According to sources close to the matter, there are huge layoffs being prepared for exactly a month from today at Best Buy. Best Buy has been rumored to be laying off 2,000 employees within their management structure according to a few rumors that hit the web last week. However, according to our sources, these layoffs are part of a much larger restructuring which focuses on the management levels of the company with some managers being moved to new departments and others being let go. Our sources expect that these first 2,000 layoffs are merely the first round of management layoffs and that there will likely be more than 2,000 people laid off from the company over the course of this year, if not the next month.
The first round of layoffs will start from the top at the district level and will work its way down to store-level managers and then department managers and even supervisors and leads. These layoffs and the overall restructuring come as a result of Best Buy’s poor showing during the holiday season, which we had reported on in January after they released their earnings warning. Since that warning, Best Buy [NYSE:BBY] has been down 30% without an end in sight. Clearly, Best Buy’s management believes that they have a people problem rather than a fundamental business and strategic decision problem.
As we had detailed before, we specifically gave Best Buy a multitude of things that they could do in order to improve the company’s success and profitability. But their decision to lay off management, possibly good management, is a foolish one. Most of Best Buy’s management purely acts on the directives given to them by corporate management in Minneapolis and very little management has wiggle room to do things the way they see fit. Sure, part of Best Buy’s problem is their management, but it would be easier to retain the good managers by closing the superfluous stores and keeping the well performing ones.
In terms of the layoffs themselves, they wont become official until April, but market managers and district managers all got massive layoffs. In-store managers were also reduced by one some by 2. Supervisors as a whole got laid off unless you were in critical departments like Geek Squad, warehouse operations or appliances. In addition to all of that, they also laid off all ‘leads’ which are usually the people that lead departments but aren’t officially supervisors or managers. While these layoffs will likely vary from store to store depending on their structure, there are going to be a lot of people losing this jobs over the course of the next month and I’m not entirely sure that’s the answer to Best Buy’s problem.
Sure, Best Buy employs 140,000 people but those people are also supposed to be Best Buy’s strongest asset. They are laying off the very people that have the most experience and likely knowledge. Without these people, Best Buy becomes a far less experienced, fresher group of people that are likely to make a lot more mistakes and cost the company more money. Even though these lay offs are apparently a pretty bad thing, there is a bright spot for the company in laying off these people because they are some of Best Buy’s highest paid employees. By removing these people, they save a lot more money while still maintaining a relatively high level of people selling on the floor. Even though those people selling now have a lot less leadership to guide them.
I believe that Best Buy’s strategy here is to lighten the amount of beaurocracy that exists within the company in order to make it more management efficient and more cost effective. But I don’t think this is the end of Best Buy’s major restructuring, I think that the next step will have to be downsizing their number of stores and closing stores that simply don’t make sense. In addition to that, they need to improve their online presence in places where their store presence is already weak or non-existent. By doing this as their next step, I believe Best Buy can return to growth and buck the trend in the company’s falling shareprice.