Schulze Makes an Offer for Best Buy
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Richard Schulze, the founder and former chairman of Best Buy (NYSE: BBY), recently made a purchase offer on the remaining shares of the company that he doesn’t already own. This deal values the company at up to $8.84 billion. The offer is worth $24 to $26 per share, representing a premium at the time of announcement of 36% to 47%. Schulze already has a 20% ownership stake in the company and the offer appears to stem from his deep experience with the company and therefore interest in its long-term success.
In June Schulze announced that he would be resigning from the company’s board and his position as chairman as he searched for a way to be more active in Best Buy’s decision-making process. According to Richard Schulze, “There is no question that now is the moment of truth for Best Buy and that immediate and substantial changes are needed for the company to return to its market-leading ways.” Best Buy’s first quarter earnings fell 25% amid costs tied to restructuring and decreases in same-store sales. The company has struggled to keep pace with online merchants like Amazon (NASDAQ: AMZN).
Amazon is certainly tough competition for Best Buy. With Amazon’s online business model it is easy for customers to shop around for the best deal and read reviews from those that have already purchased the product. Some might even argue that Amazon reviews are the online retailer’s greatest asset. At some point, consumers even enter a Best Buy store, if only to get an idea of what they want. They then make their purchase online. Electronics are normally a pricey purchase and consumers want to ensure that they are not getting ripped off. Amazon allows them to do this easily. Shopping in a store makes it more difficult to cross shop or know what people really think about the product.
Even though Apple’s (NASDAQ: AAPL) physical retail stores are highly popular and bring large traffic, they still manage to cater to the online experience. Prospective customers get to touch the product and ask questions to knowledgeable employees. They can even take classes or get personalized instruction. However, Apple’s stores carry limited inventory. Customers are allowed to try out the product in the store and are then encouraged to go online to purchase the exact model that will suit their needs. This is what people are doing anyway. They find what they want in a store and then go online to find the best price or customize it to their exact tastes and needs. Apple has found a way to cater to this successfully.
Again, the Best Buy retail model is difficult to work with. When customers are wary of paying too much or purchasing an inferior product it becomes difficult to get them to purchase in store. And with the physical retail model, customers that leave are not likely to come back. Also, the internet empowers customers with product knowledge. Normally, by the time they are ready to purchase they have a sense of exactly what they want. At this point it becomes difficult to even get them into a physical store. They do their research online and then find the best deal on the product they want. Now the only thing that will bring them into the store is a better deal. Best Buy needs to find a way to stand out and make their retail experience worth the trip. Otherwise they will continue to lose sales.
MaryPosey has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, and Best Buy. Motley Fool newsletter services recommend Amazon.com and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.