Exclusive Interview: Best Buy CEO Says Tablet Sales Are "Crashing," Hope for PCs

Re/code has landed in Minneapolis to talk to the folks at Best Buy — the last standing nationwide big-box, bricks-and-mortar consumer electronics retailer, with over 1,000 main stores and hundreds of smaller mobile device stores.

The chain, survivor of a breed that once included competitors like Circuit City and CompUSA, is waging a multi-front battle for relevance and even survival. Its foes: Online-only alternatives like Amazon, deep discounters like Walmart and high-touch boutique stores like Apple.

It’s also battling the trend called “show-rooming” in which consumers try out products in a store like Best Buy but then buy online from e-tailers like Amazon. To fight this, it has expanded its price matching to include online sellers. And it is revamping its website (which was ugly, hard to navigate and hard to search) in the hope that it will become a bigger shopping destination for people who start, or even complete, purchases online.

But it may have more fundamental problems: Sinking sales of Windows PCs, once a reliable Best Buy mainstay, which had their worst sales year ever in 2013; and, lately, a dive in the sales of the presumed replacement for all those laptops: Tablets.

Best Buy CEO Hubert Joly gave an exclusive interview to me at company headquarters in Richfield, Minnesota, a Minneapolis suburb.

Re/code: What is happening with the PC? Why is it declining quarter after quarter? Will it turn around?

Hubert Joly: So, we’ve actually had a revival of the PC business at Best Buy [in the company’s first quarter]. Part of it was that Microsoft stopped supporting the old version.

Stopped supporting Windows XP?

Yes. So that was good. From a technology standpoint, customers now have a broad range of choices with the tablets and the phones. So some of us have a phone and a tablet and a laptop, but many people can now converge to either a tablet and a phone or a phone and a laptop. So you have more diversity of offers.

The tablets boomed and now are crashing. The volume has really gone down in the last several months. But I think the laptop has something of a revival because it’s becoming more versatile. So, with the two-in-ones, you have the opportunity to have both a tablet and laptop, and that’s appealing to students in particular. So you have an evolution. The boundaries are not as well defined as they used to be.

If you take the [Microsoft] Surface, is it a tablet or a laptop? I think it’s both. So I don’t think the laptop has said its last word.

Is this just a Best Buy phenomenon? Sales have certainly been dropping overall. What’s the deal?

In this sector, it always depends on the next generation of innovation, right? So, if the Mac continues to do interesting things and converge across the entire Apple ecosystem, that could be very positive. And, you know, the Mac sales have actually done quite well.

Part of the problem is that, for the Windows market, the deflation has been enormous. So you now find laptops at $300 that used to cost $1,000. So, if there’s more innovation at the high end of Windows, then you can have a revival.

You said the tablet had “crashed.” Do you believe it’s going away?

Yeah, “crashed” is a strong word. So, the tablets have been an unbelievable phenomenon. I don’t think there’s a category that ever took off so quickly and so big in the history of tech.

The issue has then been that, once you have a tablet of a certain generation, it’s not clear that you have to move on to the next generation.

As a consumer?

As a consumer. I think replacement is the issue. The penetration has gone so fast that it’s reaching an amazing degree and therefore it becomes more of a replacement market, and the level of innovation in the past year has not been as great as it had been in the previous two years. So, there again, the jury’s out in terms of what’s going to happen, because it’s going to depend on what innovation comes to market. But you need a reason to replace.

And the smartphone?

In the U.S., we are now achieving levels of penetration that are quite significant and it’s evolving now into more of a replacement market. So, it’s still huge volume, but you don’t have the same growth here in the U.S.

The bulk of our business is in the U.S. and the U.S. market has grown mature.

What’s the third smartphone platform? Is it Windows phone? Is Windows Phone going to finally get off the mat in the developed world? Amazon believes their platform has a chance to become the third. What’s your take?

We don’t have a bet at this point.

When I walk into a Best Buy I now see, right from the front door, a giant Apple logo. I see a giant Samsung logo. I see a giant Microsoft Windows logo. And those are stores within a store. So it leads me to wonder: Have you simply rented out your stores?

No, this is not rented. What we’ve done is, we’ve made Best Buy the place where customers can discover, understand, these different ecosystems. There’s these giant ecosystems: The Apple world, the Android/Samsung world, the Windows world. And so, for the customers, it’s a very unique opportunity to see it in one place, and in the space of half an hour, to be able to talk to our various specialists, and touch, feel, experience these products.

But it’s our store. It’s staffed by “Blue Shirts” (Best Buy sales folks).

Why would people not just use your store as a showroom and then buy the products on Amazon?

Two simple reasons. One is our prices are competitive, and we match others’ prices. So, once you are in the store, you have no reason to leave.

If I go into my Amazon app while I’m in your store …

We’ll match the price. So we’ve taken price off the table. Because we think that customers come to us with good intentions.

So what do I have to do? Do I have to literally say, “Here on my phone you can see, Amazon has this TV for $100 less.” And you’ll just match it?

Yes, exactly. With a smile.

Am I going to have to go through a hassle?

With a smile. And so we’ve taken price off the table. And therefore the customers can take advantage of the service we provide: the advice, the Geek Squad, and the advantage of being able to pick up [online orders] in the stores. Or, if they didn’t like a product, they can return it to the store. So, we have unique things to offer that combine online and offline assets.

Do you assume your customers are starting the purchase process in the store, or starting online now?

So, according to Google, when people buy something above $100, the shopping journey starts online. So it’s really the “Web-rooming” phenomenon much more than the “show-rooming” phenomenon. Because we’re making our site a destination for customers who want to do research.

So you’re just as happy if I never go into your store but I buy from your website.

We love to serve you the way you’d like to be served.

So, why should I buy a phone from you rather than from the maker of the phone, like Apple, which has hundreds of stores, or the carriers? Don’t the carriers know more about the phones than you do?

So, if you’re interested in objective, knowledgeable advice, both on the plans — because it’s quite complicated, right? — and the devices, Best Buy is a very good place to shop.

In other words, if I go to the AT&T store, they won’t tell me about the Sprint plans, but you will?

Exactly. And we have the same prices, and that knowledgeable advice.

Is Best Buy going to be around in 5 years?

We’ll be around in fifty years. We have a unique role to play for customers.