Best Buy, Inc. Case Study: Case History Clayton Bender, Justin Swanson, Kaitlyn Krause, Michelle Chambers, Elmon Tanielian Company Background: Best Buy Co. , Inc. operates as a multinational retailer of consumer electronics within the services industry. Founded in 1966 under the name Sound of Music, Inc. , Best Buy underwent a name change in 1988. It was founded by Mr. Richard M. Schulze and is headquartered in Richfield, Minnesota. Best Buy operates under a Board of Directors but is a publicly traded company owned by stockholders.
The company operates retail stores and call centers and conducts online retail operations under a range of brand names such as Best Buy, Best Buy Mobile, The CarPhone Warehouse, Five Star, Future Shop, Geek Squad, Magnolia Audio Video, Pacific Sales and The Phone House. Best Buy is the 11th largest online retailer worldwide and ranks #468 on the Forbes Global 2000 (Global 2000 Leading Companies, 2012). The mission of Best Buy, though not directly outlined as such, can be summed up by a quote from the CEO. Our formula is simple: we’re a growth company focused on better solving the unmet needs of our customers—and we rely on our employees to solve those puzzles. Thanks for stopping” (About. com). Best Buy’s vision is, “To make a meaningful and lasting impact on the quality of life in the countries and communities we serve. ” Best Buy has four primary values that govern decision-making processes; unleash the power of our people, learn from challenges and change, show respect, humility and integrity, and have fun while being the best (Code of Business Ethics, 2013).
Best Buy’s Market Philosophy: Best Buy operates in all 50 states, districts and territories within the United States. Various brand names under the Best Buy Inc. umbrella exist throughout the geographic area including Best Buy, Best Buy Mobile, Geek Squad, Magnolia Audio Video and Pacific Sales (Best Buy 10k Report, 2012). In the US alone, Best Buy reaches nearly 1 billion consumers each year in stores, on BestBuy. com and on m. BestBuy. com or the mobile shopping website. Out of the $165 billion per year spent on electronics in the U. S. , more than 6% of that is at Best Buy —ahead of Wal-Mart Stores (12%), Amazon. com (5%), Costco (3. 5), and Target (2. 5%) (On Best Buy Media Network, 2011). Within the domestic market, store development is aimed at multi-channel retail points of presence that focus on a given local environment, while simultaneously decreasing overall store square footage. To do this, the company anticipates closing approximately 50 large format U. S. Best Buy branded stores in fiscal year 2013 to explore other options, as well as downsizing to appeal to increasingly popular online shopping trends.
They have also decided to close all Best Buy branded stores in the UK, Turkey, and China. They instead chose to focus their attention on their Five Star branded stores in China, and their CarPhone Warehouse, and Phone House stores in Europe. Best Buy’s international market is comprised of operations in Canada (Best Buy, Best Buy Mobile, Cell Shop, Connect Pro, Future Shop and Geek Squad), Europe (The CarPhone Warehouse, The Phone House and Geek Squad), China (Five Star), and Mexico (Best Buy and Geek Squad) (Best Buy 10k Report, 2012).
These varied brands allow the company to include several lines of consumer retail products such as mobile phone products, entertainment products, appliances and related services that are tailored to appeal to each niche market. In 2012, international markets generated 26% of Best Buy’s revenue (Best Buy 10k Report, 2012). In the Canadian market, Best Buy is the fastest-growing specialty retailer and “e-tailer” of consumer electronics, PCs, and entertainment software.
Best Buy focuses on children and communities, attempting to “help youth develop their skill set, discover their talents, and sustain a lasting interest in education” (About Us, 2013). Best Buy has decided to close their large-format Best Buy branded stores in China, Turkey, and the United Kingdom in order to reach areas that offer the best growth opportunity to particular locations (Best Buy 10k Report, 2012). Competitive Environment: Best Buy’s competitors range between online retailers (Amazon), big box retailers (Target and Wal-Mart), club stores (Sam’s Club and Costco), pecialty electronic retailers (Apple), and home improvement stores (Home Depot and Lowes). Some Best Buy rivals compete purely on price, while others compete on experience. Best Buy believes that online retailers will have their price advantage reduced as state governments around the country re-evaluate sales tax laws that allow some online competitors to offer lower prices. Additionally to combat price wars Best Buy also has price matching policies for other brick and mortar retailers and during this last holiday shopping season even matched some online retailers’ prices (Best Buy to Match Online Prices, 2012).
With the elimination of Best Buy’s biggest rival, Circuit City, they are left to focus on competitors such as Amazon, Wal-Mart, and Home Depot. None of these stores compete directly with Best Buy in every segment, but each of them offers products that compete directly with Best Buy. As shown in Exhibit 1, while Best Buy does compete with Home Depot and Lowes, the effect of appliances on Best Buy’s sales is quite small, accounting for only 5% of sales in 2011.
Because there are no stores which offer a value proposition exactly like Best Buy, it presents a problem when analyzing financial statements of Best Buy’s main competitors (Best Buy 10k Report, 2012). See Exhibits 2-5 for detailed copies of Amazon and Wal-Mart financial statements. Trends- Best Buy competes in the electronics stores and consumer electronics industries. The industry overall is heading into new territory as online shopping continues to take over the market. Recently, traditional big box stores such as Best Buy have been threatened by an increase in online consumption tendencies.
Often, consumers will use stores such as Best Buy as a showroom to test new products, make a purchase decision, but then go home and find a cheaper price online. With many established, online retailers of consumer electronics on the web, retailers must find a new way to attract customers. The various methods of promotional channels such as large and small structured stores, websites, and kiosks, are all ways the company is tailoring to the market they are attempting to reach. Marketing: Products and Services- Best Buy specializes in technological goods and services.
This includes home office, consumer electronics, appliances, and entertainment software. Best Buy is an ideally suited ‘one-stop-shop’. Best Buy offers Geek Squad Technical Support to consumers to aid with any difficulties or defects, to ensure customer happiness, and build loyalty. Also offered is a low-price-guarantee, where Best Buy will match the price if you find a lower price on an identical available product at a local retail competitor’s store, a local Best Buy retail store or BestBuy. com (Best Buy 10k Report, 2012).
As Best Buy is not a manufacturer of unique products, the main differentiating factors would be their low-price-guarantee and the in-home service “The Geek Squad”, which offers personalized technical support. In addition, there are many products that are exclusive to Best Buy, such as certain televisions, video games, and computer devices. Distribution- Best Buy sells products through both its 1,103 retail locations and their website bestbuy. com. Domestic Distribution- Inside the U. S. , most Best Buy products are shipped directly from the manufacturers to the regional distribution centers.
The exceptions to this method are large TV’s and appliances which are shipped from producers to specific satellite warehouses in each major market. In certain cases, where release dates play a large role in a product, the item will go directly from the producer to individual Best Buy stores (Best Buy 10k Report, 2012). Products purchased online are either picked up in store, or shipped directly to consumers via the same regional distribution centers the stores receive their products from. International Distribution-
In Europe, Best Buy’s two small cell phone stores have their products shipped from manufacturers to regional distribution centers and then to the stores. Individual stores hold only immediate stock requirements while distribution centers hold additional merchandise. Best Buy stores in Canada and Mexico follow the distribution method used in the U. S. (Best Buy 10k Report, 2012). Promotion- The customer base is primarily centered on high income earners (75,000+), 24-54 aged males who have children (ad example targeting this listed in exhibit 6).
Best Buy shoppers are viewed as mobile, technically savvy, advanced digital users, who are highly engaged in learning about technology as well as encourage their children to learn about technology, too (On Best Buy Media Network, 2011) (promotion example targeting this listed in exhibit 7). Including selling, general and administrative expenses, promotional costs were $995,000,000 in fiscal year 2012, $862,000,000 in 2011, and $709,000,000 in 2010 (Best Buy 10k Report, 2012).
Best Buy has traditionally focused on media involving print, television, large-scale events, and is now shifting gears more towards digital advertising for promotional efforts due to consumer changes in shopping habits. Best Buy spends most of the promotional budget during the holiday season in response to high sales during Thanksgiving, Black Friday, Cyber Monday, and Christmas (Best Buy 10k Report, 2012). A detailed list of quarterly expenses can be found in exhibit 8. One of the largest and most expensive promotional efforts undertaken by Best Buy is the commercial segments aired during the Super Bowl.
Best Buy has utilized this tactic for the past three years. In 2011, the commercial featured the celebrities Justin Bieber and Ozzy Osbourne. In 2012, it featured mobile innovations such as Instagram and the popular game, Angry Birds. For this upcoming Super Bowl, Best Buy will feature the comedian Amy Poehler. These are significant decisions considering this year’s thirty-second ad placement cost $4 million and is projected to reach over 100 million viewers (The Associated Press, 2013). Leadership:
Best Buy’s Board of Directors, elected by the shareholders, is responsible for overseeing the business and affairs in order to manage the long-term interests of the company (Best Buy, Inc. , 2013). The Board of Directors is in charge of selecting and evaluating the performance of senior executives. There are four distinct committees structured within the Board: Audit Committee, Compensation and Human Resources Committee, Finance and Investment Policy Committee, and Nominating, Corporate Governance, and Public Policy Committee.
A detailed visual of the organizational structure can be viewed in exhibit 9. Organizational Culture: Traditionally, Best Buy has been known for enforcing strict policies and encouraging employees to work overtime. In 2003, however, the corporate culture was radically changed to a system designed by two of the company’s own human resource department employees, Cali Ressler and Jody Thompson (Brandon, 2007). This system, known as ROWE or the results-only-work-environment, allows personnel to come and go as they please.
Many corporate employees have no official office or work schedule. Similar systems have become popular in the advanced technical industry, including companies such as IBM, but no such corporate culture existed in a large retail company before Best Buy. The system is working to meet their goals, as employee turnover decreased drastically after implementation. However, recently, employee satisfaction has suffered as a result of a decrease in company profitability (Conlin, 2006). Stakeholders:
The primary stakeholders are the stockholders; the individuals that have an active interest in the company’s successes and failures because their personal investments are directly impacted. Additional stakeholders include employees (who rely on the company to stay in business and guarantee their employment), consumers (who depend on the products and services of the company), and the surrounding community which Best Buy is committed to serving in their values. Currently, a general concern of stakeholders is the increasingly competitive nature of the of the electronic retail market.
With e-retail and internet stores becoming more significant players in the market place, Best Buy seems to have become a place of research and testing by the consumer, rather than actual purchasing. Stakeholders are calling for innovative and differentiating factors to emerge for Best Buy to remain a key player in the consumer electronic market. In addition, as typical of most companies, the stakeholders of Best Buy want increased sales and profit margins, to hopefully lead to increased stock prices as well. Financials: Balance Sheet-
Best Buy currently has approximately $16 Billion in assets, $12 Billion in liabilities, and $3 Billion in stockholder equity. Over the past three years, total assets and stockholder equity have been decreasing while total liabilities have been increasing. (Best Buy Balance Sheet) A detailed balance sheet can be found in exhibit 10. Income Statements- Best Buy had a loss in net income during FY 2012 of $1. 2 billion compared to net earnings of $1. 3 billion in 2011. A detailed balance sheet can be found in exhibit 11. Objectives ; Performance Strategy:
Best Buy competes in a competitive retail industry constantly affected by the current state of the economy and consumer confidence. Such an industry presents difficulty in predicting consumer behaviors and corresponding sales. These tough times have forced Best Buy to begin transforming the company and hone in on strategies they believe will “offer the best opportunities to improve returns” (Best Buy 10k Report, 2012). Best Buy has committed to focusing on four main initiatives all revolving around that transformation and improving financial performance. Multi-year Cost Reductions-
Best Buy aims to lower the cost structure of various areas of their business through improvements in efficiency as well as current investments designed to provide long term earnings benefits. These changes will include closing 50 of their large, brick-and-mortar stores within fiscal year 2013. In addition they aim to decrease the costs of goods sold as well as reduction in corporate and support structures (Best Buy 10k Report, 2012). U. S. Store Format Improvements- Best Buy will be revising their store formats in order to “increase points of presence, while decreasing overall square footage”.
These changes will occur through increasing the number of their Best Buy Mobile stand-alone stores, decreasing their large-format stores, and to remodel key market Best Buy stores into their smaller, leaner, “Connected Stores (Best Buy 10k Report, 2012). Growth Initiatives- Best Buy will execute growth initiatives in e-commerce, connections, services, and China. They will approach growth in e-commerce with “more competitive online pricing, broader use of free shipping, the expansion of our online assortment, and further development of Best Buy Marketplace”.
There will be a focus on increasing all mobile connection expertise, all product services, and store locations in China. Improved Customer Experience- Best Buy believes that they differentiate themselves from competitors through careful and persistent attention to the experiences their customers have. Through programs such as their “Perfect Match Promise” which provides customers with a 30 day period of full technical support, hassle-free returns, and competitor price matching as well as their Reward Zone loyalty programs, they desire to provide their customers with an incomparable experience as they shop at Best Buy.
Finally, Best Buy aims to increase their enhanced training for employees in order to meet these customer service goals (Best Buy 10k Report, 2012). Works Cited Global 2000 Leading Companies. (2012, April). Retrieved from Forbes: http://www. forbes. com/companies/best-buy/ Best Buy Balance Sheet. (n. d. ). Retrieved from Yahoo Finance: http://finance. yahoo. com/q/bs? s=BBY+Balance+Sheet;annual Best Buy Income Statement. (n. d. ). Retrieved from Yahoo Finance: http://finance. yahoo. com/q/is? s=BBY+Income+Statement;annual Best Buy, Inc. (2011, January 23).
On Best Buy Media Network. Retrieved from Best Buy Media Kit: http://www. bestbuymediakit. com/assets/files/Media_Kit_Presentation. pdf Best Buy, Inc. (2012). Best Buy 10k Report. Richfield: Best Buy. Best Buy, Inc. (2013, January 22). About Us. Retrieved from Best Buy Canada: http://www. bestbuy. ca/en-CA/about-best-buy-canada. aspx? path=9825360f7559258208ae2438cb28c580en99 Best Buy, Inc. (2013, January 22). Code of Business Ethics. Retrieved from Ethics Point: https://secure. ethicspoint. com/domain/media/en/gui/32565/code. html? 3 Brandon, J. (2007, April 4).
Rethinking the Time Clock. Retrieved from CNN Money: http://money. cnn. com/magazines/business2/business2_archive/2007/03/01/8401022/index. htm Conlin, M. (2006, December 10). Smashing the Clock. Retrieved from Bloomberg Businessweek Magazine: http://www. businessweek. com/stories/2006-12-10/smashing-the-clock Kerrigan, H. (2012, April). Results-Only Work Environment Goes Public Sector. Retrieved from Governing: http://www. governing. com/topics/public-workforce/gov-results-only-work-environment-goes-public-sector. html The Associated Press. (2013, January 22).
Best Buy Super Bowl branding spot will focus on humor, enlists Amy Poehler. The Washington Post, p. 1. Zimmerman, A. (2012, 10 12). Best Buy to Match Online Prices. Wall Street Journal. Exhibit 1: Best Buy’s Domestic Sales Allocation (Best Buy 10k Report, 2012) Exhibit 2: AMZN Income Statement Exhibit 3: AMZN Balance Sheet Exhibit 4: WMT Income Statement Exhibit 5: WMT Balance Sheet Exhibit 6: Promotional Ad Example Promotional Ad Source Exhibit 7: Promotion Example-Scholarship Program Promotion Example-Scholarship Program Source Exhibit 8: US Promotional Focuses Broken Down in Quarters On Best Buy Media Network, 2011) Exhibit 9: Organizational Chart Exhibit 10: BBY Balance Sheet Exhibit 11: BBY Income Statement Here are my thoughts… The purpose of this Case History is to provide data for the next document, the Case Analysis. You should examine your Case History to ensure that it contains sufficient data for a complete Strategic Analysis—an Environment Analysis and a Company Analysis. For example, do you have sufficient data to conduct a PEST Analysis? Do you have sufficient data for conducting a complete Competitive Forces Analysis?
On page 5, you do not provide data under the heading of “Leadership”. On a more comprehensive scale, does the Case History tell the story of Best Buy, or is the Case History a collection of different pieces of data? Does the sequence of the data facilitate a story? From the Heading “Balance Sheet Analysis” to the end of the document’s text, you seem to be presenting an analysis. The purpose of the Case History, though, is to present data. The analysis should be saved for the next document, the Case Analysis. Midnight- Sunday, February 3rd Other points to Add: 5 Forces Model Highlights: Risk of Entry by competitors- * Low everyone is in that wants to be * Intensity of Rivalry * High * Bargaining power of buyers * High price and experience dictate where we go * Bargaining power of suppliers * Low buyers took control * Closeness of substitutes * No idea what a substitute would be?? … * Power of complement providers * … PEST Analysis: * Political * ?? * Economic * disposable income levels affect the amount people want to spend on these goods * Social * Trending products * Technological * whoever continues to provide/produce the newest gadgets