A long, winding journey: Best Buy turns 50

A Best Buy store
Best Buy celebrates its 50th birthday on Monday.
Mark Lennihan | AP 2014

Best Buy turns 50 years old on Monday, a rare age for a retailer to reach.

The company was born in 1966 with a different name — Sound of Music.

Founder Richard Schulze focused on selling audio components to young males 18 to 25 years old who liked their music clear, clean and loud.

In a 2014 interview with the Entrepreneur & Innovation Exchange Schulze said the first location at Hamline and St. Clair avenues in St. Paul was just right.

"We began in a unique little corner that was surrounded by four private colleges. And so we had that young male audience that we were focusing on," he said.

Over its first 15 years, the company expanded to eight stores. Sound of Music was mildly profitable, but sales growth was slow.

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Then disaster struck, but Schulze turned it into the most successful business model for selling electronics of the time.

A tornado ripped apart Sound of Music's flagship store in Roseville in the summer of 1981.

Schulze rallied his employees to collect and secure sellable merchandise. He put it up for sale at the state fairgrounds, offering consumers lots of electronics at what were cheap prices. A VCR for $359 was a good deal back then.

Schulze bought time on local TV to hype the sale during live inserts.

In the 2014 interview, Schulze said the fairground sale showed that consumers loved the combination of low prices and a warehouse-style approach to selling electronics.

"I got to thinking if we could just package this into a form of a new store, think what we could do. And so that spawned the idea for Best Buy," Schulze said.

The grand opening of the first store in Burnsville was a mob scene.

"We had people parking on streets where nobody ... belonged. We had people parking on frontage roads and on side streets from freeways," Schulze said in the 2014 interview. Police ticketed shoppers, he said, but Best Buy paid the fines.

Schulze wanted to grow by opening more stores and offering a greater range of products like computers and cameras. But he didn't have the money. So he turned to his suppliers, makers of audio and video equipment, to provide the funding. The terms he demanded were audacious, like a poke in the eye to the suppliers.

"People in our company said, 'Dick, We think you're smoking something,'" Schulze recalled in 2014.

But he sealed the deal.

Best Buy first sold shares to the public in the 1980s, raising money to fuel further growth. There were lots of peaks and valleys over the next three decades, and Best Buy at age 50 has 1,600 stores throughout North America. In its most recent fiscal year, the company had sales of $40 billion.

The company hit an especially rough patch in 2012, when CEO Brian Dunn resigned following allegations of an improper relationship with a female subordinate. An internal report determined Schulze knew of the relationship but failed to notify the board. Schulze resigned his chairmanship and explored buying the company to take it private. Many questioned if the company would survive.

Best Buy's continued survival depends on how well it can convince consumers that it's the place to go, not only for the best price, but also sound advice and reliable service on electronics. That's been tough in the age of Amazon.com, but loyal fans remain.

"I don't know of anybody else who offers the amount of stuff they do at the quality and high end that they do," said Levi Busse of Amery, Wis., who described Best Buy as the best in the business.

Mary Jorgensen of Minneapolis said she's been religiously shopping Best Buy for electronics and appliances for decades.

"I get all my questions answered. They have everything that I need," she said.

Customers like Busse and Jorgensen kept Best Buy alive in a tough business that's seen a lot of roadkill. Remember Circuit City and CompUSA?

"The fact Best Buy has made it to 50 years is pretty impressive," said Morningstar retail analyst R.J. Hottovy. He said CEO Hubert Joly has done a good job stabilizing Best Buy in the face of intensifying competition, but the company faces a tough road ahead.

"They've done a great job on the cost-cutting side. But since 2012, you've only had a couple of quarters where the company put up positive same-store sales," Hottovy said.

Same store sales are a key industry benchmark. Hottovy says the lack of sales growth reflects a shortage of hot new must-have electronic products, as well as competition.

To succeed in coming years, Hottovy says Best needs to be a leader in emerging technologies, such as perhaps virtual reality and smart homes. Meanwhile it's got to combat both online and bricks-and-mortar rivals rivaling Best Buy's offerings on price, delivery, selection and service.