Best Buy Case Study

About Best Buy Co., Inc.

Best Buy Co. , Inc. (NYSE:BBY) Headquartered IN Richfield, Minnesota, is a leading multi-channel global retailer and developer of technology products and services. 1,100 stores in U.S (21% Market Share), also operated over 2,800 stores global (Canada, Mexico, China and Turkey), 170,000 employees whom are committed to helping deliver the technology solutions that enable easy access to people, knowledge, ideas and fun. The company’s subsidiaries such Geek Squad, Magnolia Audio Video, and Pacific Sales, and operated under both name Best Buy & Future Shop labels In CANADA People at BB are aware of their role and impact on the world, and are committed to developing and implementing business strategies that bring sustainable technology solutions to consumers and communities.

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For information about Best Buy, visit www. bby. com and to shop at Best Buy, visit www. bestbuy. com. Best Buy’s History: In 1966 Best Buy incorporated with original name as Sound of music, the company started as a retailer of audio components and expanded to retailing video products in the early 1980s with the introduction of the videocassette recorder to its product line. In 1983 Best Buy name has been changed to Best Buy Co. Inc. (Best Buy). Shortly thereafter, Best Buy began operating its existing stores under a “superstore” concept by expanding product offerings and using mass marketing techniques to promote those products.

Since 1989 the company altered the function of sales staff structure (policy) dramatically to be transformed from commission basis oriented to be educators and customer assist oriented. Simply sales mission was to generate sales but now changed to answer customer’s question to help for decide which product fit for their needs. In 2000 the company step up to Market space by launched: BestBuy. com (online retail store), which is very important for BB’s customers thus expanding among them to access to store easily without physical visit.

I. Current Situation:

A. Current performance Volatility of financial position, declining in company’s income compared with last fiscal year, increasing debts as well as operating costs. Facing increased fears competition. Raising in operational costs and increasing in debt & reducing liquidity of cash.. Adverse economic climate and financial stress (declining in net income)

B. Strategic Posture Mission. To make technology deliver on its promises to customer. Keeping customers centered in technological changes “To make life fun and easy”. To improve customer’s awareness of their needs.

Objective

The top objective of company were sustained growth and earnings (growth oriented). Differentiation in retail industry by present unique product & service that customer never get before.. Keeping cost down without sacrificing customer experience given by Best Buy. Strategies. Developed in 1966 as (a low price strategy) and moved to be service-oriented firm (differentiation strategy) in 1989.. Global & national growth through acquisition and alliance with Car phone Warehouse Group, UK. Use its economies scale with over 1,000 locations to obtain cost advantage from suppliers due to high quantity of orders, also increase its Advertising budget for massive campaigns In order to cove over entry market barriers.. Having multiple brands for different customer lifestyles through M&A merge and Acquisition.

Providing customers with highly trained sales associates who available to educate customers regarding product features.. Construct a diversified portfolio of product offerings by building a significant customer data-base (Customer centricity model) Policies Growth oriented by expansion vertically & horizontally.

Cost reduction is very important (restructure commission sales scheme, shipping the correct inventory to the correct locations).. Training & educate employees regularly, promotion from within at all levels.. Rapidly response to external change. II. Strategic Mangers A. Board Of Directors. Sixteen members –three are outsider.. Chairman and founder (Richard M. Schulze), his beneficial ownership of 17. 1 %. Brian Dunn as Previous CEO, Currently (Mike Mikan) as Interim CEO of Best Buy, who has been Director since 2008. All directors and executive officers as a group, and each person we know who beneficially owns more than 5% of the outstanding shares of Best Buy common stock. [pic] [pic] [pic] [pic] [pic] Richard Shultze Mike Mikan Shari Ballard Jim Muehlbauer Carol Surface Founder, Chairman Interim CEO President International CFO VP, Chief HR & Enterprise EVP B. Top Management The two former CEO’s was Richar Shultze and Brad Anderson, but recently Brad stepping down, Brian Dunn replaced, and now replaced with Interim CEO.. June 7, 2012 — The board of directors of Best Buy Co. , Inc. (NYSE:BBY) today announced the appointment of Hatim A. Tyabji as chairman of the Company, effective immediately. Mr. Tyabji, currently Chairman of the Audit Committee, has served as a director since 1998.. Top managers are recently promoted internally and externally hired. Top Mangers whom : Richard Shultze: Founder & Chairman. G. Mike Mikan : Interim CEO

Shari Ballard : President, International and Enterprise EVP. Jim Muehlbauer: Executive VP. And CFO.. Top management members are very experienced in Industry III. Market Overview The Best Buy family of brands and partnerships collectively generates more than $49 billion in annual revenue and includes brands such as

  • Best Buy;
  • Best Buy Mobile;
  • Audio visions;
  • The Carphone Warehouse;
  • Future Shop;
  • Geek Squad;
  • Jiangsu Five Star;
  • Magnolia Audio Video;
  • Napster;
  • Pacific Sales; and The Phone House.

Community partnership is central to the way Best Buy does business.

In fiscal 2010, the company donated a combined $25. 2 million to improve the vitality of the communities where best Buy employees and customers live and work. Strategic priorities focus on growth opportunities, operations, and improved international returns. IV. External Environment (EFAS TABLE; see Exhibit 1)

Natural Environment

  1. Global warming that increasing by emissions of technology usage. (T)
  2. Energy availability a growing problem. (T)

Societal Environment

1. Economic

  • Unstable economy (stumble) along with eliminate of consumer expends. (T)
  • Individual economies becoming interconnected into a world economy. (O)
  • Financial crisis that hit EU, might be essential reason to eliminate the Investment in Euro zone. (T)

2. Technological

  • IT & communication revolution. (O)
  • Entering computerization at all fields such “Manufacturing, business, Agriculture,…etc. ” (O)
  • Trend of social media online & digital marketing. (O)

3. Political-Legal

  • NAFTA, EFTA, and other agreements between countries to free trading cycle are opening doors to penetrate markets in Latin America and other emerging markets. (O)
  • Regulations of Federal Reserve Bank that effect on retail sector’s credit systems. (T)
  • Environmentalism being reflected in Laws on pollution and energy usage. (T)

4. Socio Cultural

  • Decreasing of unemployment rate which is indicator of increasing of families income then Expands rate. (O)
  • Transforming in purchasing behavior from market place to market space. (T)
  • Trend of using digital devises rather than paper ; blocks for daily functions such “news, reading books, schedule organizer,…etc”. (O)
  • Trend to value for money as a concept of consumers behavior. (T)

Task Environment

  1. North American market mature and extremely competitive—vigilant consumers demand high quality with low price in safe, environmentally sound products. (T)
  2. Industry going global as North American and European firms expands internationally. (T)
  3. Rivalry High. GameStop Corp, Amazon. com, Wal-Mart expanding into consumer electronics and stepping price competition… (T)
  4. Buyers’ Power Law. Technology and materials can be sourced worldwide. (O)
  5. Power of Other Stakeholders Medium. Quality, safety, environmental regulations increasing. (T)
  6. Entry Barriers High. New entrants unlikely except for large international firms. (T) V. Internal Environment (IFAS Table; See Exhibit 2) (IFAS Table; See Exhibit 2) A.

Corporate Structure

  1. Good Domestic Management through separating the Market into Eight territories each is Divided into Districts (S)
  2. Best Buy had an international operation Segment (S) B.

Corporate Culture

  1. Every employee must have the company’s vision embedded in their service and attitude (S)
  2. Best Buy had a reputation for retaining talent and was widely recognized for its superior service (S) C.

Corporate Resources

1. Marketing
  • Using Customer Centricity Model to market various products (S)
  • Supply products that address the needs of Customer (S)
  • Meet Customer Needs through End to end Solutions (S)
  • More training to BestBuy Employees help it supply customer with Knowledge service which is A Value added Service (S)
2. Finance (See Exhibits 4 and 5 “Ratios ; cash flows” )
  • Increase in Long Term Debt from fiscal 2008 to 2009 (W)
  • After the Acquisition of Napster and BestBuy Europe Decrease in Available Cash in 2009 (W)
  • Increase in Company Total Assets and Revenues due to Successful Acquisitions (S)
  • Declining in the Net Income and operating Margin (W)
  • The Risk of Having Bad Debts Due to increase in inventory and increase of Revenues However it’s not matching the Big increase in Account receivable (W)
3. R a. Best Buy is Willing to participate in tests of New products (with limited cost to company) (W)
4. Operations
  • Increasing Revenues By growing its Customer Base and Increasing its market share Internationally (S)
  • Good Domestic Management through separating the Market into Eight territories each is Divided into Districts (S)
  • Best Buy had an international operation Segment (S)
5. Human Resources
  •  Main Objective is supplying the customer with the right knowledge of products and services (S)
  • Changing the compensation structure into non-commissioned-based (S)
  • Claims that Best Buy employees misrepresented the Manufacture warranty in order to sell its own product service and replacement plan (W)
  • Best Buy had undisclosed “Anti-price matching policy” (W)
6. Information Systems
  • Consolidate Data from Retialers , Act as a clearing house for info and results.
  • Communicate the common needs and encourage innovation (S)

VI. Analysis of Strategic Factors Situational Analysis (SWOT) (SFAS Matrix; see Exhibit 3)

1. Strengths.
  • Company Image and Profile
  • Sales Stuff Policy
  • Strong financial Position
  • Customer Centricity Model
  • Diversified portfolio in Global Markets
  • Good Horizontal Integration
  • Talent management
  • Good Domestic management
  • Successful Acquisitions
  • Credit payment policy
  • Value Added Services
2. Weaknesses
  • Market Space Sales
  • Pricing Policy
  • Assets Management
  • Operational Cost
  • Increase in LTD and Debt Management Fluctuating Leadership
3. Opportunities
  • Potential market of Medical Portable Devices
  • Gaming Segment growth and Smart Phones
  • Technology Revolution
  • Bankruptcy of Circuit City
  • Expansion of Global Market place
4. Threats
  • Regulations of Federal Reserve Bank
  • Economic Down turn
  • Decreasing the entry barrier
  • Online Competitor
  • Price War with Wal-Mart
  • Wal-Mart Deal with Nintendo and Apple
  • Strong penetration Of Competitor Review of Current

Mission and Objectives

  1. Bad financial position according to last 2 years.
  2. Facing a fierce competition and new challenge expected.

VI.Strategic Alternatives and Recommended Strategy: Strategic Alternatives.

Corporate Strategy

1. Growth Strategy
  • Growth vertically through open new stores across U. S to fill gap in fierce competition.

Pros: come over competitors expansion’s strategy

Cons: Cash Liquidity Issues.

  • Continuing of global expansions, and focus on emerged ; untapped markets.

Pros: supporting of Best Buy’s overseas position to be Leader in this Marekts.

Cons: domestic regulations in foreign countries and security.

  • Horizontal integration by joint venture with new suppliers.

Pros: more control on operational cost

Cons: Management issue, and conflictions.

2. Stability Strategy
  • Hold acquisitions in Euro zone according to economic crisis, and in Canada as well.

Pros: saving more capital ; cost to be invested in North America and other virgin markets.

Cons: allow to competitors to raising their market share in such left market.

3. Retrenchment Strategy
  • Develop downsizing policy in costly labor markets such (Europe).

Pros: Divesting BBY improves bottom line and focus ME ; Asia Markets.

Cons: loosing Europe’s market share.

  • Decreasing some of discretionary expenses in such (Advertising ) in one or two of states that saturated.

Pros: saving a lot of regular cost to be invested in domestic expansion.

Cons: risk of loose customer’s positioning by time.

Business Strategy

1. Differentiation Strategy
  • Develop trade-off strategy that allow Best Buy’s customers to replace their own devices by new technology devices in justified prices.

Pros: another source of money that generate liquidity for company

Cons: adding operational cost line

2. Alliance strategy
  • Build a solid strategic Alliance with a reliable brand in market space that has urgently need to access to retail market. (Win/Win)

Pros: Access to know-how of online market.

Cons: reveal of operations and management techniques.

RECOMMENDED STRATGIES

1. Growth Strategy
  • Growth vertically through open new stores across U. S to fill gap in fierce competition.

Pros: come over competitors expansion’s strategy

Cons: Cash Liquidity Issues.

  • Continuing of global expansions, and focus on emerged ; untapped markets.

Pros: supporting of Best Buy’s overseas position to be Leader in this Marekts.

Cons: domestic regulations in foreign countries and security.

  • Horizontal integration by joint venture with new suppliers.

Pros: more control on operational cost

Cons: Management issue, and conflictions.

2. Differentiation Strategy
  • Develop trade-off strategy that allow Best Buy’s customers to replace their own devices by new technology devices in justified prices.

Pros: another source of money that generate liquidity for company

Cons: adding operational cost line.

VII. Implementation:

  • As the recommended strategies is growth strategy so business development dept. should select strategic locations across U. S that include high traffic .
  • The operations and mainly the supply chain department must do their best for getting best prices and cutting operations cost. Maintain the current global expansion plan and build solid studies for emerging markets and developing countries customer’s culture there.
  • Developing more powerful CRM application and POS systems to recognize customers data.

XI. Evaluation and Control:

  • involving the top managers, key persons and employees in operations efficiency programs
  • Monitoring the performance regularly especially after new application applied.
  • Follow up the plan of domestic operations that related to supplier.

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