Transcript By: Karen Pelletier, Geneice Bassue, James Lowe, Lee Dubois

By: Karen Pelletier, Geneice Bassue, James
Lowe, Lee Dubois
Overview
 History
 Overview
 Best Buy in Brief
 Rankings
 Affiliations
 Current Mission / Vision
 Strategies
 Issues
 Revised Mission and Vision
 SWOT Analysis and Matrix
 External and Internal Audit
 IE, BCG, SPACE, CPM, QSPM, EPS/EBIT, and GSM
 Financial ratios
 Net Worth Analysis
 Suggested Strategies, Advantages and Disadvantages
 Questions
History
1966: Richard M. Schulze and a partner establish Sound of Music, Inc.,
a home and car stereo store in St. Paul, Minnesota.
1971: Schulze buys out his partner and begins to expand.
1982: After expanding offerings to include appliances and VCRs,
revenues reach $9.3 million.
1983: Company changes its name to Best Buy and began opening superstores.
1985: Company went public.
1984-1987: because of the booming demand of VCR’s Best Buy expanded from
8 to 24 stores as a result sales increased from $29 million to $240 million.
1987: Best Buy gains a listing on the New York Stock Exchange; revenues reach
$239 million from 24 stores.
1989: Company introduces its Concept II stores, which have a warehouse format
and no commissioned sales help.
1993: Revenues soar past the $1 billion mark, reaching $1.6 billion.
1994: Larger Concept III stores, with hands-on information displays, were introduced.
History
1995: Best Buy opened 47 more stores.
1997: the company earning plunged due to the large PC inventory on hand.
1998-1999: The Concept IV format debuts, featuring more high-tech products,
merchandise grouped in such departments as home theater, cash registers throughout
the store, and "high touch" areas for digital products where more employee interaction
is needed.
1999: Revenues surpass $10 billion.
2000: Best Buy relaunches an expanded bestbuy.com web site; Seattle-based
Magnolia Hi-Fi, Inc., operator of 13 high-end consumer electronics stores on the
West Coast, is acquired for $88 million and they began marketing personal computers
from Micron Electronics via kiosks in its stores.
2001: Best Buy acquires Musicland Stores Corporation, operator of 1,300 music stores,
for $685.3 million in cash and assumed debt; also purchases Future Shop Ltd.,
the largest consumer electronics retailer in Canada, for $368 million.
History
2002: Best Buy opened 8 stores in the Toronto market. Richard Schulze turned over
CEO duties to Bradley Anderson. Also Best Buy purchased Geek Squad.
2003: Some $500 million in special charges, mainly related to the money-losing
Musicland operations, cut profits for the fiscal year to $99 million; Best Buy divests
Musicland; Magnolia Hi-Fi is renamed Magnolia Audio Video; Best Buy pays its
first dividend.
2004: Best Buy announced a new customer-focused store concept known as
“Customers-Centric”
BB in Brief
Stock Symbol: BBY
 Best Buy is the number 1 electronics specialty retailer in the United States. They hold the
highest market share in this industry.
 Best Buy owns three major/semi-major store chains:
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Best Buy/Best Buy Canada
Focuses on giving best-value high-tech electronics, appliances, and media to
its customers (except in Canada, no appliances)
Magnolia Audio & Video
Trendy store on the west coast which deals in high-end electronics from
brands such as Bose.
FutureShop
Also a trendy type of store with commissioned sales staff, selling high-end
products. They deal in appliances, computers, television, video, etc. They have
114 stores, all in Canada.
Best Buy employs a customer-centricity model:
Focuses on the customer. They identify the more profitable customer segments,
focus on the needs of those customers, and try to get their employees/managers
to think like owners/operators of each store. This involves employee re-training
in order to better serve customers.
Stock Performance
Rankings
“Company of the Year” by Forbes Magazine in 2004
“Specialty Retailer of the Decade” by Discount News
in 2001
Ranked in the Top 10 of “Americas Most Generous
Corporations” by Forbes Magazine
Ranked #3 out of 10 in Companies that delivered
Most for Investors in 1999
Ranked #2 out of 50 in the Leading Corporation by
Profit Growth in 1998
Ranked #2 out of 50 in the Companies with the
Greatest Return to Investors in 1998
Ranked #2 out of 10 for the Leading U.S Computer
Retailers by Product Sales in 1997
Affiliations
Company Mission (05')
Best Buy mission is to bring technology
and consumers together in a retail
environment that focuses on educating
consumers on the features and
benefits of technology and
entertainment products.
Company Vision (05')
Best Buy's vision is to make life fun
and easy for consumers.
2005 Strategies
Testing and launching 67 stores incorporating the
“customer centricity” model
Expanding the Geek Squad service to all Best Buy locations in
North America providing 24-hour responses to technological
inquiring
 Increasing Canadian store profits by attracting consumers with
the dual-branding strategy
 Reengineering its supply chain
 Reducing cost by outsourcing information technology
 Reducing its executive team
Issues
 Steady increase in gas prices of 20% in 2004 has resulted in less disposable income for
 consumers.
 Music Piracy has damaged the music industry.
 The specialty retail industry has witnessed the advent of lower electronic prices at larger
retail stores and discounters such as Best Buy.
 Lots of competition and a high need for differentiation.
 E-commerce sales figures for retailers are rising and might potentially surpass
conventional retail sales.
 Lots of price competitiveness in the industries they serve.
Revised Mission
Best Buy’s mission is to bring technology and
consumers together in a retail environment.
We strive to meet and exceed out customers
expectations and preserve our public image
as the leading low-cost specialty retailer.
We are dedicated to providing the best quality
electronics and home office equipment in the
North American retail industry. As a
leading technology provider we strive to
incorporate the best, most reliable technology
into our everyday operation to ensure efficiency
and maximize revenues. Best Buy as a whole
feels that success is not only dependent on
our growth and profitability, but also the well being
of our employees and the satisfaction of our
customers.
Revised Vision
At Best Buy, our vision is to become
the leading electronics specialty
retailer that focuses on customers
and their needs.
SWOT Analysis
SWOT Matrix Strategies
(W2, W4, O2)
External Audit
Opportunities:
 Large demand for the “latest and greatest” gadgets.
 Potential for international expansion.
 Increasing use of the web.
 Increasing demand for notebook computers & flat screen TVs.
 Decreasing prices for electronics (DVD Players,
video game systems, etc) which gives customers more
purchasing power.
External Audit
Threats:
 Consumers are spending less because of increasing gas prices.
 Music piracy has a major impact on stores which sell CDs.
 Large amount of direct and indirect competitors, given all the industries
Best Buy serves.
 One stop shopping at supercenters may phase out specialty retailers.
 Strong price competitiveness in electronics industry.
 Increasing/complex regulations in major global markets that can
increase cost of doing business.
Best Buy's EFE
Internal Audit
Strengths:
 Largest specialty electronics retailer in the U.S.
 Offers large variety of products and services.
 Financially strong.
 Customer-centric strategy model.
 Lower prices for electronics compared to smaller retailers.
 Ability to appeal to different types of customers using different store
brand images.
Internal Audit
Weaknesses:
 Past problems with expansion.
 Fewer stores compared to competitors like CircuitCity and CompUSA.
 Appliance sales and revenues are low compared to other departments.
 Weak presence in international markets.
 Unclear vision and mission.
Best Buy's IFE
Best Buy’s IE Matrix
Financial Ratio Analysis
Best Buy
Circuit City
Wal Mart
Current Ratio1.39
Quick Ratio .81
Debt to Equity 6%
Gross Profit Margin 24 %
Return on Assets 10%
Earnings per Share 2.90
Long Term Debt to Equity 5%
Return on Equity 12%
Profit Margin 4%
Current Ratio1.52
Quick Ratio 0.54
Debt to Equity 4.57 %
Gross Profit Margin 20.65 %
Return on Assets -8.29 %
Earnings per Share -1.95
Long Term Debt to Equity 3.80%
Return on Equity -14.5 %
Profit Margin -2.74%
Current Ratio0.9
Quick Ratio 0.23
Debt to Equity 4.8%
Gross Profit Margin 23%
Return on Assets 9.3%
Earnings per Share 2.56
Long Term Debt to Equity 4.1%
Return on Equity 20%
Profit Margin 4%
Net Worth Analysis
Stockholders equity + goodwill = 4,449 + 513 =
$4,962
Net income X 5 = 984 X 5 =
$4,920
Share Price = price/EPS (Net Income) = 53.04/ 3.02 (984) = $17,279
# shares X share price = 328 (53.04) =
$17,397
_________________________________________________________
Method Average:
$11,140
BCG Matrix
SPACE Matrix
SPACE Matrix
Competitive Profile Matrix
Recommended Strategy # 1
Physical Expansion of Stores
 Best Buy should expand on their physical presence in both the U.S., Canada, and
Internationally. Many of their major competitors have a lot more stores, especially in
North America, and with supercenters like Wal-Mart moving in, Best Buy will need to
do something to hold the current market share they’ve got.
They should also expand their branches of Magnolia AV and FutureShop stores to better
serve that niche they have. Many might consider grouping these stores all into Best Buy
or Best Buy Canada, but these stores might serve a slightly different customer base than
Best Buy and also, they have different products.




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Expand Magnolia A/V eastward.
Expand FutureShop more in Canada and potentially into the U.S.
Expand Best Buy in the U.S. first to cover underserved markets, and also in Canada
to get a better base.
Don’t take an aggressive approach – start slow, evaluate, open a few stores,
see how it works out.
Approximated Cost: $70,000,000
 This is an example of Market Development
Recommended Strategy # 2
Expansion of Service Offerings
 Installation
 Warrantees
 Delivery
 Maintenance
 Technical Support/Service
 Many of their other competitors in the appliance and electronics industries, such as
Sears and Lowes are already doing these types of things for their customers.
 If Best Buy wants to retain their market share in the electronics industry and/or grow
their low market share in the appliance industry, they could take advantage of this.
 This is an example of related diversification.
 Approximated Costs: $50,000,000
Recommended Strategy # 3
Start a media content download service on their website
 More and more people are using the web nowadays to download and listen/watch
media (music, videos, movies, etc).
 Best Buy is a leading retailer in the music and movie industry.
 Best Buy could start (or team up with a service such as Rhapsody) to offer a
subscription-based download service where users can download albums from the
latest artists or the latest DVD movies.
 Companies and services such as Rhapsody, NetFlix,
and iTunes have found this to be a great way to make money. Given the rapid
growth of the web, and the use of it, this could give BestBuy a chance to make money
from customers they might never have seen in their stores.
 Approximated costs: About $5,000,000
 This is an example of related diversification.
QSPM
The Good / The Bad
Advantages and Disadvantages
 Costly endeavor – must raise a lot of money.
 Potential that competitors and supercenters have already taken over in many markets.
 Increasing regulations place a burden on companies that want to expand internationally
 Potential to gain a much bigger customer base / steal customers from competitors.
 Expanding service offerings may or may not increase sales of appliances and
electronics – that’s what the stores will depend on as there will be no charge for these
services.
 Expanding more on one type of store could mean the potential to lose even more money
than what will be made.
Financing & EPS / EBIT
 As one can see, debt financing seems like a great route to take here, with the highest
EPS out of any other method.
 Also, one strategy that can have a big effect on cash is the buyback or repurchase of
Common stock. When this stock is eliminated, the value per share can rise.
Strategy Evaluation
Yearly performance evaluations for each store/department.
Measure things simply using sales, revenue, and profits for each store.
If each store is performing as well as the other existing stores, leave it as-is.
If some stores are lacking, use a growth metric (store must see an increase in revenues
And/or profits by a certain percentage each year).
Watch the popularity of the downloading service – do the revenues outweigh the costs?
Watch appliance/major electronics sales from year to year – are sales rising because
Best Buy is offering installation, support, and service? If not on a steady increase over a
5 – year period, they can decide what to do from there. Is customer satisfaction on the
rise? Give out a customer survey with questions relating to the new services offered.
Grand Strategy Matrix
The End
Questions, Concerns, Comments or
Complaints from anyone at this time?
Please, No Questions!