying stuff, which I'm

sure made some companies unhappy. Absolutely it did, because it meant that their products weren't being pushed by salespeople super hard. So if your whirlpool or your Maytag or you're one of these big companies like Sony, you want the salesperson to steer people towards your products so that they are more likely to buy them, because obviously that's all you

make your money. And without the commission sales people, that was the fear was customers wouldn't go to these big ticket items as frequently, and so some of these companies said, well, we're just going to take our refrigerators and washers and dryers and we're gonna go home fully on them. Yeah, it didn't last long because the concept two stores ended up being immensely popular and it turns out that if everyone's going there, that's where you got to put your stuff.

So the companies came I won't say crawling back, but they did come back. We also got the yellow tag Wogo around this time. Yep. That's when Best Buy would adopt that, and the company hit a billion dollars in sales revenues in and by it was only behind Circuit City in the electronic retail market. And remember a Circuit City had been doing all electronics for longer and had been more entrenched in that particular market. So this is

pretty good. Yeah, Now they weren't content just to stick with that and and write it out as long as possible, because we got the Concept three store, yes, which is Concept two but more bigger. As I wrote, Yeah, this

was where they introduced demonstration areas. If you ever went to a Best Buy where they had like the theater room where you could sit down and listen to your ears get assaulted by whatever usually was the matrix, I think that was almost always on h Yeah, that was that was those concepts, and then beyond that you would get Concept four stores in they were slightly smaller than Concept three stores, and they also put cash registers throughout

the stores, kind of like Circuit City did to distribute the points of sale, but you could still bring your items to that cash register. Yes, yes, so you could have a cash register dedicated for a particular section of the best buy. So for example, if you were shopping music, or you were shopping you know, camera accessories. I think you still sort of can if like if you go and you buy a phone. Yeah, it all depends on the best Buy and it depends on which blayout it follows,

but yes, you still can do that. And and during this time they were also opening up new locations in various markets, including international, uh partially through I read one article it says that partnership with Microsoft helped them expand internationally. Some Yeah, that was a big deal, was their their partnership with Microsoft. That was also seen as a big deal just in the industry in general, because here's Microsoft. It's just an enormous company making a deal with a retailer.

I mean that was that was a big deal. That was a big Yeah. And then they also bought Magnolia Hi Fi. So now you could sit and have your ears assaulted by the Matrix, but you couldn't see what was assaulting your ears because it all looked like rocks or tables. Okay, we're going to ignore that. Best Buy then, in two thousand and one had one of its what people would in retrospect would call missteps. They bought a

company called music Land Stores Corporation. And this was a company that had several different retail stores under its ownership that would operate typically in malls. So there are a lot of those music stores that were in malls, things like Sam Goodie Music and electronics stores. A lot of those belonged to this particular company. And the thought was best Buy was singing, well, we can we do this really well in retail spaces, so we can do it

really well in malls too. And the deal cost foive million dollars, plus best Buy agreed to assume music Lands debt, which was another two hundred seventy one million dollars and more than half a billion when you add in the the price of the acquisition plus the debt. UH By two thousand two, the division was losing tens of millions of dollars. Again, the numbers kind of very depending upon the source, but it's always in the tens of millions.

Like sixty seventy million dollars. In two thousand three, best Buy would divest itself. It would quote unquote sell music Land to Sun Capital Partners. But selling is being very generous because they gave it away. Well, I mean, cut your losses while you can. I guess Sun Capitol got

the deal cash free. The only thing that Sun Capitol had to agree upon, and this would ultimately collapse that company, but that's a different story, was they had to agree to assume the debt associated with that company, So Best Buy was out the money they had spent to buy it, but at least they no longer had the debt from music Land on their ledger as well. Well. Around this time, Richard Shells also retired the CEO. Right yep, he was worth about two billion dollars at that point. Good time

to retire, Yeah, not not bad. Brad Anderson, who had joined Sound of Music back in those days, would become the new CEO. He had worked his way up from like salesperson all the way up to well now CEO of the company. And you would see this, by the way, in best Buy you would see a lot of these leadership positions were from within the company. Which typically we think of as a good thing. In the case the Best Buy, as we will ultimately see spoiler alert, it

wasn't always a good thing. I mean, you want to you want to be loyal to your to your employees, but at the same time, you may not have the best candidate within your employees. And sometimes if there is a problem within the company that you grew up with, then you won't see it. Yeah, you don't see it because it was there the whole time and you were You can't see the forest for the trees, is what we would say. But Anderson did make a really good

move because he acquired geek Squad. Yes, and this would end up being a very important part of Best Buys success ultimately. And geek Squad at the time was an independent company that was providing tech support to customers, So people would essentially pay geek Squad to fix their electronics what weren't working no more. Yes, but you know, not

super surprising because we see this a lot. When a CEO retires, a first CEO, the company started seeing lower sales and I don't know if that's because of his retirement or just the economy. I think it was a combination really, I think it's mostly the economy. Honestly, I think that the sales were starting to lag a bit. It was just one of those cycles we see. Plus we were getting into the recession. And around this time

in two thousand and eight, Best Buy acquired Napster. So you do you know what Napster is A real I do know what Napster is. It's I know it for music piracy. Yes, yes, So Napster that best Buy acquired wasn't exactly the same as that company. So Napster, the piracy one that we associate with was a file sharing service, but that had been shut down in two thousand and one. The government shut it down. Yes, they were like, this is illegal, guys, you cannot do this no more. Uh,

there's no safe harbor for you. You are pretty much enabling music piracy and and software piracy. So a company called Roxyo ended up getting the intellectual property assets, so essentially the rights to use the name and logo of Napster, but not like anything else associated with the company. Was essentially the the appearance of Napster, but not the souls. That's interesting, I guess there trying to appeal to the

people who like Napster for the illegal stuff. Well, they were trying to appeal to young hip folks who were associating Napster with digital music, so they took an already existing software called press Play, they slapped Napster's name and logo on it, and best Buy purchased that in two thousand eight for a hundred twenty one million dollars. So while you could say best Buy bought Napster, there's a big asterisk there because it's not it's not the Napster

that everyone thinks about from two thousand one. Yeah, in two thousand nine we got a new CEO, so yeah, we sure did. Anderson was out and Brian Dunn was in. And Brian Dunn had also been with best Buy since Nive, so he had been there since the after they changed the best Buy, but he had been there for for two decades and it worked his way up, and now

I was leaving the company. Uh. In two thousand eleven, Done oversaw a deal that led to Napster leaving best Buy and it and also would end up merging with a different company called Rhapsody. That's a story in its own and best Buy we have a small steak in that company as part of this arrangement, and really it was an attempt to get out of a flailing business because there were some companies like Pandora and Spotify that were on the rise, and it just looked like Napster

was not gonna compete against them. And Napster wasn't the only thing they're getting rid of. They also closed some of their overseas stores at that time. Yeah, they were trying to consolidate some of their their assets and get rid of some things that were not being terribly profitable. Then we get to two thousand eleven, and this is where things get ugly. Jeez, you didn't allude to that at all when I said Brian Dunn's name when you're like, oh, geez, yeah,

this was so. Brian Dunn's name would often get listed on like the worst CEOs of two thousand and twelve, that kind of stuff, And why is that, Jonathan? So the board of directors had an inquiry into Brian Dunn's behavior because there were reports that he was having an inappropriate relationship with a fellow best By employee. So he's CEO this woman who was twenty nine years old at the time, he was fifty one, not that that necessarily

should match. The problem. The problem was that he was CEO, she was also working for him, and that this was a relationship that he should have just closed to HR. Plus He's also was also married, so there was some other Now. Granted, he has always maintained that it was never a romantic relationship, but there are a lot of people who thought that perhaps that was not entirely true

because they were frequently seen together. Yes, and then he would eventually resign in the spring of two thousand twelve under intense pressure from the Board of directors, and not very long after that, Richard Schultz, who had no longer been CEO but had maintained his role as Chairman of the board, was asked to design because it became clear he knew about Brian Dunn and this employee but had not disclosed it to the Board of Directors or the auditors.

But despite that, and despite his retirement, he tried to buy Best Buy back. Yes, he cut the he got the honorary title of Chairman emeritus, and then he said, hey, you know what I'm gonna do. I'm gonna turn Best By private again. I'm going to lead a buy out of Best Buy. But it turned out he was not able to raise the financing he needed in order to achieve that, so that ultimately went nowhere. Yeah, and by two twelve, best Buy was really kind of spiraling. Yeah,

it was not in a good space space. So you had this controversy, you had the departure of the CEO, you had the departure of the chairman of the board. The stock price had fallen to its lowest point in years. The sales of the stores, like the sales at the actual individual retail stores, were on the decline. They were either not growing at all or they were actively falling.

Other retailers were starting to close up shop. This is what we were referring to with the retail apocalypse is where companies like Borders and Radio Shack we're really having trouble. And it looked like Best Buy was going to join them, but it didn't. But we'll tell you guys how it didn't after this quick break. Okay, so here's the interesting part of this story. Now. We have said that usually we like companies that promote from within. It tends to

be good for morale. It gives incentive for people who are working within the company to strive for leadership positions, but it can also blind you from what's going on and failing in a company. So in this case, the board of directors ended up reaching out to an outsider to come in and lead Best Buy, and that would be Hubert Jolie. And he came from like the uh,

the sort of the hospitality industry and things like that. Like, he came from a totally different world in retail, but it seems like a good compliment to the retail world because so much of your product is hospitality to your customers. Yes, and he thought that the first thing he needed to do, and I think this is incredibly insightful, was to talk to actual Best Buy employees and find out what's working, what's not working, what are you concerned about, what are

you seeing Because you're the ones operating these stores. You see what's what's happening day by day, and I want to make sure that we figure out how to best move forward. And that ended up by itself helping a lot with employee morale because it showed that he was taking a direct interest in the frontline employees. He he was using the ever important and business emotional intelligence. Yes, good old EI, good old Ei. So he initiated some really big behind the scenes changes for Best I. It

was called renew Blue. It was actual initiative that's referred to it. Yeah. This is also why I said, Heaven help you if you wear a blue Polo shirt walking into Best Bike, because everyone will think you work there.

It's like wearing a red shirted target. Yeah. Yeah. So he did a total redesign of the shipping infrastructure to make it easier for stores to to not just know what their individual stock was inside the store, like you know, how much of each item did they have, they also could quickly figure out where other products were and then order them more efficiently. So in other words, he was

really streamline the supply chain side. And that can get really dull and boring when you're talking about it, like from numbers perspectives, but it is so incredibly important for retail establishment particularly but really all companies two have a really strong handle on your supply chain, so you know where everything is and so you don't lose money from over stalking even or or having you know, having a demand in one store that cannot be met because they

can't get hold of the product. Meanwhile, another store has an excess on it and nobody wants it. Yes. In addition to this, he also really improved the customer experience as well. So he did that by giving them the option to look at an item in the store and play with it in the store and then decide whether to buy in store or online. Yeah. And this was in response to something that was already happening and I'm sure all of you out there have done it. It's

called show rooming in the industry. This is the habit of customers going into a physical location to get that hands on experience with various products, then more often than not, pulling up Amazon on their smartphone and seeing how much it costs on Amazon versus wherever they are. Yes. So,

instead of fighting it, he embraced it. Yes, and so as part of that, in order to embrace that, he so instituted a price matching philosophy, saying that if you could find a product for a lower price at say Amazon, best Buy would match that price because rather than you know, deal with the loss of a sale, He's like, well, it's better for us to have a lower profit margin than to not get the sale at all, which is kind of how best buy started in the beginning by

having that Yeah, it's just that this case, the tornado's name was Amazon. Yes, it was a metaphorical tornado. And this was a good move because it caused best Buy's sales to grow incredibly. It grew so fast it reached uh to the point where the online sales for best Buy would make up six of their total revenue, which was already incredible. So this was also a really important strategy. It wasn't just that he was making the store experience better.

He was making the online experience better too, and that was where they were really able to compete. So you could use you could marry the two right, You could go to us by look at the stuff, make your decision, you order it online, or maybe you order it online, you go to the store, you pick it up, that kind of thing, so it's ready at the moment that you purchase it. This was the other way to fight Amazon. It was saying, yeah, you could order it from Amazon.

You're gonna get the same price as what we do. You might also have to pay for shipping. Plus you're gonna have to wait three or four days. And then if you get something that somehow got destroyed in the shipping process, you would have to return it and wait for a new one. You could go look and see what you were picking up at the best Buy store. Yeah yeah, And if it was a delivery thing, it was a delivery thing from a store that was down the street, as opposed to a warehouse that might be

in another part of the state. So it was incredibly effective. But on top of this, Julie didn't just fight Amazon, he actually played nice with them a little bit too. Yeah, this was a very This could have gone either way to He started using parts of best Buy stores to act as sort of many stores for companies that would typically be competitors or maybe direct vendors to best Buy.

So you could find a little section that was essentially sponsored by Amazon or sponsored by another company, and best Buy was earning revenue this way because they were essentially churching rent. So in this case, best Buy became a landlord. And these other companies like Google and Amazon, they took advantage of it because they lacked that capability that best By had, which was they didn't have a physical space where you could go in and take a look at

these products. Even companies like Apple, which does have its own stores, it was using places like best Buy because they don't have stores everywhere, but best Buy is far more widespread than Apple stores are. Yeah. Now, another champ pole of these these changes he was putting in was customer service, and one of the ways he improved that was by expanding geek squads milieu. I suppose, yeah, yeah, geek Squad became not just tech support but also sort

of ambassadors and evangelists and ultimately salespeople and in home consultants. Yep, yep. So you know the philosophy under geek squad, it's it's all very let's don't put any pressure on the customer, like your your goal is always trying to sell more, but not in a way that's going to make the customer feel like the experience is an unpleasant one. It's

rather you really do need to use your expertise. So let's say you go into a person's home and they said, yeah, I want to make a home entertainment center, and this is the room that I have, and you're you're supposed to really use your expertise to say, well, based upon the size of this room, how much light is coming in, here's the television I would recommend, here's the sound system.

I would recommend that kind of thing because it's it's real frustrating when you go and you buy a solution for your home that you think will work, it doesn't quite fit, or it doesn't quite hook up correctly, or maybe there's so much glare from the window that you're

not not able to watch it very well. Also, there's always the problem of the s you see in the store have been specifically tuned so that they look really good in the store, but when you get one home, it hasn't been tuned yet, and it can be a bit daunting to do that. Again, Geek Squad would do this sort of stuff. They would not just hook everything up, but they would set it so that the settings of the television would be or whatever would be best a

best match with the space. And this ended up really helping set Best Buy apart as well, because these other companies didn't have that. And then uh Julie put in he used his emotional intelligence again because he improved employee benefits. Yes, yes, one of the things that they had lost in recent years was a really hefty discount on Best Buy products. He brought that back so now employees could actually buy best Buy products for a significant discount um. He also

was looking at other ways to help. Largely he was trying to avoid layoffs as best he could. Occasionally he still had to do it. He said, it's always, you know, something that you may have to consider, but it should be very far down the list of considerations. You should be able to, you know, try and exhaust other options first.

And uh, this ultimately did improve employee morale at least if you look at employee turnover, because before he took the role, employee turnover was like of Best Buys employees we're leaving every year, which you know, a company having to attract and higher fifty percent of its workforce every single year, I mean just to maintain, not even to grow. That's an incredible expense. He got that down to thirty percent, which is still pretty high, but much lower than fifties. Better.

All of these changes, all these things are what really has helped best Buy survived this this retail apocalypse, and not just survive but thrive. Yes, this is where we're

seeing best Buy do really well. I mean, if you look at any Google search of best Buy performance, you're going to see lots of articles that go into an analysis on this, and they all pretty much agree with the things that I've stressed that Jolie had brought in the the turning the Best Buy stores into show rooms, acknowledging the problem of the show rooming experience and making sure that the price matching and the app experience mitigates that as much as possible. You know, having the geek

squad really sets it apart. And now we've seen best By reporting revenues of forty two point one billion dollars in in the fourth quarter of eighteen. So that's good. I don't know they're operating costs, but that's pretty good. Well, they cut their their debt in half, so that's nice too. So it tells you that not only are they doing well, but they're addressing the problems they have with their debt.

So yeah, this has been um a pretty bumpy ride for Best Buy, but I would say that upon uh, the the emergence of Jolly as CEO, things have really turned around. In fact, I guess because Brian Donne ultimately sort of caused this, you could argue you could call it a done deal. Oh, Jonathan, all right, I'm going to move on to a fun fact because that wasn't

one that was. It was a fun pun. So one of the things that we didn't talk about in all these initiatives and changes that Jolly put into place was all of the electronics and recycling, appliance recycling that best

Buy does. Since two thousand nine, as of recording this, best Buy has recycled two billion pounds of electronics and appliances, and recently they've made a change so when the geek squad comes out to your house, they can take away the old equipment and chords and cables and things like you don't want and bring them back to best Buy for free recycling. Now, if you've got like a big appliance or something, you still have to call them to pick it up for a fee. But yeah, but if

it's something like the smaller stuff, that's gray. Because electronics recycling is a real problem. I mean, there's a lot of stuff that goes into electronics that is potentially environmentally harmful also biologically harmful to people and animals and stuff. So it's a real challenge, especially in an age where you know, a lot of us have been conditioned to want to replace our electronics on a fairly regular basis.

Um so yeah, that's that's admirable. I uh really enjoyed looking into this, Like it's been a long time since I've set foot in the Best Buy. There's one that's not too far from my house, but I don't ever go into it. I go fairly fairly often because my husband likes to spend his reward points. Oh I just I remember when there used to be like the big section of music and the big section of like the giant boxes of computer games. And obviously those industries have

changed dramatically too. Now we have far more digital downloads for both games and music, so that definitely impacted Best Buy as well, but the company has been able to shift with the change is in the marketplace. So yeah, it's done well. Yes, So thank you Emily and Ryan for the suggestion. Thank you for suggesting a company that did not spiral and implode to bankruptcy. Yeah, because we've done a lot of those recently, so it's nice to

talk about the other side of it. Yeah, And if you guys have if anybody else out there has topics they want us to cover or companies they want us to look into, you can email us at Feedback at the Brink Podcast dot show yep, and you can visit our website that's the Brink podcast dot show. You'll find an archive of all of our past episodes, plus information about your beloved hosts. That's us and we will talk to you next time. I have been Jonathan Strickland and

I have been aerial casting. Business on the Brink is a production of I Heart Radio and How Stuff Works. For more podcasts for my heart Radio, visit the I heart Radio app, Apple Podcasts, or wherever you listen to your favorite shows. Two Fi