Best Buy Co. CEO Brian Dunn abruptly resigned on Tuesday after the nation's largest consumer electronics retailer said it decided to conduct an investigation into his "personal conduct."
The departure compounds the problems at the retailer, which has been widely criticized for not responding fast enough to growing competition from Amazon.com and other online rivals and the changing shopping habits of Americans.
"Certain issues were brought to the board's attention regarding Dunn's personal conduct, unrelated to the company's operations or financial controls, and an audit committee investigation was initiated," according to a company statement issued late today. "Prior to the completion of the investigation, Mr. Dunn chose to resign."
Dunn, a 28-year Best Buy veteran who had been CEO since 2009, could not be reached for comment on Tuesday and Best Buy did not comment further on the circumstances of the investigation.
Earlier today, the company said that Dunn's departure was a mutual decision and that it was time for new leadership given the challenges the company faces. Best Buy said that it has created a search committee to choose a new CEO. Board member Mike Mikan, 39, will serve as interim CEO while the company searches. Richard Schulze will continue as chairman.
Analysts say it's going to be a big challenge to find a CEO to lead the company in this new era. Up until a few years ago, Best Buy had been the big bully on the block, pulling shoppers away from small electronics stores with its massive offerings. Now, in the age of the Internet, those offerings look paltry.
Best Buy has been trying to revamp its business. A couple weeks ago, Best Buy unveiled a restructuring plan that calls for closing 50 of its U.S. big-box stores, opening 100 small-format stores focusing on its burgeoning mobile business which focuses on cell phones. It's also cutting $800 million in costs over the next five years.
"Best Buy faces an uphill battle to find the right CEO," said Michael Pachter, an analyst at Wedbush. "Mr. Dunn's replacement must be prepared to manage the transition from big box to small box format. A CEO with this experience will be difficult to find."
The abrupt departure of Dunn, 50, ends a Best Buy career that spanned nearly three decades. He stated as sales clerk at a store in Minnetonka, Minn. in the mid-1980s.
At the time, the chain was losing sales due to the recession. Best Buy officials were hoping to benefit from the liquidation of the company's main competitor Circuit City, which had was overcome by the growing competition in the sector. But Best Buy never regained its footing.
Revenue at stores opened at least a year — a key measure because it excludes results from stores that open and close within the year — has declined in three of the past four years. In the most recent fiscal year ended March 3, revenue at stores opened at least a year fell 1.7 percent last year after having fallen 1.8 percent in the prior year.
The chain lost $1.23 billion, or $3.36 per share, compared with a profit of $1.28 billion, or $3.08 per share, in the prior year.
Its stock also has taken a beating. Best Buy's shares were down almost 6 percent, or $1.33, to close at $21.32 after initially climbing higher on the CEO departure. Over the past 52 weeks, shares have traded between a high of $32.85 and a low of $21.79. Best Buy's shares have lost more than half of their value since April 2006, when they were trading at $56.66 per share.
Once the bread-and-butter of electronics retailers, sales of TVS, digital cameras and video game consoles have weakened. Meanwhile, sales of lower margin items like tablet computers, smartphones and e-readers have increased.
And Best Buy's largest vendor Apple Inc., has become a fierce competitor as its products like iPads have hurt overall computer sales and sucked up shoppers' dollars earmarked for other electronic purchases, says Jefferies & Co. analyst Daniel Binder in a recent note.
Adding to that, Best Buy, like other big-box retailers, is finding that those hulking stores are no longer attractive to consumers looking for one-stop shopping. Instead, more people are using them as showrooms to browse for products and then going online to Amazon.com and other rival sites to buy at a lower price.
Over the past year, Best Buy has made some inroads in shoring up its business. The company has cut its square footage by 15 percent in about 43 stores. It did that by either subletting the space to other merchants or giving it back to the landlords.
But analysts and industry watchers say Best Buy hasn't moved fast enough to reduce its large foot print. And, they say, Best Buy should close even more stores and take advantage of its fast-growing mobile business.
Gary Balter, an analyst at Credit Suisse, says Best Buy's mobile business makes up nearly one-third of the retailer's profits but accounts for less than 10 percent of the overall square footage.