Best Buy Former CEO Hubert Joly: Trade Tariffs, Renew Blue Plan

CNBC Transcript: CNBC’s Courtney Reagan interviews Best Buy Co Inc (NYSE:BBY) Executive Chairman and Former CEO Hubert Joly from the CNBC Evolve Conference in NYC Today

WHEN: Today, Wednesday, June 19th

Following is the unofficial transcript of a CNBC interview with Best Buy Executive Chairman and former CEO Hubert Joly live from the CNBC Evolve conference in New York City on Wednesday, June 19th.

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COURTNEY REAGAN:  Thanks, everyone, for sticking around.  This is really a pleasure to sit here with Hubert Joly.  I think many of you are familiar with at least pieces of the story, but we don't get to hear from Mr. Joly that often.  It's a pretty big moment for you, as well, because this is your first full week as not the CEO of Best Buy in about seven years, so congratulations for all that you've done.

HUBERT JOLY:  Thank you.

COURTNEY REAGAN:  Before we go to the past -- we're also going to talk about the future, I want to sit for a minute in the present.  Let's talk about, just so we can establish the environment that you're operating -- or that Best Buy is operating in right now, how do you see the U.S. economy currently and the consumers' position therein?

HUBERT JOLY:  The U.S. economy at this point is fine, the consumer -- there's full employment, raising wages, and so we're finding that we have a great consumer environment with some, you know, early signs or uncertainties.  Trade is a bit of a factor from a confidence standpoint.  But so far it's been a terrific environment in which we have many opportunities.

COURTNEY REAGAN:  I am going to ask you about trade tariffs.  Operating as a retailer in an environment where public policy could be or is changing rather dramatically.  What is the impact of the trade disputes, of the tariffs?  What is that having on Best Buy so far, and how have you been mitigating through that as best as you can?

HUBERT JOLY:  Yeah, so far the administration -- I think everybody is very supportive of the goal of the administration to change practices in China, and so far the administration has done a terrific job of limiting the impact on U.S. consumers.  Most consumer products have not been impacted by tariffs, and the impact on that business has been very limited, in part because for the products affected by tariffs, we've bought early and worked with our vendors to mitigate damages. The prospects of 25 percent tariffs on consumer products would be different, and I think there's testimony going on in Washington as we speak, where a lot of players, retailers, consumer companies are conveying the fact that 25 percent would be an impact on U.S. consumers.  We'll see what happens in Tokyo.

COURTNEY REAGAN:  Got it.  Let's start at the beginning of your Best Buy journey.  It was 2012, and you were CEO of Carlson.  That's a hotel hospitality group.  You had experienced turnarounds, but hadn't run a retailer.  Some questioned your appointment as CEO, wondering if you were the right guy.  So I guess just to start, why did you think this was a challenge worth taking on?  Why did you want to do it?  This is a company whose sales were declining, margins were eroding, some wondered if it would even survive as Amazon was growing in dominance.  Why take the job in the first place?

HUBERT JOLY:  So, Courtney, a lot of people in Minneapolis said I was either crazy or suicidal.  I was not.  I do love challenges, but I had taken the time to do an outside diagnosis, and I thought there was enough assets to be able to effectuate a turnaround and a role to play to help customers deal with technology, and turned out to be correct.

COURTNEY REAGAN:  And that plan was called Renew Blue, and it was launched in November of 2012 right here in New York City. Walk through some of the pillars of that strategy, what you thought were at least the easiest or most obvious things that needed to be fixed at Best Buy.

HUBERT JOLY:  Yeah, I knew the first part of our journey has been fixing what was broken; and so in terms of the "what" we did, it was relatively straightforward.  First we decided to take price off the table.  If you remember, people were talking about showrooming. So people were going into our stores and talking to our associates, looking at the product, and deciding to buy online because presumably prices were cheaper online; oh, and by the way, there was an uncollected sales tax, which was an 8 percent price advantage at the time. So we felt that people were coming into our stores were well-intentioned, they wanted to get help and buy a product.  So we decided to take price off the table.  We aligned our prices with online prices.  And because it's so dynamic, we decided to enable the associates to match online prices, no questions asked, which gave them a sense of empowerment; they could win again.  And then the second thing is we invested in the customer experience, starting online, because that's where the shopping journey starts.  In hard lines, 90 percent of us start the shopping journey online.  So we invested in the site, and the app, in the supply chain.  We now ship as fast as Amazon; and, of course, you can also pick up in the store within an hour.  We invested in the store experience.  The stores are actually a wonderful asset.  For customers, it's important to be able to touch, feel, experience, ask questions. So we invested in the proficiency and engagement of the associate.  And we partnered with the world's foremost tech companies to invest with us.  If you are a tech company, you invest billions of dollars in R&D investment.  And if your products are just sitting on the shelf, it's not going to be a happy ending.  Whereas, we give them the opportunity to invest in our stores with Samsung, with Apple, with Microsoft, with Sony, LG, Canon, AT&T, Verizon, every one of these companies; Google, Amazon, Facebook.  With others.  They've all invested hundreds of millions of dollars in our stores to be able to display, in a very dynamic and compelling fashion, their products.  They've invested in the fixtures, in display, inventory.  They've helped us invest in labor, in marketing, and that has actually helped us.  Our stores look very different today from seven years ago.  It's also created some new energy.  You know, if you take TVs, the world before 2012, 3D televisions had been a flop.  Who owns a 3D TV?  No one, right.  Then Sony and Samsung were coming up with 4K technology.  So we work with them and say:  Let's establish some standards and let's launch this properly in a way that makes sense from a customer's standpoint. So if you go to our stores today, you will have dramatic display of that technology with expert salespeople and then, of course, great service.  These TVs are big, they're fragile, so we're able to deliver to you and install them.  So it was a big thing. The last thing we did was take cost out.  We took about $2 billion of cost out so that we can invest in the customer experience and pricing and also restore our margins.  We focused on North America.  So that was the first phase of our journey, Renew Blue, before we became a bit more strategic.

COURTNEY REAGAN:  How are you able to take 2 billion dollars of cost out of this legacy business and still maintain employee morale?  When I hear cost cuts, it scares me as an employee of any kind.

HUBERT JOLY:  So that's the big lesson in a turnaround.  Many companies -- and I really struggle with that -- focus on how many jobs they're going to eliminate.  Right?  It's a big headline and maybe the shelf price goes up, I think it's sad and tragic. My personal philosophy of a turnaround is you first focus on increasing revenue.  So many good things happen if you can increase the revenue.  And then as it relates to cost, before you go to headcount, you focus on what I call non-salary expenses.  Most companies -- anything that's not people related.  In most companies, that's 80 percent of the cost structure.  So out of $2 billion, probably 80 percent of the cost has been taken out as non-salary expenses. Let me give you an example.  So we have TVs, these fragile TVs.  If we're not careful, we're going to break a lot of TVs, either our vendors, the transportation companies, or the customers.  And so we tend to call this TV junkout, $200 million worth of TV junkout.  If we can work across all the supply chain and make sure that these TVs don't break because they are going to be better designed, they're going to be better packaged, the customers know how to transport them, and so on and so forth, that's a saving.  We have so many examples of this.  You take all of the processes and eliminate waste and inefficiencies.  And the good thing is that most of the time, having costs taken out is also good for the customer.  We've done a survey, and 0 percent of customers want to get a broken TV.

[ LAUGHTER ]

COURTNEY REAGAN:  That's true.  This is a good survey.

HUBERT JOLY:  So then, you know, you only go after headcount if it's -- you know, as a last resort.  In fact, we've increased the amount of headcount in our stores, so, you know, we've de-layered in headquarters, we've reduced, we've de-emphasized ancillary activities.  And then sometimes you do have headcount, in addition. So last year, we decided to shut down our Best Buy mobile stand-alone stores.  They were set up 10 or 15 years ago when smartphones were coming on board and, you know, margins were great.  This was a growth business.  And we wanted to get new customers, so we went to malls, had we had these small 1,000-square-foot Best Buy mobile stores. Times have changed, right?  This is a mature market.  We decided to close this down.  We took all of the employees in these stores and we told them, Look, if you don't want to stay, you don't have to stay; but we would love for you to stay.  You know, We've invested four years in your training.  You're part of the family.  So we're going to work with you to help you find a new job at the company. So you keep the skills, the institutional memory, the customer relationships.  And so most of these employees actually stayed.  So you don't treat people as a cost; you treat them as an asset.  Many companies say this, but not that many do it.

COURTNEY REAGAN:  What about your leadership team?  Any leaders that are trying to execute a strategy, want to come in with their own slate of C suite leaders?  You didn't do that so much.

HUBERT JOLY:  So, you know, in turnaround, there is a lesson, which you don't fire anybody too quickly.  The key thing is to get the right team.  And if it's a turnaround, that means probably chances are that you're going to need to change the team.

COURTNEY REAGAN:  Sure.

HUBERT JOLY:  However, when I started, I told the team, Everybody starts with an A.  Forget about what happened before.  Everybody starts with an A. Now, you're going to get to decide how long you keep the A; it will be your decision.  And, you know, we -- relatively quickly, out of the seven executive team members, I think I removed three.  We created some from the outside, some from within.  I think it's a critical first step in a turnaround.  Mao Zedong said, "Fish rot from the head."  I think that's true. This is not a training ground, to get the right team. But beyond that, you know, as leaders, the most important thing we do at the end of the day is not the ideas we have; it's who we put in position of leadership.  So being clear about what you value as leaders, and one of the convictions I've developed over the years is that the model of a very smart, very strong leader who knows everything and is able to tell everybody what to do, that's gone. IQ is way overrated.  I think there is a study that says above 120, it doesn't make any difference.  It's the EQ.  The vision of the role of the leader is not being the smartest person in the room, but it's a person who is able to create an environment in which others can be as successful, and somebody who is not serving themselves or the boss or the CEO but is very clear about serving the frontliners. So being clear that who you put in position of leadership and what you expect of them is very critical.  Organization is very decentralized.  There's a human magic that we, as leaders, get to create that is maybe the most important thing, and it's very much related to the vision that you have about what kind of leader you want and what kind of leadership model you want.

COURTNEY REAGAN:  When we look at Best Buy under your leadership -- when you came in the five years prior, the stock price had fallen something like 60, 62 percent.  Under your leadership, it has grown 260 percent.  You've had nine straight quarters of comp sales growth, which is hard to do in this environment.  When you look to the future of Best Buy -- I know you're now transitioning to chairman and Corie Barry has taken over -- what is the future of Best Buy?  You've fixed the stores, you've integrated the stores with online.  Services seems to be the next pillar of growth, for you and for other tech companies, to be fair; it looks like this is what Apple is going for, too.

HUBERT JOLY:  So it's a very exciting time.  So after the turnaround, we paused, figuratively, and said, What do we want to look like when we grow up?  We took the time to dig deep into what is important for customers and what is the best way to position ourself to -- what is going to be our purpose.  And what we found is with technology is more and more exciting; but for many of us, it's a bit daunting.  What do you do with it?  How do you take advantage of it? We're now in the business of selling TVs or computers; but our purpose as a company was to enrich lives with technology by addressing key human needs, of entertainment, productivity, communication, security, health, and so on and so forth.  And that is magical because then what it does is vastly expands the addressable market. As an example, we're very focused on investing in the health space.  Many companies do this, but we're focused on helping seniors live longer in their home independently, by putting sensors in the home of frail or aging seniors, you know, in the bathroom, under their bed, in the kitchen, also with technology where you can predict potential falls, you know.  And with remote monitoring and artificial intelligence, then you can do a good job of preventing catastrophic outcomes and providing, you know, happy life, also reducing health care costs, and peace of mind for the caregivers.  That's completely white space.  We are actually going to sell this service through the payors, the insurance companies, as opposed to our stores.  So by focusing on the customer needs in that purpose, we are expanding the addressable market and we're creating a strategy that's not based on the assets we have, but the opportunities that exist. Another illustration of this is our in-home advisor program.  I know Ron Johnson was here earlier; he's also passionate about the home.  We go after it with a unique asset, it's the idea that the need of the customer is a bit complex, it's hard to deal with online or in the store.  So, for free, we'll come to your home, and we'll have a conversation a bit like a designer:  Tell me, what are you trying to accomplish?  You want to redo your family room?  Tell me about your family.  What are you going to do, play video games, watch football, watch movies?  And then we create the right solution for you, and we will implement it.  And we will become your CIO of your home, and we will provide ongoing support to what you have in your home.  This unlocks latent demand. Because there are so many things that people -- we don't even know what questions to ask or what is possible.  Our new brand positioning is to be an inspiring friend and to talk with you about what is possible and be there for you.  And this creates a lot of excitement.  Also, everything we're talking about, this purposeful strategy creates enthusiasm and passion for the associates, because they feel they're doing something meaningful.  Many of us, most of us, want to live a meaningful life.  We can do this at work, right.  I think magic happens in a company if you can connect what drives the individuals working at the company in the purpose of the company and if they can build meaningful human connections within the company and with their customers.  In many ways, our role as a leader is to create this environment in which this happens.  And part of the growth of the company is coming from that, and it's very tangible. I was visiting a store the other day in the Boston market.  And the store general manager asks each of the associates, Tell me about your dream.  What is your dream, at Best Buy or outside of Best Buy?  Okay.  And put it down.  And my commitment to you is I'm going to help you to be able to achieve your dream. So this associate, she wanted to be able to buy a home so she can raise a family.  Okay.  So to do this, I'm going to need to help you progress at the company.  I'm going to work with you, coach you individually.  The company, at the end of the day, is a human organization made of individuals working together in pursuit of a goal.  So from a leadership standpoint, each -- even if there's 125,000 people at the company, it's one associate at a time.  So it's this human magic beyond the strategy.  So as you lead transformations -- it's not only the "why" we talked about, but it's the "how" and how you create the energy and the passion for what the company is trying to accomplish.

COURTNEY REAGAN:  It is interesting.  There is overlap in that white space of serving in the home between Enjoy and Best Buy.  I'm going to ask a question and get the audience to start thinking about questions they would like to ask, so get those questions ready. Amazon was such a foe when you first walked into your position with the showrooming that you talked about initially, with folks coming to Best Buy, getting your expertise, looking at the products, touching them and then going home and ordering them on Amazon.  Over the years, though, it's evolved almost into a friend.  You have a partnership.  You sell Amazon products, you have the television partnership. Talk to me about how you view Amazon and if there's space for both Best Buy and Amazon to win.  Circuit City is not around anymore, so that's one less competitor; but Amazon is still there.

HUBERT JOLY:  Yeah, we -- you know, Best Buy plus Amazon, collectively, we have about 25 percent of the consumer electronics market in the U.S.  So it's not a zero sum game between Amazon and us.  There's a lot of market share to gain and markets to create.  So our approach -- in a sense, we have neutralized Amazon because we have the same prices, we deliver as fast.  They have an online business, too; but we do, too.  So that's quite a draw online.  And then we have our own assets, which is the stores and being able to go to people's homes and the Geek Squad and so forth.  Our focus -- I think theirs is the same as the customer.  As you drive a strategy, if you're too obsessed by competition, you're going to miss.  So our focus has been on uncovering unmet customer needs and doing things for customers that only we can do.  And then you partner with other people.  So we partnered with Amazon; as you said, we sell their products.  We have co- designed a TV.  They gave us the exclusive rights to their Fire TV platform and their Fire TV is only sort of Best Buy -- Best Buy and Amazon.  We also partnered with Apple, who is also a competitor; but they sell in our stores.  And you know, we are an Apple-certified service provider.  So if your phone is broken, come to Best Buy, the waits are shorter than at Apple because they are overwhelmed. So we're helping each other. So I think the idea is focus on the customer, build a unique position, and partner with people who can bring some strength to you.

COURTNEY REAGAN:  Sure.  Do you have any questions?  I want to make sure to allow some time.  Our mic runners, if you could --

AUDIENCE MEMBER: Hi.  It's amazing what you've done, so thank you for sharing what you've done.  I run an early-stage technology company that's actually working with Best Buy on the channel side.  Most folks know about Best Buy and the things you have been talking about have been on the retail side.  I wonder if you could talk a little bit about how you see changes you've made that happen through channel distribution, working with partners and sort of direct sales team that you folks I know have been sort of working with in the last couple of years.

HUBERT JOLY:  I couldn't hear your question.

AUDIENCE MEMBER: So instead of retail, channel distribution for partners, that part of your business, as opposed to the retail operation that most of us are familiar with, what are the changes that you've made and what is the future there going forward?

HUBERT JOLY:  In terms of channel distribution with partners, meaning?

AUDIENCE MEMBER: So, for example, I'm familiar with the fact that Best Buy has been staffing up teams to work directly with -- within vertical industries, right, education, health care, et cetera --

HUBERT JOLY:  Okay.

AUDIENCE MEMBER:  -- selling directly to enterprises, as opposed to retail operation, which is what we've been talking about here.

HUBERT JOLY:  Yeah, this is a great point of the strategy, which is we could have given up our strategy with, you know, a focus on what else do we have, which is principally the stores, and say:  What can we do to maximize this group within the stores?  And we're doing some of that.  We just launched -- announced this week that we're going to get into sports equipment sold through the stores. But if you focus on the customer, then you can find ways to go to the customer in a way that addresses the needs of the customers.  And so the channel through Medicare Advantage players, the service for the seniors is a benefit that's going to be embedded into Medicare Advantage plans because that's the easiest way to sell that service.  The in-home advisor program is another example of meeting the customer where the customer is.  We're also addressing schools as a market.  So I think that the go-to market strategy should be based on what you're trying to accomplish with customers, and all these things vastly expand a flexible market.

COURTNEY REAGAN:  Are there any other questions?  We're running out of time here, but I just want to make sure that I'm being thoughtful for the audience.  If I can ask you one more, Hubert, before we let you go.  One thing I think is unique about Best Buy, particularly in the retail area, is your focus on women in leadership, women on your board and women in leadership.  It seems to be something that you've been thoughtful about over the years. Why do you think other companies have not done what you have done; and what are they missing out on by having those female voices in the boardroom?

HUBERT JOLY:  I think, if I may, the focus is, of course, female, but it's bigger than this.  I think it's, again, the recognition that the company is a human organization made of individuals working together in pursuit of a goal.  You need to create an environment in which each individual feels that they belong and that they can be the best version of themselves and can have a fruitful career.  But that's one individual at a time.  But of course, you also have to look at systemic issues.  There's two big systemic issues, in my view:  Gender and then people of color, particularly, black, African-American.  We have these big gaps. I think if you want to address this, you need to be deliberate about it and make it a priority.  The value is enormous.  If you don't, you're going to miss.  I remember sitting down with Mellody Hobson, talking about in particular black African-Americans.  She was giving me one or two examples, which I didn't know. One is, if you go to a hotel, maybe here, and you go to the bathroom they have this infrared-activated soap dispensers.  Well, infrared doesn't do well with black.  If you're black, you're not going to be able to wash your hands with soap.  Similarly, smartphones, their camera, infrared doesn't do well with black. So if you have a team that doesn't have ethnic diversity, you're going to miss.  Particularly stores in Florida, in Orlando, if you don't have Portuguese speakers you're not going to be able to do a good job with Brazilian visitors.  In retail, it's not difficult.  The majority of decisions are made by women, so you're going to miss if you don't have -- so it's a business imperative.  It's also a moral imperative, also a societal imperative.  And then you just do it.  On our board, as of last week we have a majority of women on our board, and the last four board members we've recruited are people of color. With the headhunters, we've made it simple for them in the last round.  We told them -- and I may get sued one day for this, which I would look forward to.  We've told them:  Don't bother bringing candidates who are not black, okay?  Don't bother.  We want to save time.  Just give us great African-American candidates.  And we've recruited some amazing board members who we knew have three African-American board members on our board.  And by the way, I think -- excuse me, the token black guy or the token women, that doesn't work.  "You are a woman, you can represent all of the women." That's crazy.  So we have to bring, we have 13 board members, seven women and four people of color, and it brings enormous value and much better environment. Now this is not about -- in order to do this also, you need to be able to put the thumb on the scale.  So one of the things I've learned for example, and maybe I'll stop with that, and you tell me whether you agree.  if a boy -- I'm going to say a "boy" -- is 80 percent ready for a promotion, says:  I'm ready.  If a woman is 125 percent ready for a promotion, she will say:  Oh, I'm not sure. So, as a leader, you need to be able to recognize this and reach out to the women on the bench and say:  You know, Corie, you're ready.  And I'm going to support you, but you're ready, and be able to recognize this.  It takes active leadership.  Stands for the conviction that if you don't -- this is not a politically correct thing to do.  This is vital from a business standpoint.  And you have a choice.  You can decide you're going to miss, or you can decide that you're going to maximize the opportunity

COURTNEY REAGAN:  I'm going to be greedy, I think we're at the end.  Why would you step away from Best Buy, when it looks like the trajectory is only going up?  You finished your turnaround, now you're in the growth phase, Best Buy 2020.  Why are you walking away now?

HUBERT JOLY:  So, Corie and I have just switched offices.  She's getting a pay raise, I'm getting a pay cut, you know.

[ LAUGHTER ]

HUBERT JOLY:  But I felt this was not a science. I think that one of the key responsibilities we have as a leader is to make sure we effectively pass the baton.  We don't own these jobs, but we have the responsibility that the momentum continues.  So the reason why I felt it was the right time, first I felt that we had achieved quite a bit since I had taken over.  Two, we had Elizabeth Curry and Mike Mohan last year and I felt they were doing a fabulous job.  Also, we were two years ahead of plan on our three-year plan, and we were about to have another investor day, where we were going to lay out the plan for the next three or four years, and I felt that the people standing in front of investors should be the people that are going to carry this out.  And I didn't have another three or four years in me.  I've been a CEO for 15 years, and these are jobs that are very consuming, and I felt that this was the time. So ideally, you know, you pass the baton when there's a strategy, it's working, there's momentum, and there's a team that's ready that can continue.  It's probably better to leave a bit sooner than expected or desired than the opposite.  Because you don't want to be a company with a CEO on his last or her last, you know, chapter.  You want, you know, to have a team that's really all in.  So these were some of the reasons I'm very exciting about Corie and the leaders of the company and the opportunities.  I'm going to do everything I can to support and watch, and buy as much as possible.

COURTNEY REAGAN:  That's right.

[ LAUGHTER ]

HUBERT JOLY:  Support these comps, right?

COURTNEY REAGAN:  Right.  Thank you so much, Hubert Joly.  This has really been a pleasure.  Thank you.

 



About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver