Best Buy cuts 400 jobs at Richfield HQ

Best Buy layoffs
The Best Buy campus in Richfield, Minn. Tuesday, Feb. 26, 2013. Best Buy is cutting 400 jobs at its Richfield, Minn. headquarters.
MPR Photo/Jeffrey Thompson

Best Buy is eliminating 400 jobs, most in Minnesota, and the struggling consumer electronics retailer says there'll be further cost-cutting.

The announcement comes just two days before founder Richard Schulze faces another deadline for making a bid for the company.

The retailer says the move is the first phase of a $725 million cost-cutting program announced last fall. Best Buy says the cuts won't include any sales staff or store closings and will primarily hit jobs at the Richfield corporate headquarters. As of last June Best Buy had 8,000 Minnesota employees, 5,000 at headquarters.

Layoffs often boost a company's stock price, but Best Buy's shares fell as much as 5 percent after the announcement.

Edward Jones retail analyst Brian Yarbrough said Best Buy isn't going far enough. He said the company probably needs to cut about $1 billion in costs to be as lean as its peers and to compete with rivals on price.

"You're doing all this price discounting and price-matching and that affects your product margins," he said. "How do you offset that? You take some costs out of the business. Everyone knows they have a bloated cost structure."

Best Buy officials were mum on whether subsequent expense cuts would involve more layoffs. But retail consultant Howard Davidowitz expects the future will include Best Buy shedding front-line sales staff and closing more than the some 50 big box stores the retailer has already shuttered.

And even then, Davidowtiz isn't optimistic about Best Buy's long-term prospects, given the increasing competition it faces from brick-and-mortar and online rivals.

"There's no visionary there who can come up with a real change in the business," he said. "If you can't change the business, all you can do is cut and buy time."

"If you can't change the business, all you can do is cut and buy time."

Davidowitz has long maintained Schulze is a visionary who could revive Best Buy. But Schulze has been trying for months to get investors and lenders to give him the billions of dollars he'd need to buy Best Buy and take it private. The effort has been dogged by skepticism that occasionally borders on scorn.

Even so, Best Buy is moving its announcement of holiday season earnings from Thursday to Friday. The company indicated it didn't want to announce earnings on the same day as the latest window closes for Schulze to make a bid for the company.

Many industry experts and Wall Street analysts had concluded Schulze probably would not make an offer, at least not for the whole company. But observers says it's smart for Best Buy to move its earning announcement back a day. A bid along with with an earnings announcement on the same day could create a lot of volatility for the stock price.

"Just from all the static that could come from people speculating about it, that day would be a very distracting day in general for them to try to get across any announcement around their ongoing initiatives and plans," said retail consultant Carol Spieckerman.

The delay also spares Schulze the prospect that his bid looks too cheap or too generous in the wake of a big move on the company's share price driven by the earnings report.

A spokesman for Schulze would not comment on the prospects for a bid.

Morningstar retail analyst R.J. Hottovy thinks it's a toss-up now as to whether Schulze make an offer for the company.

"I know there's been a lot of skepticism on the part of private equity companies to be part of this deal," he said. "But at the same time we have been seeing more funding towards leveraged buy-outs and take-overs in the last several weeks, which does increase the odds of a transaction potentially happening."

Schulze initially proposed a buyout of $24 to $26 a share in August, about two months after resigning from the board. about two months after resigning from the board. He was one of the casualties of an inappropriate relationship between then CEO Brian Dunn and a much younger female employee.

With time, Best Buy got cheaper. The shares sank as low as $11.20 in December. But the stock price rebounded after new CEO Hubert Joly stabilized holiday sales with discounts and more aggressive price-matching.

Now the company is worth a lot more that it was in just December. The retailer's stock closed at $16.46 today, down about 3 percent.

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