Best Buy's CEO Hosts 2013 Regular Meeting of Shareholders (Transcript)

Jun.20.13 | About: Best Buy (BBY)

Best Buy Co., Inc. (NYSE:BBY)

2013 Regular Shareholders' Meeting Conference Call

June 20, 2013 10:30 AM ET


Hatim Tyabji - Independent Chairman

Hubert Joly - President and Chief Executive Officer

Bill Seymour - VP, Investor Relations


Unidentified Company Representative

Ladies and gentlemen, please welcome Hatim Tyabji.

Hatim Tyabji

Good morning. I'm Hatim Tyabji, Chairman of the Board of Directors at Best Buy. At this time, I call the 2013 Regular Meeting of Shareholders to order. Let me begin by welcoming our shareholders including those joining us online and here on the corporate campus. My thanks to you for your interest in the company and for taking the time to be with us today.

As I explained in my letter to the shareholders accompanying our proxy statement. This has been a tumultuous period for Best Buy. This time last year, the CEO had just left the Company in a highly public exit. Our founder and Chairman of the Board had resigned and the possibility that this Company might be acquired and taken private loomed large. A year later, everything is different, and happily everything has changed. A stock that dipped as low as $11 now hovers around $27 to $28.

The Board of Directors undertook a process last spring, the result of which was the recruitment of a world-class CEO, Hubert Joly, an Executive with proven turnaround and transformation abilities. Since his arrival, only 10 short months ago, Hubert and I have developed a close personal relationship, reinforced by my belief that he has the intellect, energy and desire to restore this company and to take it to heights only yet imagined. Indeed I am honored to call him on both a friend and a colleague.

Only a year ago, we had a shareholder base that doubted our collective ability to recruit and retain world class talent. That base now lauds the executive team we have built comprised of new hires and long time employees. We were an enterprise that was once hemorrhaging employees and suffering from declining morale, now we have the highest employee engagement scores in years. This was a company distracted by its joint venture in Europe that now exiting that very joint venture at a very fair price.

Finally, our largest shareholder Dick Schulze has returned to the fold, not as a member of the board but as Best Buy's Chairman Emeritus. At a very personal level, Dick, it is my distinct pleasure and privilege to welcome you back.

All this accomplished in just under a year. All this made possible by the sheer determination of the Board, the skill of the management team it put in place and most importantly, the hard work of the men and women of Best Buy. Yes, ladies and gentlemen, it was a hard year but it was also a year of enormous success and even greater gratification. We navigated our way through countless and in many cases unprecedented obstacles and arrived at the place we are today. I say all this knowing full well that the journey is far from complete. Yes, we are on firmer footing, but there is still a great deal of work and challenge ahead of us.

Hubert will take you through the business in more detail but I wanted to take a moment to talk about Best Buy's transformation known to all as Renew Blue. First laid out in November of last year, only two months after Hubert joined the company, Renew Blue is the blueprint by which this company is transforming itself.

Under the flag of Renew Blue, you have seen a rededication to customers, employees, vendors and shareholders. This includes agreements like the ones recently announced with Samsung and Microsoft, the company's increased investment in e-commerce and its industry leading low price guarantee, the critical work of reducing cost that has already yielded hundreds of millions of dollars in savings.

Renew Blue is still in its infancy, but I speak for the Board, when I say that we are enthusiastic about what it has helped this company to accomplish to date and where it will help take it in the future. With that in mind I would like to introduce my fellow Directors, with me at the front of the room are Hubert Joly our President and Chief Executive Officer and the Director of the company and Kathy Higgins Victor, the Chair of our nomination corporate governance and public policy committee. Also at the table, are Sharon McCollam our Chief Administrative and Chief Financial Officer and Keith Nelsen our Secretary and General Counsel.

Other directors are in the front row and they are Lisa Caputo, Ron James, Sanjay Khosla and Gerard Vittecoq. Joining them are three new Directors Russ Fradin joined our Board three months ago and comes to us as the CEO of SunGard. He brings deep expertise in business systems and operations as well as executive compensation. Russ, we welcome you to your first shareholder meeting.

By contrast, this is not to put it mildly the first shareholder meeting for the remaining two directors. Brad Anderson and Al Lenzmeier were executives and directors of this company for decades, both of whom have helped lead Best Buy's past growth. We're indeed pleased to have their experience and wisdom and warmly welcome them back.

I would also like to introduce our other executives in attendance; Shari Ballard, President of International; Scott Durchslag, President of E-Commerce and Marketing; Matt Furman, Chief Communications and Public Affairs Officer; Mike Mohan, President of Home; and Carol Surface, our Chief Human Resource Officer. Also joining us are representatives from our independent accounting firm, Deloitte & Touche, Troy Short, lead client service partner, [Nathan Nunn] [ph], Audit Senior Manager and [Scott Ericsson] [ph], the Audit partner.

As a reminder to our audience, there are reporters present and more are listening via webcast. This meeting is for the benefit of our shareholders and we ask that reporters refrain from asking questions.

As for shareholders, there is time set aside for questions during the question-and-answer session later in the meeting.

The board has adopted an agenda that will govern the order of business at this meeting and has certain rules of conduct for the meeting. If you have not yet received copies of the agenda or rules of conduct, please raise your hand and copies will be brought to you. These rules govern the formal part of the meeting as well as the question-and-answer session that will follow.

If you are joining us through our Virtual Shareholder Meeting Online, you will find a place to submit questions. We will try to get to as many of your questions as possible during our Q&A session.

Finally, the Inspector of Elections appointed by the board of directors is [Jan Drymen] [ph] of Broadridge. She has previously taken her oath as Inspector of Elections and is located at the table at the back of the room. The polls are open for voting. Most shareholders have already voted by proxy and we have tallied your proxy votes. For those of you who have not yet voted or want to change your vote, ballots are available from the Inspector.

Please vote now. If you have already voted, filling out a ballot and giving it to the Inspector will revoke any earlier votes. The polls will close as soon as we announce the items to be voted upon. Until the polls close, any shareholder may revoke or change his or her proxy on any matter and may vote on any matter.

The notice of meeting and our proxy materials were mailed by Broadridge, the company's transfer agent, beginning May 8, 2013 to all shareholders of record as of April 22, 2013, and as a result the meeting is being held pursuant to proper notice.

Proxies representing more than 90% out of the approximately 340 million shares of the company's outstanding stock eligible to vote have been received, and accordingly, a quorum is present and the meeting is duly constituted and should proceed.

Upon motion the reading of the minutes of the regular meeting of shareholders held on June 21, 2012 will be waived.

Thank you. Now shareholders will consider the items set forth in the proxy statement. The audience will have the opportunity to ask any questions related to these proposals after all of the proposals have been presented. Please refrain from asking any questions or making any comments about the proposals until that time.

The first item of business is the election of four Class 2 directors to serve for a term of two years and the ratification of two Class 1 directors to serve for a term of one year. The Board of Directors has nominated Bradbury H. Anderson, Sanjay Khosla, Allen U. Lenzmeier and Hatim A. Tyabji as Class 2 directors, and Russell P. Fradin and Hubert Joly as Class 1 directors. The board recommends a vote in favor of each of these nominees. The nominees receiving the majority of votes cast by the shares actually voted will be elected.

The second item of business is the ratification of the appointment of Deloitte & Touche LLP as the company's independent auditor for the current fiscal year ending on February 1, 2014. The board recommends approval of the proposal. The proposal requires the affirmative vote of the majority of the shares voting on this matter.

The third item of business is an advisory vote on our executive compensation as detailed in our proxy statement. This is an item that failed last year amidst shareholder concern regarding the terms of our prior CEO's exit. The board and management have listened to this shareholder feedback and have taken this into full account in our compensation related decisions. We reaffirm our commitment to a pay-for-performance philosophy, and accordingly, the board recommends approval of the proposal.

The fourth item of business is a vote on management's proposal to amend our amended and restated bylaws in order to implement declassification of our board of directors. This item is in response to the shareholder proposal passed last year recommending declassification, which was supported by the board. Upon passage of the proposal at last year's meeting, the board immediately committed to implementing declassification in accordance with the shareholder proposal.

As reviewed with the shareholder proponent and other shareholders, this declassification measure fully implements the shareholder proposal by ensuring that beginning with Directors up for election in 2014, each Director standing for election, will be elected for a one year term as opposed to our long standing practice of having two-year Director terms.

Consistent with our firm commitment, the best practices incorporate governance, the board recommends approval of the proposal. I would now like to open the floor to any discussion regarding these proposals. If your question is not about one of these proposals, please refrain from asking that question until later in the meeting during our Q&A session.

Since there are no comments or additional discussion on these proposals, I now declare the polls closed. We expect to post details of final voting results on these matters within four business days on a Form 8-K.

Prior to closing the business portion of the meeting, I would like to make two personal comments. One, I would like to recognize the many contributions of Ron James, who is retiring from the Board of Directors following this meeting. Ron join the Board in 2004 and in that time made many valuable contributions on the nominating corporate governance and public policy committee, the compensation and human resources committee and the finance and investment policy committee and certainly to the Board as a whole. At this time, please join the Board of Directors in thanking Ron for his many services as a Director of Best Buy.

For my second personal comment I'm going to go off script, because I see in the audience an individual who is, about as integral to Best Buy and I feel that Elliott Kaplan should be recognized. If I was a 100% sure you were going to be here, I would have had you in the script.

We have now completed the business portion of our meeting. Is there a motion to adjourn the business portion of the 2013 Regular Meeting of Shareholders?

Unidentified Company Representative

So moved.

Unidentified Speaker

I second.

Hatim Tyabji

I therefore declare, the business portion of our Regular Meeting of Shareholders adjourned. Let us now move on to the management presentation. Please remember that comments made by me or by others, which are subject to risks and uncertainties. To find out more about the factors that could cause actual results to differ for management's expectations. Please see the SEC filings on our website or on the SEC's website.

At this time, I would like to warmly welcome Hubert Joly, Best Vice President and the Chief Executive Officer.

Hubert Joly

Thank you, so much Hatim. Ladies and gentlemen, then to welcome you to Best Buy's Annual Shareholder Meeting. As you can imagine it's an honor for me to stand today before you. And I'd like to begin by acknowledging members of our Board of Directors let by our Chairman Hatim Tyabji.

I want to emphasize that Hatim's leadership and determination helped bring this Company through some of its most difficult times. And to the extent that we are today in the better position versus last year releasing no slow measure because of Hatim. And on behalf of the Board and Best Buy's senior leadership, I want to publically, thank him for his leadership.

And like Hatim I also want to acknowledge the presence of an individual without whom very simply there would have been no Best Buy, and this is of course Dick Shulze. Since our first meeting Dick you've impressed me with your insights and your instincts. Dick as everybody knows is the man who built this companies with talent, his leadership and his passion and I'm incredibly grateful that he is supporting our transformation efforts by providing inputs and assistance and Dick, thank you for being here today and for your support. Thank you.

So as you will recall it was only seven months ago, November 13, 2012 that Best Buy hosted an Analyst and Investor Day meeting in New York. We presented on that day our assessment of the business including the strength of the Company as well as its real performance issues as well as our view on what we needed to do in order to transform Best Buy.

We identified two problems, declining comps and declining operating margins and we outlined our plan to address these problems, Renew Blue, the strategy named from of course the blue shirts worn by our sales associates. The goal we laid out on that day is to be the preferred authority and destination for technology products and services and as you'll remember this plan is structured around five pillars. We invigorate and rejuvenate the customer experience, attract and inspire great leaders and employees, work with vendor partners to innovate and drive value, increase our return on invested capital for our investors and continue our leadership role and positively impacting the world.

And today what I'd like to do is to share with you three observations about our transformation initiatives. One, I continue to be very impressed by our strengths, even more so than then when I first discussed them in November. Number two we're making progress against our objectives and number three we are focused on continuing to move forward against a clear set of priorities.

Let me briefly address the first point. And I continue to be impressed by our strengths, this of course applies to the value proposition we offer our customers, which is articulated as five customer promises, these promises are, one, the latest devices and services all in one place, knowledgeable, impartial advice, competitive prices, the ability to shop when and where you want, and support you for the life of your products. This is a unique, a unique value proposition and a significance competitive advantage for us. The realization of our sales also applies to our relationship with vendor partners, many of them see Best Buy as a critical partner offering a unique place where they can showcase of billions of dollars of R&D investments, this is a great position for us to be in.

So, second I'd like to touch on the progress, we've been making vis-à-vis our goals. We are of course proud to have recorded two consecutive quarters of virtually flat comps in our US business when adjusting for the shift in timing of the Super Bowl. We've also made progress on each of the pillars of our Renew Blue strategy.

Starting with the customer experience, I'll mention three points. First in Q4 of last year, we announced that had year-over-year revenue growth of 11% and this past quarter our comparable online sales grew by 16%. We believe that we have grown market share in that space and we've done this through increased investments in search engine marketing and search engine optimization as well as an increase in the conversion ratio.

Now this said, our market share online is still significantly lower than in the physical world and so we're far from declaring victory here.

Second, our net promoter score has gone up significantly since November. This is particularly noteworthy because NPS, as we call it, measures customer satisfaction of not just those two purchased but also of those who did not. It also emphasizes people who are fans of Best Buy and those who are detractors. In this way, we get a clear picture of customer satisfaction and dissatisfaction. The NPS metric is so important to our company that the entire U.S. officer population of Best Buy has this as one of the measurements used to determine their annual bonus.

Third, we introduced and then made permanent low-price guarantee. This guarantee gets at the heart of the showrooming phenomenon. It takes better advantage of those 600 million visits that we have to our stores each year. The goal is very clear is to impart the Blue Shirts so that they can make the sale.

Speaking of pricing, I would like to mention the e-fairness legislation that is making its way through Congress in the 50 states. The U.S. Senate recently passed a Marketplace Fairness Act that would allow states to collect sales tax from internet on the retailers. This bill, which is supported by Best Buy, Amazon and thousands of brick-and-mortar retailers across the country, is important to our business because it will help level the playing field across all types of retailers.

And by the end of fiscal 2014, which is January 2014, more than half the U.S. population will live in a state that has a local equivalent of e-fairness legislation. This compares to about 40% today. And so we encourage the U.S. House of Representatives to act and present a bill to the President who has already indicated he will sign it.

The second pillar of Renew Blue is attract and inspire great leaders and employees. And let me highlight two points here. First, I am particularly proud of how we've strengthened our management team in the last several months and mobilized it around our strategy in a unified way. This is a team that combined new talents with individuals who have given much of their professional life to Best Buy. This is a team that is determined to raise the bar and lead an exciting transformation and I am grateful, incredibly grateful for their talent and for their commitment.

Second, I am thrilled by the mobilization of our teams and associates across the business. One of our biggest competitive advantages is our knowledgeable Blue Shirts sales associates and Geek Squad Agents. We are continuing to invest in Blue Shirt training giving our sales associates the knowledge they need to feel empowered in their job and able to better serve the customer. We see the results of this in improved employee engagement and in our customer service satisfaction scores.

The third pillar of Renew Blue is work with vendor, partners to innovate and drawing value. This is another area in which we've made progress. The best example of which are new Samsung Experience Shops and Microsoft Windows Stores.

Regarding the Samsung Shops customers can now visit Best Buy stores and see, touch and feel many of Samsung's top technology products in one place and experience how these products work together as part of a broader ecosystem.

By now we've opened Samsung Experience Shops in 800 of our large format stores and practically all of our standalone mobile stores. We also have a Samsung Experience Online at

By the end of the summer, we will open the remaining Samsung Experience Shops across our retail chain and can report the customer reaction is very, very positive. At the same time, our customers will soon see a major evolution in our computing department as we establish Microsoft Windows Stores in our top 500 U.S. locations. These shops will have additional labor assign to them, trained by Microsoft on a broad range of Windows computers and tablets. It will serve as the focal point for the innovation in this space and help us better serve the customer.

The fourth pillar of Renew Blue is increasing the return on invested capital for our investors. When we unveiled the Renew Blue priorities, we made it very clear that we saw great opportunities to enhance our profitability through operational improvements to our revenue line and gross profit margin in our cost structure.

We announced that we plan to take out a total of $725 million of SG&A and cost of goods sold. And over the past two quarters, we have taken $325 million in overall cost reduction. We were able to do this by increasing our focus, delevering the organization and increasing efficiencies.

Another way that we have used to increase our return on invested capital as being to enter into a definitive agreement to sell our European joint venture and this move allows us to simplify the company, exit on activity that was consuming much capital while producing a low return and strengthen our balance sheet.

The fifth pillar of Renew Blue is continue a leadership role in positively impacting the world. Technology is the fastest growing waste stream on the planet and we want to be part of the solution. We take recyclable products from our customers and safely recycle more than 170 million pounds each share.

All together we feel we have accomplished a great deal in the seven months since November and so allow me to take this moment to publicly thank the 130,000 men and women of Best Buy without whom none of this progress would have been possible. I also want to thank our customers for their business, our vendors for their partnerships and our shareholders for their ongoing support. Thank you.

This said we are only in the early days of our transformation. We feel we are in the second inning of this ballgame. Much of the work is ahead of us. And with that in mind, I would like to share with you some detail on the priorities we are focused on this year as we continue to implement our Renew Blue transformation.

The first priority is to accelerate online growth. To do that, we are working under following initiatives, some of which may seem like common sense but are in fact critical to our e-commerce growth. They include retiring our 10-year-old onsite search platform and replacing it with new industry-leading technology that could produce more relevant results based on the customer specific search criteria. It includes creating a consistent customer experience across mobile, tablet and PC devices including common navigation and product information. It includes implementing technology enhancements that will make it easier to add Geek Squad services to the shopping cart and it includes adding functionality based on customer browsing behavior that will dynamically recommend products if no items have been added to the shopping cart.

A second priority for this year is to escalate the multi-channel customer experience. I spoke earlier about how we used the Net Promoter Score to measure how well we are doing with buyers and on buyers. In light of what we've learned from this NPS data, we introduced this year our low-price guarantee as a way to -- as a way of addressing a key customer concern.

Another key customer pinpoint we are addressing is the product not in stock when shopping online. As an example depending on the months, 2% to 4% of all of our online traffic does not result in a purchase because we do not have the inventory in our distribution centers and we are telling online shoppers that the item is out of stock; however, an estimated 80% of the time we actually have it in one or more of our retail stores.

Now 2% to 4% is a very large number in a context where our online conversion ratio is only slightly above 1%. So in response, we're looking to introduce a very important initiative a shift from store capability. For most multi-channel retailers, this is a very complex IT and operational undertaking, but we actually already have made the majority of the IT investments necessary to move this initiative forward over the next several months. We have begun piloting the initiative in 50 of our retail stores, and if the pilot is successful, we will of course extend it to more stores.

The third priority is to increase revenue and gross profit per square foot through enhanced floor space optimization and merchandising. As we discussed in November, our plan is to reduce space allocated to negative growth in low margin categories such as CDs and DVDs and replacing them with higher growth, higher margin categories like mobile, appliances and accessories. We are also taking a more holistic approach to managing clearance inventory by creating dedicated clearance zone in selected stores and enabling customers to buy in-store clearance items through the online channel regardless of where the inventory is located.

The fourth priority for this year is to drive down cost of goods sold through supply chain efficiencies. Our first supply chain initiative is closely tied to the development of our online business. In order to be a true multi-channel retailer, we will enable the fulfillment of our online orders through all our distribution centers, not just those previously allocated to orders. This means we are locating inventory across distribution centers in order to take better advantage of our scale. Another top supply chain priorities, reverse logistics which is actually one of the most financially [punitive] business processes in the company.

Reverse logistic refers to customer returns and [extension] both of which add up to approximately $3.5 billion in total sales, $3.5 billion in total sales, and cost the Company over $400 million a year in P&L losses. Our sense of urgency around this initiative is high due to the financial upside it represents.

And so based on the magnitude of this opportunity and the others we have discussed, you can see why we are so confident in our Renew Blue commitment to reduce cost of goods sold by $325 million. To-date we've delivered $30 million and expect to deliver substantially more over the next several quarters. As this is an area that affects virtually every operating area in the company, and carries significant contractual commitments, we expect that progress will be gradual and incremental but ultimately substantial.

Our first Renew Blue priority is to continue to gradually optimize our US real estate portfolio. Occupancy cost reduction and retail capital allocation remains a key focus. As such we are renegotiating of our rent reductions for a number of stores and have since Q3 of last year closed to seven big buck stores in the US and 16 stores in Canada. As for new store openings, we're continuing to extend the timeframe by which we are measuring the performance of new prototype store. This includes our Richfield prototype store and our Best Buy Mobile standalone stores.

And our sixth Renew Blue priority is to further reduce SG&A costs. As we laid out at our investor and Analyst Day last November, we believe there is an opportunity to remove $400 million in SG&A cost from our North American businesses. In the first quarter, we eliminated $145 million in annualized SG&A cost including $40 million in Canada. In addition to the $150 million in annualized reductions that we had announced in March. So this brings us to $295 million and we plan to take out additional cost as the year progresses.

So ladies and gentlemen, across all of these priorities remains one fundamental focus and that is serving the customer and living up to the promises we make to them when they come to our website or any of our stores. Our customer promises combined with our hard work and passion of everyone at Best Buy help explain our success to date and our belief in the future.

I will not hide from you that I am more excited today about our strengthens and opportunities than I was seven months ago when I took the stage in New York City to present to investors. All of us are encouraged by our early progress but we're also keenly aware of the journey that is ahead of us and know how much we must raise the bar on our performance.

As I said in our early innings and have a great deal of work ahead of us. There will be ups and there will be downs, but we will not stop fighting until we've Renewed Blue and transformed Best Buy.

I would now like to turn the podium over to Bill Seymour, our Head of Investor Relations. He will moderate our question-and-answer period.

And I want to thank you for your attention and we look forward to your question. Thank you very much.

Question-and-Answer Session

Bill Seymour

It's time for our Q&A session, as Hubert mentioned, I'm Bill Seymour our head of investor relations they are Best Buy representatives in the isles with microphones and we'll try to take as many questions as possible. Anticipate the Q&A will last ask about 15 minutes and we will be answering questions both online through our online shareholder forum and in the theatre.

And if you want to ask a question, if shareholder wants to ask a question, please raise your hand and wait for the mic to be brought to you. Once we recognize you, would you please identify yourself and then make your remark and ask your questions, we would ask to make sure that as many questions we can, please limit yourself to one minute, and so we can take as many questions as possible.

And with that, let's -- we'll start with the first one in the room. Okay, we have a question, yes please.

Unidentified Analyst

My name is [Michael Neil] as I'm here on behalf of the Parents Television Council, who are a nonprofit organization, whose mission is to protect children from the proven harm that comes from exposure to graphic, violent sex and profanity preferred on TV. Thank you for introducing yourself to me Mr. Seymour and [Matt Foreman] also, they've publically with me committed to what we call doing well my shareholders, by doing good, so as I I'm just going to ask you Mr. Joly to do the same.

There's huge research that shows that, there's a 67% less likelihood of TV viewers remembering an advertiser's name when they're on shows that are extremely violent or full of sex even the people are enjoying the show. And people have the right to watch what they want but we like to work with the Company's like Best Buy.

We work with Walmart and Smucker, and Proctor & Gamble and others and what we like to do is when you're sponsoring something and you don't know the content and that's often the case we'll call your office and say do you know what you folks were associating your good name with last night because we'd like to as shareholders get a better return on advertising dollars but we'd also like you Mr. Joly to commit to doing what is good for the country especially good for the children of our country. So can you make that commitment today?

Hubert Joly


Unidentified Analyst


Hubert Joly

We take a responsibility, you have seen the fifth pillar of Renew Blue, is in fact to continue our leadership role in making this place a better world. Many of us -- many of you have children. We take our responsibility very seriously, that starts in our stores where we enforce standards as related to selling mature games for example and we have strict standards and procedures.

[Matt Foreman] spoke with me before the meeting after he had spoken with you. If you see us not doing the right thing we'd love to have your feedback. We are committing to our shareholders and we are committing to the world.

Unidentified Analyst


Bill Seymore

Thank you and we'll actually go to a online shareholders forum question this one will be for Hubert. What is our strategy to be a price competitive.

Hubert Joly

Our strategy to be price competitive is in fact to be price competitive. The name is on the building, the name is on the building. We have to be the Best Buy and as we lead this Company you will see us be very price competitive. In fact when you look at the evolution of our gross profit margin in the first quarter, a part of the pressure on the gross profit margin has been our investment in price competitiveness.

You're also familiar with low price guarantee, whereby the blue shirts are there to close the sale. So, price is not the only promise that we made to the customers, but it's one of the promises we made to the customers. We're fortunate at Best Buy beyond price to also have a number of unique advantages, include the breadths of the assortments, the knowledgeable and impact full advice, the support, which makes us very, very special in the eyes of the customer, but we have to be price competitive. So, our strategy to be price competitive is to be price competitive.

Bill Seymore

Okay. Let's take another one in the room. So I think there is a gentleman up in the back here.

Unidentified Analyst

And looking at stores to close have you considered in major metropolitan areas whether in Canada or US possibly selling or at least letting it be known that you're willing to sell stores maybe at the lowest producer in the area. But they would optimize the selling price of the particular real estate?

Hubert Joly

So our goal in life is not to close stores and I have to be very clear about this. Our goal in life as we lead this company is for it to be competitive, to be cost competitive and to grow the business. Now, we also have the responsibility to make sure that our real estate portfolio, our real estate investment is yielding the appropriate return. So as a management team and Sharon McCollam plays a key role in this, we, on an ongoing basis review leases as they are getting closer to expiration and we look at what is the best decision in a particular market for this particular store.

We actually don't own a real estate in the vast majority of the cases, we lease, we rent the real estate and there let's say it's probably more than 90% of the cases, we don't own the real estate we lease. There will be cases where we look at subletting where we can where it make sense to not continue to [utilize] the store and subletting it to other investors as appropriate in a given market, but that's a rare occasion. So we don't own the real estate contrary to some other retailers.

Unidentified Speaker

[Mark Bradley] and I want to say Mr. Schulze I welcome you coming back and we've grown up together and I am glad to see you back again. More importantly, I asked this last year and obviously Mr. Schulze and Mr. Joly were not here last year to actually respond to it.

And I was mentioning last year we should be looking at synergies and opportunities there being availed to us in the future and one of them happens to be looking at making us full line service electronic unit. In this respect, I am referring to continuing looking at expanding up because of just like with the car industry, they are looking at more efficiencies with that. The heating and cooling systems are looking at that.

With NSP, they have a smart service unit. You have also service contracts on many of your equipment. If you went with the heat and cooling, you could actually work with NSP and many of the other electronic groups across the nation who are doing service across many venues. But because of the efficiencies that are being demanded on heating and cooling in the future, being more efficient than they are right now, there is actually a demand and actually I believe there is a lot to assess it, many of us are looking at replacing our furnaces and our air conditioners with more efficient ones.

So this is an opportunity to be full line and also at the same time, with that smart program, that NSP has in this area, they do replace equipment under contract, so it wouldn't give you an opportunity to be first to market to that initiative and you could actually, you may not be selling at full price, but you are still going to be making a good profit off of everything. Thank you.

Hubert Joly

Mr. Bradley, thank you for your idea. Services is a critical part of our strategy as a company. I think the Geek Squad is one of our secret weapons, it doesn't need to be secret, by the way I think we have the opportunity to expand it and that's obviously a key part of who we are and what we do.

We see that as a way to satisfy our customers, give them more reasons to shop at Best Buy and allow them to enjoy the full benefit of the products as well as expand the profit pool. So what I would suggest is that we take your suggestion offline as we are always looking for new ideas to serve customers and make a buck or two along the way. Thank you.

Bill Seymour

Okay. We will take one more question from the online shareholder forum. Hubert, you talked about it in your presentation, but how are we going to become more competitive online?

Hubert Joly

Well, it is obviously a huge priority for us. We want to -- so we are not a brick-and-mortar retailer. I want to make this very clear, we are a multi-channel retailer and we want to sell to the customers the way the customer wants to buy. We also know that some large number, more than 80% of the purchases of large ticket items, the shopping journey actually starts online.

We all research the items online so showrooming starts online and all of these reasons or all of these facts are reasons why making online presence more competitive, more attractive for the customers is an absolute vital priority for the company.

So the initiatives to get this done are broad ranging and we will be making continual progress around them. Being present online when the customer shops is done through increased investment in search engine marketing and search engine optimization and we've increased our investments since last fall in this area because when you look for either services or products, we want to make sure that you find us easily online.

Then we have to make improvements on the site itself. The replacement of the onsite search engine that I mentioned is a very meaningful change. I think many of us, many customers have been frustrated by the difficulties of finding something on our sites, so having the search engine on our site that actually allows customers to find what they are looking for, we think it is going to be a major progress.

We are also making efforts to improve the information on the site because when you are on the site, you don't have the benefit of a Blue Shirt explaining things to you, so that's an area where we will need to make progress.

And another example will be the checkout process. For those of you who are frequent shoppers on our site, you are very familiar with the fact that our check out process is seven or eight steps. I think we can probably all agree that there is a few too many. Increasing the attachment on our site, the ability to buy the services and the accessories that go with the products is another initiative. So there is a broad range of things and it's not just our e-commerce team led by Scott Durchslag getting this, it's our entire organization mobilized to make progress in this area.

Bill Seymour

Okay. Let's look for another question in the room please.

Unidentified Speaker

Mr. Chairman, Mr. President, members of the Board of Directors and Mr. Schulze I'm [Marty Kirsch], a stockholder and former Mayor of the City of Richfield, I want to thank the Best Buy Corporation for all that you do for the City of Richfield through a school district or Wood Lake Nature Center. And now in two weeks Best Buy will be the sponsor for the Fireworks Display at 66th & Portland Avenue.

So I would encourage all of you as stockholders to come and see the best presentation of fireworks in the metropolitan area, all thanks to the Best Buy Corporation. As you know things are tough for cities and without Best Buy coming to the plate, we would not be able to have fireworks in the City of Richfield. So again, Best Buy, thank you very much.

Hubert Joly

Mr. Mayor I want to salute you and thank you for your comments and I will make a few comments about the impact of the e-fairness debate on local communities. I was in the House in Washington on Tuesday morning and that's one of the points we discussed. Companies like Best Buy collect sales taxes from customers. These sales taxes contribute to the well being of local communities, the schools in particular. These out of states, internet pure players and by the way this is not about taxing the internet, because the sales tax is on our website. This is not about a new tax because I hope all of you know that when you're buying something on a website that does not collect sales taxes, you are in fact oblige to pay these sales taxes.

So it's about collecting the sales tax and as the House is going on to be taking on this topic this year, I would encourage all of you to write to your representative to make it clear that it makes so much sense for our communities, this is a vital part, it's very critical for Best Buy, we're talking about stores. The future number of stores at Best Buy is going to be in fact determined by the Congress being able to address this matter. The future of our schools and local communities is also going to be impacted by this. So Best Buy is not a political organization, but I wanted to highlight a vital this is to our well being not only as a company but also as a set of local community. So, right to your Congressman.

Bill Seymour

Thank you.

Hubert Joly

Thank you.

Bill Seymour

Unfortunately, we're out of time for the Q&A session. Thank you very much for your questions. I will now hand it back over to Hatim.

Hatim Tyabji

Thank you, Bill. I'm pleased to report that the preliminary voting results show that the majority of shareholders who voted and the majority of all shares outstanding supported the Board's recommendation on all four of the proxy proposals, including the advisory vote and executive compensation, sometimes colloquially referred to as say-on-pay which was approved by 83% of the shares voted.

In conclusion then, thank you for attending our 2013 shareholder meeting today. Your support is sincerely and greatly appreciated. The board and management will continue to work diligently on your behalf and endeavor to always earn your trust. We look forward to seeing you again next year whether in person or online. Thank you for coming and have a wonderful day.

Unidentified Company Representative

Ladies and gentlemen, for any interested shareholders, our Board of Directors and members of the executive team are available for questions and comments for the next several minutes in the front of the room. Thank you.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to All other use is prohibited.


If you have any additional questions about our online transcripts, please contact us at: Thank you!