On Monday, Best Buy Co., Inc. (NYSE:BBY) announced that its founder and Chairman of the Board Richard Schulze will leave after failing to tell the board of allegations that former Chief Executive Officer Brian Dunn had an improper relationship with a female employee.
The board replaced Schulze on Saturday with director Hatim Tyabji, chairman of mobile network software company Bytemobile and chairman of Best Buy’s audit committee; this will be effective at Best Buy’s June 21 annual meeting.
Schulze’s demise comes after an internal review found that Dunn acted in bad form after sending numerous e-mails and texts to the woman, loaning her money and asking vendors to give her gratis tickets to concerts and sporting events, according to a company statement.
In addition, Dunn, who is 52 and the unidentified 29-year-old employee, met for lunch and drinks during the work week and on the weekends, there were many actions that “reflected poorly on the CEO’s judgment,” as noted in the investigation.
Dunn resigned in April with Best Buy saying that it was by “mutual agreement” that new leadership was necessary. Then, the company said that a board committee was reviewing Dunn’s “personal conduct.” It found he violated corporate policy by participating in “an extremely close personal relationship” with a female employee as announced by the company on Monday.
Director G. Mike Mikan has stepped in as Best Buy’s CEO during the board’s search for a replacement. This is expected to take up to nine months.
One analyst sees the latest change as a good sign for the company. Morningstar, Inc. (NASDAQ:MORN) analyst R.J. Hottovy, “It’s been clear that the company hasn’t taken an aggressive enough measure to offset the competitive and structural pressures they face. Taking a clean slate and beginning with not only a new director, chairman but also with a new CEO is just what the company needed.”
Latest Sign of Trouble for Best Buy
Schulze’s exit is just the latest negative news to hit the company.
While struggling to compete against Amazon.com Inc. (NASDAQ:AMZN) and Apple Inc. (NASDAQ:AAPL), Best Buy recently announced a $1.7 billion fourth-quarter loss and the closing of 50 big-box stores.
But its troubles really began last year.
In early 2011, even with the absence of Circuit City (CCYTQ), Best Buy found that its market share was dwindling in the television and computing areas. Many had speculated at the time that Best Buy would thrive as they took former customers from the bankrupt competitor.
However, as the chart below demonstrates, the stock is down approximately 12% since Circuit City filed bankruptcy on November 10th 2011, while the S&P500 is up approximately 50%.
By March of last year, Best Buy had seen its shares drop by 21 percent from December 2010 and they were trading at nine times 2011 fiscal year consensus earnings, reported The Wall Street Journal.
Meanwhile, Amazon.com Inc. (NASDAQ:AMZN) saw its electronics and nonmedia revenue increase 66 percent to $18 billion in 2010 with a market share expansion across segments. Success came for the company from its average electronics prices according to Wells Fargo & Company (NYSE:WFC).
At the time, it was also noted that Best Buy wasn’t solely competing on price but instead highlighting its tech-proficient staff and broader selection.
Consumers also started reviewing different prices across stores and Best Buy began to lose the sale to its competitors. The company began a move to offer competitive prices but this isn’t always a good thing for a company ((see BJ’s Wholesale Club Inc (NYSE:BJ)?).
Adding fuel to the fire was Apple Inc. (NASDAQ:AAPL)’s retail stores evolving as a rival to Best Buy’s venues.
At the time, The Wall Street Journal believed the “worst of times are likely to come for Best Buy investors.” This was on March 11, 2011.
Fast forward 14 months later and the tough times keep coming for Best Buy. But are they worse off than Yahoo?
Best Buy’s stock is currently up 1.82 percent to $19.63.