Ford To Expand Best Buy / Sync Plan

Detroit Free Press

Ford Motor CEO Alan Mulally announced today to the Consumer Electronics Show that Ford plans to expand a pilot program in which dealers work with Best Buy to demonstrate to potential customers how the Sync system works.

In the pilot last year in the Dallas area, potential customers attended sessions to learn about Sync, and the phones that would work with them, at Best Buy stores. Ford is spreading the program to Pennsylvania and California this year.

“Seventy percent of consumers say they are now more likely to consider buying a Ford, Lincoln or Mercury product,” said in his second keynote to CES, the largest consumer electronics show in the world.

Before the keynote address from Ford CEO Alan Mulally, Gary Shapiro, head of the Consumer Electronics Association, announced today that Edmunds.com gave the Ford Taurus its first technology breakthrough award.

Best Buy Will Take Your Electronic Junk

CNN Money

At a Best Buy store in Roseville, Minn., the traffic in electronics travels a two-way street. Out the door go flat-screen TVs, netbooks, and iPhones. In comes junk -- and plenty of it: TVs that can't decode digital signals, outmoded desktop computers, even the occasional eight-track tape player or ham radio.

Since March, when Best Buy (BBY, Fortune 500) began offering free recycling of gadgets large and small, more than 25 million pounds of ISTB -- that's company lingo for in-store take-back -- has made its way to the company's 1,044 U.S. stores.

About 60 items a day arrive in Roseville, where Christine Cartwright, a store manager who rolled out the take-back program there, says she never expected to get into the recycling business when she joined the retailer. Dealing with all the unwanted stuff adds work, but it also brings an element of surprise to the job. "You never know what people will bring in," Cartwright says. "Some of these televisions ought to be in a museum."

So how, exactly, did Best Buy become America's biggest collector of electronic garbage? Where does it all end up? And can a big-box retailer turn all that trash into cash?

We'll tell you, but first a word about how Best Buy came to embrace corporate responsibility and recycling. Some businesses take an expansive view of their social responsibilities because their founders set out to build a different kind of company.

Bill Hewlett and David Packard believed that the purpose of HP (HPQ, Fortune 500) was to "make a contribution to society," while Howard Schultz decided that Starbucks (SBUX, Fortune 500) would offer health insurance even to part-time workers because his father, a truck driver, had none. Other firms, like Nike (NKE, Fortune 500) or Wal-Mart (WMT, Fortune 500), reformed their practices after their reputations got whacked.

Best Buy fits another category. "For us, it wasn't founder-driven or crisis-driven," says Brian Dunn, a 49-year-old company veteran who became CEO of the $40-billion-a-year retailer in June. Instead, Best Buy began to focus on its social and environmental impact at the behest of its workers and customers.

Employees wanted to know what Best Buy was doing to become more environmentally sustainable. Some customers -- not most, but enough to matter -- said they preferred to do business with retailers that cared about their community.

Dunn took notice. The burly, straight-talking CEO, who got his start at Best Buy as a video salesman in 1985, tries to stay connected to staff and customers. He posts questions to an employee website called the Water Cooler, tracks consumer sentiment on social media like Facebook and Twitter (you can follow him at BBYCEO), attends focus groups, and invites customers to the company's leadership meetings.

"One of my roles as CEO is to be the chief listener," Dunn told Fortune during an interview at Best Buy's headquarters outside Minneapolis. "I don't believe that the model is any longer that there are a few really smart people at the top of the pyramid that make all the strategic decisions. It is much more about being all around the enterprise, and looking for people with great ideas and passionate points of view that are anchored to the business and connected to things our customers care about."

Best Buy, as a result, has decided that being a good corporate citizen makes business sense. As a manufacturer of electronics, Best Buy audits the factories of its suppliers, mostly in Asia, to make sure they don't exploit workers or pollute the environment. (It severed ties with 26 factories last year, out of about 200.)

The company promotes diversity, helping workers organize into networks of women, Hispanics, African Americans, Asian Americans, and gays and lesbians. (The women's leadership forum, called WoLF, reaches out to female customers.) Best Buy is strategic about philanthropy, which is aimed at teenagers; a program called @15 offers teenagers the chance to compete for college scholarships and grants to help them bring about social change.

Dunn believes that sustainability is a rising social value -- and therefore a business opportunity. Twenty Best Buy stores in San Francisco, Los Angeles, and Portland, Ore., began selling electric motorcycles last summer, after the company's venture arm took a small stake in Brammo, a startup based in Ashland, Ore.

"I view us as in the early innings of all this," Dunn says, "but it's very, very important to us." If $12,000 electric bikes sell well, the company may try selling solar panels, wind turbines, and electric cars, along with home-energy networks to tie them all together.

Best Buy's commitment to corporate responsibility dovetails well with the company's emerging strategy and business model. To set itself apart from Wal-Mart and Amazon (AMZN, Fortune 500), its biggest competitors, Best Buy wants to do more than sell consumer electronics. It would like to help customers get better use out of technology, whether they are buying, installing, fixing, or disposing of their hardware. Says Dunn: "We're transitioning from just being a mover of boxes."

The company took a big step in that direction with its 2002 acquisition of the Geek Squad, then a small, Twin Cities-based computer-support company. Today Geek Squad agents account for about 20,000 of Best Buy's 160,000 workers. They work on home entertainment systems, car audio and GPS, mobile phones and appliances, as well as computers. Someday they may service solar panels or electric cars as well.

By offering recycling, Best Buy positions itself as the place to turn when customers need to dispose of their electronics, which often coincides with the acquisition of a new device. "It's not a fun experience going to the county recycling center," says Mary Capozzi, Best Buy's senior director of corporate responsibility.

Best Buy has been experimenting with recycling since 2001. The company began by installing kiosks in stores where customers can drop off cellphones, batteries, and ink-jet cartridges. That, it turns out, is good for business because all those items have residual value.

Cellphones in decent condition are spruced up and turned over to resellers like eBay (EBAY, Fortune 500) or shipped to developing countries for resale; others are disassembled so that precious metals like platinum and palladium can be recovered and reused. Batteries, too, are sold back to manufacturers who recover zinc and other metals.

Best Buy shares in the recycling revenues with the contractors it hires to manage its waste stream.

Since March, Best Buy has offered to take back almost anything electronic, albeit with a few conditions. Households can bring in up to two items a day. Appliances and TVs that are 32 inches or bigger aren't eligible for free recycling. (Best Buy will remove them free for customers who have a replacement product delivered, and it will send a truck to haul them away for $100 for anyone else.)

What's more, customers pay a $10 fee for recycling for 32-inch-and-under TVs, CRTs, monitors, and laptops. In return, they get a $10 gift card. Best Buy is tracking usage of the gift cards to see whether the recycling offer is attracting new customers. "We're trying to see what the behavior patterns are of customers who recycle," Dunn says. "What do they buy next?"

TVs make up the bulk of the load, which is a mixed blessing for the company. Old TVs with picture tubes can't be resold. They have to be trucked away and taken apart before the materials are melted down for reuse. While recycled plastics, for example, might wind up in lawn furniture or new gadgets, the glass and common metals inside TVs don't have much value.

In that light, how does Brian Dunn feel when he sees a customer unloading an old TV from the trunk of a car into a Best Buy? "I'm happy because it helps make that connection between Best Buy and the customer and the community," he says. "Am I happy about it as a stand-alone P&L event? I assure you I'm not."

Still, the economics of trash are more complicated than they appear. In about 20 states and New York City, where electronics manufacturers are required by take-back laws to help finance recycling, companies like Samsung and Sony (SNE) share the costs of disposing of old TVs. Executives won't say how much the recycling program is costing them. "Our hope is to make it a break-even proposition," Capozzi said. "Depending on commodity prices, it could become a profit center."

The take-back program could have other benefits as well, by driving innovative design and new business models. Manufacturers that know they will be responsible for the end of life of their products will design them so that they can be disassembled and recycled more easily, avoiding, for example, composite materials that can't be melted down. (Dell already uses fewer screws in its computers so that they can be snapped apart.)

Eventually that should move the consumer electronics industry away from today's throwaway model and toward the ideal of nature-inspired design, where every product is made into something else when it is no longer useful.

Best Buy, meanwhile, is so interested in giving products a second life that it acquired an Irvine, Calif., startup called DealTree, which provides software to manage online auctions, logistics, and returns processing of used goods. DealTree manages a trade-in program for Best Buy, under which the company offers gift cards in exchange for laptops, iPods, digital cameras, and other "gently used" electronics.

It's not hard to imagine a day when customers would lease, rather than buy, a new TV or desktop from Best Buy with the understanding that they could bring it back when they wanted to upgrade. Dunn says that a leasing model is not on the immediate horizon, but it's clearly something he's thought about. "We might guarantee you a five-year trade-in value on a flat-screen TV," he says, "because we want you to come back."

If nothing else, that would help early adopters overcome a chronic fear -- that just as soon as they buy that new TV, laptop, or phone, a better or cheaper model will come along.

Nokia To Sell Netbooks At Best Buy For $300

Story from the Wall Street Journal

Nokia said Tuesday that its first netbook will go on sale in the U.S. next month for $300, as the cellphone maker aims for a big holiday push.

Best Buy will sell the mini-personal computer, dubbed the Nokia Booklet 3G, starting in mid-November. The consumer-electronics company will be its exclusive retailer through the holiday season, said Barry Judge, marketing chief at Best Buy, during a launch event in New York.

The Nokia Booklet comes in black, azure blue and “ice,” and its features include Microsoft’s new Windows 7 operating system, a 12-hour battery and “silent” operation due to its lack of a noisy internal fan.

Its price tag includes a two-year contract with AT&T, which provides its network connectivity. A carrier-free option, similar to an unlocked iPhone, is available for $600.

The carrier has inked several deals outside of the telecommunications space in recent months, including electronic readers and GPS devices. Computers such as the Nokia netbook represent an even larger revenue opportunity, said Glenn Lurie, head of AT&T’s emerging devices unit. It worked with Nokia for nearly a year on the device, he added.

Nokia first showed the netbook in September, saying at the time that such a device was a natural step toward growing its mobile-services business. The company faces ongoing competition from other manufacturers, such as Research In Motion and Samsung, as well as newer players like Apple.

Best Buy Hikes Guidance

Story from Bloomberg

Best Buy (BBY) came up short of Wall Street's second-quarter profit forecast Tuesday.

But the nation's top consumer electronics retailer raised its full-year guidance, citing improved sales in August.

For the quarter that ended Aug. 29, Best Buy earned 40 cents a share excluding a one-time tax impact, a penny shy of the average forecast of analysts polled by Thomson Reuters.

That's 17% below the year-ago figure, marking the fifth straight quarter of year-over-year declines. Including the tax impact,

Best Buy earned 37 cents per share, down 23%.

Sales rose 12% to $11.02 billion, edging past analysts' estimates, thanks to new store openings. The firm has opened 170 net new stores in the past 12 months. But sales at established stores dipped 3.9%.

Best Buy increased its earnings-per-share outlook for the full year to a range of $2.70 to $3. That's up from its June guidance of $2.50 to $2.90 EPS for the year ending Feb. 27, 2010.

Best Buy expects annual revenue of $48 billion to $49 billion, an average increase of 8%.

It sees comparable store sales down 2% to flat for the year.

"Our revenue growth modestly exceeded our expectations for the first half, and customer traffic patterns have started to indicate signs of stability," Jim Muehlbauer, Best Buy's chief financial officer, said in a conference call. "Given these improving trends and our expectations for the remainder of the year, we are both raising the bottom end of our annual EPS guidance and improving our top-end expectations."

Investors weren't buying the optimism and sold off shares. Shares fell 5.2% Tuesday to finish at 38.32.

Because Best Buy doesn't give quarterly guidance, there was a disconnect between what management was expecting and what the Street was expecting, says Anthony Chukumba, an analyst with FTN Equity Capital Markets.

What's important for Best Buy are the company's market share gains and the fact it sees improved consumer spending, Chukumba says.

"They're feeling more confident on the rest of the year," he said. "Customer traffic is up, and that's huge."

Best Buy Chief Executive Brian Dunn says the store chain gained 2.7 percentage points of market share in the quarter.

That's on top of a 2 percentage point gain in the first quarter, related to rival Circuit City's liquidation.

"These gains are an important part of our story," Dunn said on the conference call. "Market share gains are nothing new to Best Buy. ... This marks the 15th consecutive quarter of share gains for us. We have a track record for acquiring and retaining market share."

Customers are looking for a retailer who can help them with fast-changing, often-confusing technology products, he says.

The holiday sales quarter will offer many enticing products, Dunn says. They include PCs running Microsoft's (MSFT) new Windows 7 operating system, ultrathin Internet-enabled flat panel TVs and the latest smart phones.

Best Buy saw comparable store sales gains in notebook computers, mobile phones and flat-panel TVs and declines in video games, digital cameras, music and movies.

Domestic comparable store sales in flat-panel TVs increased by the mid-single digits as unit increases more than offset declines in average-selling prices.

Best Buy got more aggressive in pricing and promotions last quarter in the U.S. as a way to gain market share, Chukumba says.

As a result, its domestic gross profit margin declined by 0.6 percentage points to 24.3% from a year ago.

Best Buy Focuses on New Rival

As Originally Posted to The Wall Street Journal

Finally 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.

See Video From Wall Street Journal

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."