While lawyers and a board committee are investigating allegations of personal misconduct that led to the abrupt resignation of Best Buy Chief Executive Brian Dunn earlier this week, investors, analysts and retail consultants are focusing on the search for his replacement.
They want to see a fresh face at the retailer, which has lost many of its customers to Amazon.com Inc (NSQ:AMZN – News) and Wal-Mart Stores Inc (NYS:WMT – News), which are often able to offer cheaper prices on gadgets.
“I do think you want someone at the top that can bring a bit of different viewpoint, that can shake things up,” said Connor Browne, portfolio Manager of the Thornburg Value Fund, which owns Best Buy shares.
Part of what the new CEO will need to do is to be tougher in trying to control the practice of “showrooming,” in which shoppers come to Best Buy to check out televisions and other electronics and then buy them for less online – sometimes using their mobile phones while still standing in the store.
“We do think that Best Buy’s leadership hasn’t done a good enough job of being tough on the vendors when it comes to their products being available online at lower prices on Amazon,” Brown said.
Best Buy’s board said on Thursday that it was looking at both internal and external candidates, including current interim CEO G. Mike Mikan, to replace Dunn. The company said the search could take six to nine months.
Gamestop Corp (NYS:GME – News) CEO Paul Raines or Advance Auto Parts Inc (NYS:AAP – News) CEO Darren Jackson, could be candidates for the top job, said Anthony Chukumba at BB&T Capital Markets, which makes a market in Best Buy.
Raines is credited with developing Gamestop’s digital strategy and resale business. Jackson, who declined comment, is a former Best Buy executive who is highly regarded by Wall Street and lives in Minneapolis.
Michael Vitelli, who is currently responsible for Best Buy’s U.S. business, would have been a good candidate to replace Dunn “in a normal environment,” but that is not the case now, said Stacey Widlitz, founder of consulting firm SW Retail Advisors.
“The situation this company is in, I think investors are really looking for somebody from the outside, more of a visionary, somebody with ecommerce background,” she said.
Wall Street has criticized Dunn and Best Buy’s board for not doing enough to cut costs, shrink its store footprint and boost online sales. Even when Best Buy revealed plans to close 50 of its 1,100 large U.S. stores recently, investors sent its shares down because they wanted deeper cuts.
NEED A VISIONARY
Best Buy, which began in 1966 when founder Richard Schulze opened the first Sound of Music store in Minnesota, and went public in 1985, has had just three CEOs and all of them were insiders with long tenures at Best Buy.
Dunn started as a sales associate and rose through the ranks to become CEO in June 2009. His predecessor, Brad Anderson, started as a salesman at Sound of Music. Schulze, who is still chairman, was the first CEO.
That trend has to change, investors said.
Even Anderson “will be perceived as one of the authors of Best Buy’s current strategy … the path that has now proven to be insufficient,” said Lawrence Creatura, portfolio manager at Federated Clover Investment Advisors. The new CEO “will have to make some hard choices which will have negative implications for many of the current team at Best Buy.”
Chukumba also doubted that Anderson had enough “fire in his belly” to pull off a successful second act like Apple Inc’s (NSQ:AAPL – News) Steve Jobs or Starbucks Corp’s (NSQ:SBUX – News) Howard Schultz.
Anderson could not be reached for comment, but told the Minneapolis Star Tribune on Thursday he would not pursue his old job. But he did not completely rule out returning if asked.
Some said interim CEO Mike Mikan would not get the top job because he has limited retail experience. Mikan has been a Best Buy director since April 2008 and formerly served as executive vice president and chief financial officer of UnitedHealth Group Inc (NYS:UNH – News). At one point, he was considered a possible successor to UnitedHealth’s CEO, but left to lead a private equity fund.
“No retail experience and no Internet experience, so Mikan is the wrong guy,” said Wedbush analyst Michael Pachter. “They need to change their culture and get someone who acknowledges that there is a threat from Internet retail, so they will likely look outside.”
When asked about Mikan, a spokesman for the board said it planned to do a thorough search to identify internal and external candidates, including Mikan.
Mikan, Vitelli and Raines could not be reached for comment.