Case Study of Best Buy

Case Study of beat out stealIn 1966 Richard Schultze and James Wheeler saw an chance in opening a specialized electronics put in in St. Paul, Minnesota. Soon after opening, The Sound of Music became an immediate success in the effort. By the division 1969 the comp any grew so fast, Schultze decided to publically trade The Sound of Music. Over the next few years, The Sound of Music was able to raise their one-year grosss to over $1 million. In 1981, a tornado hit the Roseville, Minnesota store. In order to salvage what they could from the storm wreckage they held a huge storewide sale which was advertised as The go around corrupt. The sale was such(prenominal) a huge success that Schultze decided to hold it annually. Sound of Music became widely known for this annual best purchase sale, in that respectfore in 1983, the board of directors decided to officially change the name to best taint Co., Inc.1 lift out pervert went on to become the endureing consumer electronics retail store in the Nation. By 2008 they had opened their 1000th store (Lawrence being 837). Due to their success, scoop defile was able to expand their blood by mental synthesis additional stores passim the nation as well as expanding internationally in countries such as UK, Canada, Mexico and China. surpass steal was able to achieve such growth beca accustom of the rapidly growing consumer electronics foodstuff. Best Buy was joined in the Industry by competitors such as GameStop, Radio Shack, hhgregg and Conns Inc. (Yahoo financial).2Other challenger includes Wal-Mart, northeastward Furniture Mart and other big super stores. By being the Industry Pioneer, Best Buy has been able to maintain commanding annual r hithertoues as well as a large securities attention sh be.Business InformationBest Buy is one of the International leaders in the sale of electronics. They passing play a wide variety of harvests that argon needed as well as wanted in the entertainment manufact ure. Best Buy carries movies, games, medicament, computer ironw are as well as software, and television entertainment equipment. They similarly provide many home appliances which are sought after by people throughout their market. Best Buy is no-hit because it provides customers with entertainment as well as equipment and the juvenileest technology as it becomes available in the market.Geographical ReachBest Buy offers its services and products to people not just throughout our country, but in many different countries as well. Their first international venture came in 2001 with the accomplishment of Future Shop. Future Shop was the leading consumer electronics retailer in Canada. Since 2001, Best Buy has expanded by establishing stores in Canada as well as the UK, China, Mexico, and they are looking to establish a position in Turkey in the future.Market PerformanceThe market for consumer electronics is a very saturated market. Most of the electronic needs in the industry are spoken for by current businesses, therefore it is very difficult for any refreshed competition to enter into the market and successfully vie. Best Buy has been able to capture a substantial amount of the market for electronics. Between the five main competitors for electronics, Best Buy has a $17.5 billion market capitalization, which is number one out of all 5 electronic specialists. It is hard to quantitatively compare Best Buy to businesses such as Wal-Mart, Target and Nebraska Furniture Mart because these firms sell a variety of other products to different industries. afterwards interviewing Supervisor, Jeremy Brown he discussed the service you leave behind bugger off when you crop at Best Buy. Best Buy is the place you know you will receive the best service and help from employees in searching for the gunpoint you came in to buy.3Given the data found, Best Buy has been able to perform as the market leader in the electronics Industry.Best Buy has the groovyest sign awar eness in the Industry. They prepare very loyal customers because of their Geek Squad business which was opened in 2004. The Geek Squad operates to assist customers in nurture how to use the products that they previously purchased from Best Buy, as well as servicing any customers equipment which is in need of repair or replacement. Jeremy Brown said, It benefits Best Buy having a complimenting business like Geek Squad because it allows us to offer the whole solution to the customer. We can repair, protect, as well as install any product the customer would need us to.4By offering a variety of products and services in the electronic industry, Best Buy can orient to any needs of the existing market.Financial PerformanceIn the end of the February 2010 financial year, Best Buy reported revenues of $49,694 million. This was a 10.3% increase from the previous year. meshwork profit in 2010 was $1,317 million which was a 31.31% increase from 2009. Best Buy, which is publically traded on the New York stock exchange is currently up 42.59. Best Buys revenue per share is $121.49. According to Yahoo finance the company has a strong balance sheet, with $840 billion in cash and cash equivalents as of the close new-fangled quarter in August 2010, meaning that Best Buy has created a successful trend of positive cash flows.5Internal AnalysisSince Best Buys stemma in 1966, the companys top executives fill used numerous strategies to keep their earnings increasing at a steady pace. Changing the way that people shop in their stores was a key internal strategy for Best Buy. In 1984, they introduced the superstore format for the first time. This allowed for sales to rise and for them to secure a 42% market share. In 1989, Best Buy introduced its Concept II stores. The new stores had a large warehouse attached to the store so that more inventory could be kept on site and thus help with inventory management. The new stores also had self-help information guides and rejoinder ce nters for customers seeking personal attention. This move had both positive and negative reactions. The customers liked it so sales rose, but some suppliers thought that the lack of sales representatives would lead to lesser sales.In 1994, the Concept III stores were introduced and they had even more self-help service. consequently Hitachi and Kenwood pulled their products from Best Buy stores because they believed that salespeople were key to selling their product. Despite the minor setbacks, revamping the stores to tend to the customers wants was working as sales upholdd to rise. Concept IV stores launched in 1998 and they implemented digital displays as well as new departments such as home theatre and digital imaging. This new store spirit was a tremendous success as Best Buy recorded record sales of $224 million in 1998, a 137% increase from the previous year. Then in June, Best Buy changed the way its products were sold again by selling consumer electronics on its website. F rom expanding to a superstore to selling its products online, Best Buy has tweaked and changed its distribution median(a) to allow for its profits to keep going up.Probably the largest factor in Best Buys success is its expansion into new markets and offering of new products. The consumer electronic industry is ceaselessly changing as technology improves and new markets are created. Best Buy stores are always stocked with the most up to date products. In 1982, they started selling VCRs and appliances. Then in 2000, Best Buy partnered with Whirlpool to start offering KitchenAid brand appliances. In 2008, they even bought a major(ip)ity holding in Napster. They were also the first third party retailer to sell Apples iPhone. Now, theyve opened Apple stores inside the Best Buy megastores. In 2006, they tried the digital music market as they launched the Best Buy Digital Music Store and in 2010, they launch their web-based movie service. Best Buy is constantly looking for new markets t hat they could feasibly dive into and start selling new products.6Another way Best Buy tailors their stores for the customer is by purchasing another company. Magnolia Hi-Fi, one of Best Buys competitors, was bought by Best Buy in 2000 for $87 million. This allowed for Best Buy to later put Magnolia Home Theatre stores inside of hundreds of Best Buy superstores. As technology increased in the consumer electronics market, there was a growing need for technical support and assistance with different, more complicated electronics. So in 2003, Best Buy acquired Geek Squad in order to best accommodate to the customers needs. Geek Squad gives Best Buy full technical support right there in the store for all of the electronics that they sell. In 2006, Best Buy acquired Pacific Sales Kitchen and Bath, a retailer of high-end home improvement products. So, Best Buy is also looking to move to new markets via an acquisition.7Best Buy also uses a rewards program to help boost sales. Their rewards program gives the customer a $5 Best Buy gift card for every $100 that he spends at Best Buy. This gives an incentive for customers to spend more money and to buy their electronics at Best Buy since theyre getting 5% of their money spent back. Plus, giving out a free gift card will help boost sales. If somebody has a $5 gift card, they are more likely to go and buy something. But there arent many things that cost $5 or less, so usually, the customer will end up spending more than $5, all because he had the gift card in the first place. The rewards program has been very successful for Best Buy and has lead to increased sales.8Best Buy is a successful consumer electronics retailer that has been around for over 40 years. Whether its changing the layout of the store, selling new products in new markets, expanding through acquisition, or implementing a rewards program, Best Buy uses many strategies and tactics to not just survive in the consumer electronics market, but to thrive, and Be st Buy has been thriving for over 40 years.Comparison To CompetitonBest Buy has a sizeable piece of the consumer electronics industry, but they still face heavy competition from many other retailers and online stores, just a couple of them being Wal-Mart and Amazon. Best Buy is not the price leader when it comes to consumer electronics, but they do seem to be the leader when it comes to providing extensive knowledge most products, and selling services with them. Their free-enterprise(a) advantage9is being able to display products in an appealing setting date providing customers with insight to their product needs. This has proven a successful strategy and has attracted a lot of traffic in their stores. adept metric Best Buy seems to lead the retail industry in is in-store sales per square foot. Best Buys current sales per sq. ft is around $830, compared to Wal-Marts $680, and HHGregs $380. This an important metric because it helps track how much of their store front space is bei ng utilized, as leasing for space usually works a large share of a companys costs. Forbes Magazine1 says that 74% of Best Buys stock price is at once proportional to its sales per sq. ft metric. This is much of the reason Best Buy has been so successful and why theyve been able to keep growing so rapidly.Best Buy has also remained successful for its ability to get products out of the store. Latest figures show Best Buy having inventory folds10of 6.1, the same as Target, much better than Sears 2.9 or Radio Shacks 3.2. Close to Best Buy was HH Greg with 5.8. Amazon and Wal-Mart both get hold of higher turns but Amazon is all online with no store front, and Wal-Mart is a much larger company with a better supply chain and a far broader array of products while also focusing on a cost-leadership strategy.Though Best Buys differentiated strategy has been successful, it can possibly encourage consumers to come into Best Buy to become educated about products, and then turn around go buy them at Wal-Mart or off of the internet. To better differentiate themselves, Best Buy has focused on services to add to their products, of which would not be available unless otherwise purchased from Best Buy. These services include extended services plans, installations, and repairs. These services usually have high profit margins and can constitute a significant amount of revenue, while giving customer professional installations and peace of mind. Wal-Mart is also on Best Buys trail, now adding expanded electronics department in many of its stores and has added personnel to provide customer assistance, similarly to Best Buy stores. Given Wal-Marts supply chain and price leading capabilities, they remain a constant threat to Best Buy. Amazon remains a threat as their prices are usually always lower, and consumers can shop from home and never have to go to the store. Although Best Buy provides this service, they cannot match the price, and with no other way to differentiate themselv es through the exceptional online experience, price remains the deciding factor.For these reasons Best Buy continues to try to set its self apart and take advantage of its strengths. Its recently used it large distribution network to get into the used game market. It will buy used games, send them to a center to be refurbished, and sells them at relatively low prices. This is helping the huge retailer compete directly with pure retailers such as Game Stop. With their size, Best Buy has an opportunity to steal market share in this industry.External AnalysisThe worldwide environment involves several(prenominal) external factors that would have unpredictable and dramatic effects on firms strategy, such as demography, socio culture, politics, technology, economy and globalization. However, it is difficult to monitor all aspects of the general environment, so most managers only focus on their own industry structure. As the leading consumer electronics retailer in the United States, Be st Buy primarily faces the economic portion and the global segment. First of all, the economy affects all industry. During the financial crisis period from 2008 to 2009, the stock price of Best Buy, Inc hit to $16.42 in the third quarter of 2009 fiscal year, move approximately 65.43% in four months and touched the lowest price in past 5 years the net income of 2009 decreased to 1.003 million, comparing with previous annual net income of $1.407 million, thus distracting the investors.11The worst situation may be that total operating cash flow reduced by 148 million from 2008 to 2009, which significantly limited the companys internal operating activities. However, with the recovery of the domestic and global economy, the companys net income climbed to $1.137 million by February 2010, which is 13.36% higher than previous annual performance. Also the stock price reached about $42.83 per share recently. Secondly, for global segment, Best Buy divided its operating portion into two parts , domestic and international. The company tends to expand its market to attract multinational customers, to use lower costs of resource, and to access more opportunities to grow up. Besides the domestic market, Best Buy established 2453 stores in Europe, Canada, China, Mexico and Turkey at the end of fiscal 2010.Although the general environment inevitably affects the firms strategy, the company is usually more directly influenced by forces in the competitive environment. Through the Porters five-force model of industry competition, the company would have a deep realization of developing trend and ability of restructuring and improvement. The Threat of New EntrantsThere are few new major entrants in Consumer Electronics Appliances retail because this industry is already mature in United States and the entry barriers are relatively high. Obviously, Best Buy has the advantage of economies of scale with 1069 stores across the all states. Its major competitors, Wal-Mart, target, Amazon, apple Inc also share the rest of market through the physical stores and web-based sales channel. Moreover, the capital requirement for entering the consumer electronics industry is normally huge, including the investment in negotiation with distribution channels, inventory systems, purchasing of infrastructure, employee training and so forth. Another barrier exists in the product differentiation. Since the consumer electronic retail industry is not highly innovative, customers loyalty and brand identification are difficult to change.The Bargaining Power of BuyersThe Power of buyers in consumer electronic retail industry is relatively high because that the electric switch costs are almost close to zero. In most circumstances, customers are price sensitive. According to the firms annual report, Best buys business is most profitable in the fourth quarter because of the discounts of products in holiday season.The Bargaining Power of SuppliersPartially, Best Buys business depends on of fering a broad selection of name-brand products, so establishing a long and stable relationship with suppliers is important for the firm. Since the suppliers of Best Buy are not dominated by a few companies. In fact, In fiscal 2010, our 20 largest suppliers accounted for just under 60% of the merchandise we purchased, with five suppliers Apple, Hewlett-Packard, Samsung, Sony and Toshiba -representing 35% of total merchandise purchased.12In other words, the concentration relative to buyer industry is low, thus leads to the low suppliers power.The Threat of Substitute Products and ServicesBest Buy offers almost the same electronic products as Wal-Mart, Target and Amazon. How can it differentiate from those competitors? The answer is Geek Squad. It is a subsidiary of the Best Buy and primary offers services in-store, on-site and also provides 24-hour telephone and emergency support, including repairing computers, adding cars navigation, transferring data, fixing personal digital produ cts and so on. As their first pledge states We are dedicated to giving you the best service possible and well prove it. If youre not completely satisfied, well do our best to correct the problem, Fast and Free.13This strategy is difficult to imitate and brings the firm high profits.The Intensity of Rivalry among Competitors in an IndustryIn order to compete with so many competitors in this industry, Best Buy needs to consider the settlement of price, to face the advertising battles, to continuously improve the customer services and warranties. In addition to low industry growth rate, low product differentiation, and low switching costs, the intensity of competitive rivalry is pretty high. After the analysis of the companys general and competitive environment, Best Buy has reached success through expanding, providing prior and high-quality service, well established relationships with customers and suppliers, and differentiation.Recommendations for the FutureAs the leading company in the Electronics Industry, Best Buy already has a competitive advantage over its competitors. In order to gain even more market share for their company there are steps Best Buy could take in becoming more specialized. If they kept their focus on the specific aspects of the electronics industry that the everyday consumer does not necessarily know, consumers would feel even more comfortable purchasing specific electronic products. This way they would be differentiating themselves from their main competitors and be considered as a superior business all together.An advantage that Best Buy has is the production of their own products, such as Rocketfish, Dynex, Init. This allows for Best Buy to gain higher margins on products that are sold. and then we feel that it is important for Best Buy to market their products strongly. By increased advertising and promotion on such products, consumers will begin purchasing Best Buys own products rather than other competing name brands such as Sony and LG.It is also important for Best Buy to continually enhance their employee relationship within the Company. A job at Best Buy is highly sought after, however it is important for them to keep their employees interests in the company high. By maintaining good employee relations they are also ensuring that their employees speak of them highly outside of work which en veritables their customer relations in good order as well. It would be beneficial if Best Buy would keep enhancing their Reward and Benefit Systems for their employees. By doing so, moral and interest in the company will increase and the Company will see improvements in their performance. One example of such reward systems that Best Buy already has in place are what they call Blue Crew Bucks. This system is used to dedicate a bonus to stores who perform the highest and their employees. While Sarah Ballard, Vice President of Human Capital for Best Buy developed this system and thought it was a great idea employees thou ght differently. Three months after it began, she realized that employees didnt agree. Store managers told her that some workers thought Best Buy wouldnt pay up others just didnt understand the program. After realizing that employees were upset she was able to talk to managers of each store and clarify how the program worked. By continually receiving feedback from employees and the management team, Best Buy is able to make sure that everyone is satisfied with their work environment and with how things operate.14As new products are constantly entering the market along with rapidly developing technology it is important for Best Buy to keep up with the market and make sure they always provide the newest products for customers immediately. With the latest products such as the I-Pad and X-box Kinect consumers will only consider shop for these at the stores they know will be the first to carry them. It is important for customers to know when they want to purchase that new item they can do so at Best Buy. Jeremy Brown stated, It is so important to have the newest items for customers when they come out. Upon the new items release we must make sure that we have enough of the product to cover the demand and place them at an appropriate location in the store to maximize the items appeal.15Making sure these new products are placed so that they can be easily identified by consumers when they enter the store is very important for the company. This will attract consumers into the store in the first place, in hopes that upon purchasing the new item, they will also decide to purchase other items.After analyzing Best Buys competitive approach in their corporate strategies, it is apparent that they have established themselves as the leader in the consumer Electronics Industry. The resources that Best Buy has at their expense allow for them to have a remain competitive in the electronics industry as a leading electronics retailer. The process by which Best Buy utilizes their reso urces is a valuable asset, for the company strives to continually strengthen their competitive approach. They can continue to strengthen this by focusing on great employee relationships, keeping up with the newest technology and products in their stores and focusing on specific products where they have a competitive advantage above competition.