After years of struggle, Best Buy gets its groove back

A few years ago, Best Buy was on the ropes. Amid slipping sales and earnings, there was talk of bankruptcy.

But Hubert Joly took over as an unlikely choice to run the Richfield-based retailer. The former hospitality executive vowed to "renew blue," calling to mind the company's blue-shirted employees and primary store color.

Now, even some of the greatest doomsayers for Best Buy acknowledge Joly has turned the company around. Best Buy is definitely back.

People may not visit Best Buy stores as much as they did when they had to trek to an actual store to buy music and movies. But Best Buy has arguably established itself as the go-to retailer for all things techy, along with price-matching, free shipping, and plentiful advice and help.

Carol Kladnik of Richfield trusts she'll get what she needs at Best Buy. "I'm not an electronics freak," she said. "So, I don't have a lot. But anytime I bring my phone in and I've got a problem, they solve it. And they gave me a great price on the on the tablet I bought."

Nick Gentle of Minneapolis figures that when he goes to a Best Buy store, he can pretty much count on getting what he wants on the spot. "I think it's a more instant gratification than say getting something two-day-delivered on Amazon."

Those customer testimonials represent a sharp turnaround from when Joly came on board in September of 2012. Best Buy's sales and profits were plunging, but now they're on the rebound.

Sales at stores open at least 14 months were up nearly 6 percent last year. Over the past five years, online sales have doubled to more than $6 billion.

Reflecting that improvement performance — and an aggressive share repurchase effort — the company's stock price has increased more than 500 percent from its low point in late 2012.

The stock recently topped $78 a share before falling back.

Last month, Joly told shareholders that he wants Best Buy to be the place consumers go for smart home, virtual reality and other new wave products. "We're playing to win," he said.

Joly is even winning plaudits from one of the most bearish analysts following the company, Wedbush Securities' Michael Pachter.

"I cannot say enough good things about the management team," he said of Joly's efforts to revive the company. "I was skeptical and cynical, and I was wrong. They're really good."

Pachter, though, said his doubts remain about Best Buy's future in a brutal industry.

"Long term it's a terrible business," he said. "There is nothing at Best Buy that a person under 60 needs to go to the store to buy."

Best Buy's improving outlook has been helped by factors outside management's control. Last year's massive federal tax bill will slash the company taxes dramatically. The company expects its tax rate will fall from about 33 percent to about 25 percent.

More online competitors have been compelled to collect sales taxes. And Peter Keith, an analyst with the investment firm Piper Jaffray, notes brick-and-mortar rivals are disappearing. "A lot of competitors have gotten smaller or had to close down entirely," he said.

But Joly has made a lot of strategic moves to improve Best Buy's performance, said Keith, including selling off or consolidating businesses in China, Europe and Canada and cutting hundreds of millions of dollars in operating costs.

Online retailers like Amazon represented one of the greatest threats to Best Buy. Joly took them on with price-matching and free shipping offers and, Keith added, providing more of what web retailers don't: personal service.

Service revenue hit nearly $2 billion for Best Buy's fiscal year that ended in January. And Best Buy hopes to hook more customers on paying for extra help. The retailer recently introduced a service that provides customers 24/7 tech support for $200 a year.

Analysts say Best Buy has been especially adept at giving suppliers a stake in the retailer's success by providing Apple, Samsung and other vendors their own space inside stores.

"Those brands are rooting for Best Buy's success and helping Best Buy become successful because Best Buy very meaningful to them," said retail consultant Carol Spieckerman.

Piper Jaffray's Keith said companies pay rent to Best Buy for space and teach the retailer's employees about products. But Best Buy won't reveal financial and other details of those arrangements.

Perhaps Joly's greatest coup — at least symbolically — is converting Amazon from a mortal threat to a key partner within the past year or so.

Best Buy will install, integrate and service Amazon TVs and Alexa digital assistants sold by Best Buy. And with that, Amazon is now adding to Best Buy's bottom line.

Amazon has done its own store-in-a-store investments in Best Buy, said Keith who estimates Amazon's in 400 to 500 Best Buys now.

It's an interesting relationship, he added. "Amazon, we like to call them the great frenemy of Best Buy."