Best Buy's Richard Schulze: Stereo seller to retail giant

Richard Schulze
Best Buy founder Richard Schulze and his family are giving the University of Minnesota $40 million for diabetes research. Schulze has a daughter who has the disease.
MPR photo/Tom Weber

In 1966, Best Buy was a stereo specialty retailer called Sound of Music, founded by Richard Schulze in St. Paul.

Today, Schulze is another casualty of the recent scandal that swept Best Buy's chief executive Brian Dunn out of the company. Schulze, now a billionaire, will step down next month from his long-held position as chairman, and he will leave the big box retailer's board altogether next year.

Schulze's legacy, however, is that of turning an electronics store into a retail giant.

Back then, the company's future sometimes looked bleak, according to Brad Anderson, who eventually became chief executive. But in the 1970s, Schulze, the founder, was in charge. Anderson says at the time the company operated nine stores, was losing $200,000 a year and had a negative net worth. That made Anderson fret, but he says Dick Schulze seemed unfazed.

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"I was thinking I was in — at best — a desperation situation, and most likely a fatal situation. And he [Schulze] was talking about the $50 million company he was building, out of what the rest of us thought was an ash-heap," Anderson said. "And actually by the time he got to $50 million, he never was trying to build a $50 million company. He was always trying to build a $500 million company. "

Schulze hit on the "Best Buy" strategy when a twister ripped open a store and the company held a huge sale with low prices and lots of promotion. In 1983, Sound of Music officially became Best Buy.

Robert Spector, a retail historian and consultant, says under Schulze's stewardship, Best Buy became what's called a "category killer," dominating a product category — in this case, consumer electronics.

"There was a lot of competition in the electronics sector, including Circuit City. And Richard Schulz was able to outthink and outmaneuver the competition to put up Best Buy as the definitive place in the brick-and-mortar world to buy electronic equipment," Spector said.

Spector said while the big box model Schulze cultivated has been a great success, its relevance is waning. The company's sales have been flat, and it reported a big loss in its most recent fiscal year. Spector said Best Buy is not doing well in facing down its biggest threat:

"One word: has made not only electronics, but many other product categories, a commodity. You can get it at a good price. Amazon is taking a piece of everyone's business,"

Some analysts have questioned the extent to which Schulze's strong hand over the company has held it back in the face of digital competition. Schulze had a powerful voice at Best Buy as chair of the company's board. And he handpicked departed CEO Brian Dunn, who left the company during an investigation of a relationship with a subordinate female employee.

The investigation concluded that Schulze confronted Dunn about the relationship last December. But company policy required him to notify the board instead. In a statement, Schulze said he accepts the findings. He could not be reached for further comment.

George John, a marketing expert at the University of Minnesota, said if Schulze exercised too much control at Best Buy, it's not a surprise. It's typical with a founder. "That is inevitably the case when you have a figure who has been associated with a company for a long time. They may step back from being the official public face of it. But in fact the corporate ranks are going to be filled with people he promoted and who are loyal to him," John said. "So whether it's him personally or his thinking, it will still have an immense influence on the company."

John is not convinced that's what ails Best Buy now.

"Schulze has had a significant amount of influence, but whether that's actually responsible for the company's current difficulties, I couldn't tell you that. I rather doubt it," John said.

Former CEO Anderson said it is possible that Schulze's goals for the company were out of touch with the digital age, and that Schulze may have stuck around too long.

"It's the dilemma that happens to so many people throughout life experience. When what we learned in our life experience is not relevant anymore, we still want to go back to what our experience was," Anderson said. "And I have been worried about Dick in the last couple of years in that kind of context. I'm hoping to see out of this some strong strategic shift that opens up new options for Best Buy."

However, Anderson notes that Best Buy's board of directors has worked with Schulze for so many years that it's hard to imagine how the group will operate without him.

Schulze still owns a hefty 20 percent of the company.