As Originally Posted to The Wall Street JournalFinally victorious over longtime archrival Circuit City Stores Inc., Best Buy Co. is now gearing up to fight an even more powerful foe: Wal-Mart.
Leading the challenge will be Brian Dunn, the company's chief operating officer, who takes over for retiring Chief Executive Brad Anderson in June. His new strategy is to head off Wal-Mart Stores Inc.'s brutal price competition by giving consumers something the discounter cannot: more interactive stores, where customers can step into the world of a new videogame or see their faces captured by a high-definition video camera, instead of trolling aisles stacked with merchandise.
Analysts expect Best Buy to pick up at least half of the business of Circuit City, which closed its doors earlier this month, a victim of management and sales miscues as well as the recession.
Mr. Dunn won't have time to celebrate. Wal-Mart has ratcheted up its once-tiny selection of big-brand television sets, videogames and mobile phones to become a fierce contender. The Bentonville, Ark., giant recently said brisk electronics sales fueled a market-leading 5.1% February rise in same-store sales, or sales at stores open at least a year.
Best Buy remains well ahead of Wal-Mart in U.S. electronics sales, but Wal-Mart is gaining in critical growth areas such as flat-panel TV sets, according to the Stevenson Co.'s TraQline service, which estimates market share. By contrast, Best Buy's sales have shrunk during the recession, and it has cut inventory to compensate, perhaps too sharply.
Best Buy same-store sales fell 6.5% in December, and the company projects that fourth-quarter sales dropped 5% to 15%. Analysts expect Best Buy to report about a 20% decline in fourth-quarter earnings March 26, to $1.36 a share from $1.71 a year earlier, according to Thomson Reuters.
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At a meeting of store managers from the Southwest earlier this month, managers complained to Mr. Dunn that they had lost sales of flat-panel TVs because of a lack of inventory, a sore point for the chief operating officer.
The 49-year-old Mr. Dunn hopes to leapfrog growing competition from Wal-Mart by transforming the retailer's stores into lively showrooms for the latest gadgets. A onetime Best Buy stereo salesman who has spent 24 years climbing the company's ranks, Mr. Dunn said he still believes that the best retail innovations come from front-line workers. So before he succeeds Mr. Anderson, he has embarked on a tour of stores in search of inspiration for his remodeling plans, which he sees as a way to differentiate Best Buy from competitors such as Wal-Mart and Amazon.com.
"We want our stores to morph into a series of experiences," he said as he walked through a Dallas-area Best Buy directly across the street from a Wal-Mart and Sam's Club. "To do that, you have to go where the rubber meets the road, the sales floor," he added.
Focusing on showmanship and service to combat Wal-Mart's low-price draw is risky in a recession where consumers are clamoring for no-frills bargains. But Mr. Dunn said he intends to win customers by matching Wal-Mart on prices, and then offering something more, building on Best Buy's existing strategy of helping customers navigate increasingly complicated technology. The key will be making the most of Best Buy's tech-savvy sales force, he said.
"Wal-Mart is trying to copy us," Mr. Dunn, who had visited some of Wal-Mart's new prototype stores in Arkansas days earlier, told the store managers' conference. "But there is one thing nobody can copy, and it's this," he said, grabbing a Best Buy employee who was wearing one of the company's blue polo shirts.
Mr. Dunn, who never went to college and jokes that he was schooled at the university of retail, joined Minnesota-based Best Buy in the Twin Cities in 1985, and quickly caught the eye of superiors by using the soundtrack from "Miami Vice" to help sell stereos and Zenith television sets. He was promoted to store manager in 1989, to district manager a year later, and to vice president of East Coast operations in 2000. He was named head of North American retail in 2002 and COO in 2006, making him the anointed successor to Mr. Anderson.
"Brian's particular gift is that he is genuinely interested in the blue-shirts as people, and they can tell," Mr. Anderson said. "What that gives you that a lot of leaders miss, is that you understand what is happening in an organization on a more granular level."
Mr. Dunn hasn't always agreed with some of the ground-breaking changes at Best Buy; most notably, he opposed the 1989 decision to do away with commissioned sales in favor of salaried staff, which was widely opposed by sales workers who feared losing income. He now concedes it was the most important shift in company history, lowering worker costs and changing the core model of electronics retailing. Best Buy expanded across the U.S., and Circuit City eventually followed by eliminating sales commissions.
Executives who have worked alongside Mr. Dunn said he can think broadly as well as deliver practical results.
Right now, retailing needs leaders who can guide companies through troubled times, not visionaries, said Advance Auto Parts Inc. Chief Executive Darren Jackson, a former Best Buy vice president who worked with Mr. Dunn. "Brian is someone who can still command respect from the rank and file."
