Schulze, Richard

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Schulze, Richard

(1941-)
Best Buy Co., Inc.

Overview

Richard M. Schulze revolutionized the marketing of electronics by introducing the superstore concept to the field. He began with a single audio store and expanded it to a nationwide consumer electronics chain, Best Buy. He has continued to reinvent the store's product line and expand the number of outlets to boost sales. In 1998 Best Buy was the top retailer of consumer electronics in the United States.

Personal Life

Schulze was born in 1941 in St. Paul, Minnesota. He attended St. Paul Central High School and then entered the Air Force, where he received extensive training in electronics. After leaving the Air Force, he worked as a consumer electronics salesman, traveling over a four-state area. In 1966 he founded Sound of Music in St. Paul, a store that specialized in stereos and components. Schulze credits his wife Sandy with the decision to remortgage their house to make his first retailing investments. Sound of Music soon bought out area competitors and expanded into a multi-store chain. In 1983, the company adopted the name Best Buy and subsequently introduced mass-marketing techniques to electronics retailing. Schulze has noted that he studied other discount retailers such as Wal-Mart, Toys 'R' Us, Target, and Home Depot in developing Best Buy stores. He remains chairman and chief executive officer of the firm. Schulze is deeply involved in children's causes, and became even more so after his grandson Taylor was born with a rare form of juvenile cancer. The Best Buy Children's Foundation was established in partnership with the Ladies Professional Golf Association, and he is one of the leading fundraisers for the United Way.

Career Details

Schulze began his retailing career operating the Sound of Music stores in St. Paul. The small start-up company eventually expanded to nine stores. After a tornado leveled one of their stores, the company held a "Tornado Sale" with a large selection of goods at a single location with low prices and heavy advertising. The sale was successful and the concept stuck with Schulze. So Schulze pioneered an 18,000-square-foot store in 1983 and adopted the name Best Buy. Best Buy was the first electronics superstore, and its name reflected its marketing strategy: whatever the product, it would be inexpensive and a good deal.

The superstore concept proved popular with consumers. In its first year, the Best Buy superstore sold more than Schulze's entire chain had sold the year previous. The company grew to over 40 stores within six years. The marketplace was changing as consumer electronics, especially videocassette recorders, became household items. Always strong on soliciting consumer feedback, Schulze found that most shoppers disliked the pressures associated with salesmen working on a commission basis. Based on such feedback, Schulze took the superstore concept a step further by eliminating sales commissions. The company referred to this new direction as Concept II. With the brand-name selection of a specialty store and a grab-and-go style of merchandising, sales took off. In addition, Schulze added entertainment and computer software titles, music, movies and computer hardware to Best Buy's offerings. The additional products were important in that they created traffic of repeat visits (normally an electronics consumer would only purchase once or twice year). The first Concept II store opened in Rockford, Illinois, in 1989, encompassing 33,000 square feet. The risks associated with the expansion of the superstore concept paid off. By 1995, revenues had grown tenfold to more than $5 billion. The store count had risen to 155 in 19 states, along with associated distribution facilities and service centers.

National expansion of Schulze's Best Buy chain was now underway and the company increasingly went head-to-head with its main competitor Circuit City, opening new stores in Circuit City markets. Key to this strategy was a new store layout called Concept III, introduced in 1994 and increasing store sizes to either 45,000 square feet or 58,000 square feet. The goal of the new stores was to get consumers to linger longer and purchase more by making the visit an experience. In his Concept III stores, Schulze installed interactive information kiosks featuring fifteen-minute product videos, plus demonstration areas for video games and computer software. The new stores each required upwards of $3 million of working capital to open. Richard Schulze was again taking risks with his new stores, and Wall Street became intensely focused on his actions. Much of his new financing was arranged through a $230 million offering of convertible preferred securities. The offering proved to be successful, and the company continued to expand in subsequent years.

The company ran into some turbulence in the mid-1990s, however, when rapidly falling computer prices left it with a large inventory of computers it had paid too much for. This coupled with the high costs of Best Buy's rapid expansion program ate into corporate profits and caused Schulze to slow the pace of expansion and scale back inventories of less profitable merchandise.

Chronology: Richard Schulze

1941: Born.

1968: Opened Sound of Music audio store.

1969: Took Sound of Music public.

1981: Store and inventory partially destroyed by tornado.

1983: Company resurfaced as Best Buy.

1989: Opened first Concept II store.

1990: Store revenues topped $500 million.

1994: Introduced Concept III stores.

1996: Added appliances and gourmet cooking accessories to product mix.

1997: Added 21 new stores for a total of 272 locations.

Schulze for some time promoted within his company, but in the late 1990s he began to lure senior executives from other companies for the added experience needed to manage the company's explosive growth. From the beginning, Schulze paid attention to consumer research and his own employees. Schulze, in the book 301 Great Management Ideas, pointed out you can talk to store managers, but you won't get the whole story. His solution is to take the cashiers to breakfast. He stated, "if you've got a problem, go to the last point the customer visits." He notes that cashiers hear customer complaints and observe how a store runs. He prefers breakfast chats rather than traditional meetings because the relaxed atmosphere fosters conversation. According to Schulze he gets "absolutely invaluable results."

As chairman and chief executive, Richard Schulze described how he saw his role: "My job has shifted from staying in lock-step with the customer to being in front where the company is going. We have 40,000 employees now, and we want them all to enhance their careers, to grow personally and professionally and to grow in earnings. If that doesn't happen, we're not doing our job."

Social and Economic Impact

Through the growth of his Best Buy superstores, Schulze introduced mass-merchandising concepts that have changed the way most Americans buy consumer electronics. The company stores evolved with the marketplace to stay successful, eliminating sales commissions, opening increasingly larger stores and introducing other products, while creating an entertaining shopping experience. The publicly traded company's stock has risen sharply over the years, and the firm's moves are closely watched by investors. Analysts who follow Best Buy point to Schulze's leadership style as well as marketplace innovations for the company's growth. Barry Levin, a market analyst, explained, "This is a guy who is always thinking. It's not so much that he's a workaholic, but his mind is always running."