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Best Buy founder's strategy: Cut prices to better compete

The retailer's founder is hoping to revive business by trimming prices while still focusing on customer service, says the Wall Street Journal.

Best Buy founder Richard Schulze
Best Buy founder Richard Schulze Best Buy

Best Buy founder Richard Schulze sees a combination of lower prices and good customer service as the key to saving the company.

The electronics giant is in the midst of a major sales slump, hurt by competition from online retailers who can dangle cheaper prices without the brick-and-mortar overhead. To cut costs, Best Buy is aiming to close more than 50 stores and shrink the size of its remaining ones.

Schulze believes such cost-cutting and store-closing moves will ultimately drive the company out of business, according to the Wall Street Journal (subscription required). Instead, he wants to compete against the Amazons of the online world by slashing prices yet offering the same in-store experience mastered by the likes of Apple.

Schulze's strategy may be tough for Best Buy to swallow, as it would initially increase costs at the same time the board is striving to cut them. But the founder has another trick up his sleeve -- buying the company and taking it private.

Schulze, who currently owns 20 percent of Best Buy, just submitted a proposal to acquire the retailer for between $24 and $26 a share, a hefty premium over the stock's recent trading prices. If successful, he would take the company off the market, no longer answerable to public investors who have been dumping their shares.

Buying out the company would cost $10 billion altogether. Schulze would have to come up with $3 billion in cash to fund the deal. Around $1 billion would come from his own stake in the company, with $2 billion to be raised from private-equity firms and other investors. That would leave $7 billion, which he'd likely have to raise by issuing debt.

Any talks of a potential buyout are on hold for now. The Best Buy board of directors plans to wait until earnings are announced on Aug. 21 before putting Schulze's offer on the table.

Schulze himself was forced to step down as chairman of Best Buy's board recently after he was caught up in an investigation involving former CEO Brian Dunn.

An independent probe found that Dunn had "an extremely close personal relationship with a female employee that negatively impacted the work environment." Schulze was aware of this relationship but failed to reveal it to the board. Ultimately, the action cost both men their jobs.