Star Trib Story on Best Buy

Ahead of Tuesday's earnings for Best Buy, the Minneapolis Star-Tribune ran a lengthy piece on Best Buy, with reporter Thomas Lee heading up a team of reporters.  Overall, it's a useful placement for the Schulze-led private equity group looking at making a bid for Best Buy.

Investors who saw Dell's quarter, presumably shouldn't be surprised by Best Buy's being hit by the same lackluster reaction to the Windows 8 release and consumer reticence towards upgrading to ultrabooks, netbooks, or new laptops. Unless Best Buy sales declines open up a gash in the hull, it would seem as if the stock might churn, but shouldn't react too much by the end of the day. Bad news should be baked in.

Overall, the story is pretty well balanced, which is unusual for newspapers these days, which have a clear axe to grind.  It does refer to some of the same internal issues that we suggest are at the heart of Best Buy's losing its way as a market leader.

Here are a few relevant quotes,

"But former and current executives described a chaotic, adrift culture. The company encouraged employees to experiment but without real follow-through."

"They said all the right things, but there was no action."

There was clearly no accountability for mistakes, particularly at the executive management level and down to senior management.

In addition, Best Buy fell prey to the siren song of the big consulting firms, with almost all the leaders coming up with expensive, misguided projects directed away from the core issues.  The most astonishingly ill conceived decision was to outsource IT, the LAD artery of a transaction driven company, to Anderson Consulting.  That is now on track to being internalized, which is not without risk.  I can clearly see the consulting company slides that advocated this misguided step.

The Napster acquisition is not mentioned in the article.  After apparently passing on discussions with Richard Branson of Virgin about developing an Internet music service, Best Buy bought Napster for $122 million and essentially wrote it off for some stake in Rhapsody.  Probably another consulting company slide set drove this lunacy.

Best Buy's board and management would be foolish not to work with Dick Schulze, the entrepreneur-founder and largest shareholder, to turn this company around.  The "Renew Blue" presentation seems to provide a good road map focused on fundamentals that might be a good start for working together.

Turning the company upside down with a leveraged buyout might be a quick, tax-efficient tonic for fatigued portfolio managers and arbs, but it might not be the best thing for long-run value creation.