Management case study regarding the development of Best Buy as a company and how they should approach a change in combating their failing business.

1. Nicole DeSantis, Shannon McAdams, Hayley
Newlin-Wagner, Hea-Lin (Julie) Oh

2. Agenda
1. Company Background
2. Issue/Problem
3. SWOT Analysis
4. Porter’s Five Forces
5. Recommendations

3. Company Background
● Began as “Sound of Music”, a hi-fi audio store
● Found successful business model in selling
discounted items
● Ventured into super stores
● Emphasized commitment to discounted, value products

4. History Timeline
Sound of Music
opens
1966
1981
Tornado sale leads
to formation of new
discounted
business model
Concept I, first
Best Buy
Superstore opens
1983
1985
Raise $8 million in
IPO and $33.6
million in second
PO
Highland (competitor)
lowers prices, Best
Buy margins fall
1987
1989
Concept II,
“grab-and-go”
store format
Concept III, broaden
and promote wider
range of products
1995
2000
Launch of
BestBuy.com
Geek Squad expanded,
customer centricity
emphasized, buy
stakes in China
2006
2012
Plans to downsize,
closing stores
internationally, Brian
Dunn resigns as CEO

5. Issue/Problem
● How to survive with competitors such as Wal-Mart and
Amazon (discounters and online retailers)
● International expansion problems (tactics failing, closing
international stores)
● Weak leadership (CEO resigned, firm founder/largest
shareholder looking to explore other options for his 20.1%
stake in the company)

6. INTERNAL ANALYSIS
STRENGTHS
❖ Leader in innovation and developing
fresh business strategies
❖ Acquisitions including Geek Squad,
Magnolia, Music Land, and Future
Stores, Napster, and Speakeasy.
❖ Top retailer for consumer electronics
WEAKNESSES
❖ Net income/Profit declining
❖ Struggling internationally - closed stores in
China, Turkey, and the UK
❖ Lost 55% of market capitalization
❖ Losing market share to discounters and
online retailers
❖ Disorganization among management
(Wells)

7. EXTERNAL ANALYSIS
OPPORTUNITIES
❖ Expand online presence
❖ Mobile phone applications/more
convenient interaction with consumer
❖ Create desirable service/product in
mobile phone industry
❖ Grow business with cellphones
THREATS
❖ Amazon, Walmart and other
Discounters
❖ Geek Squad imitators: Firedog(SM),
Walmart Home Installation, Sam’s Club
Business Centers, Zip Express, and
Staples EasyTech services
❖ Customers use Best Buy as a showroom
and information center-later purchase
items on Amazon
(Wells)

8. Porter’s Five Forces
Competitive
Rivalry
High
Threat of new entrants-Low
● Need to operate on a large scale to compete
● Market for brick-and-mortar electronic stores is declining
● Best Buy is struggling to maintain profit, discouraging
Bargaining Power of
Suppliers-LOW
● Products are considered
“commodities” and can be
purchased elsewhere
● Best Buy accounts for high
volume purchases that are
important to suppliers
Bargaining Power of
Buyers-MODERATE
● Considerable negotiating leverage
● Best Buy is market leader in
electronics sales, valuable
relationship for sellers
● Demand is weak; not many stores
specialize in just electronics.
Threat of Substitute Products/Services-
HIGH
● Substitutes are readily available, cheaper, easy to obtain
● End users have low switching costs/are comfortable using substitutes
(Wells)

9. Recommendations
● Reduce in-store inventory for less
popular products (DVD players, CDs,
appliances)
● Reduce costs of storing inventory and
potentially increase profits
● Close stores to cut operating costs
($888,579 per closed store)
1Downsize
(“Best Buy”)

10. Recommendations
● Compete with Amazon/Walmart by matching their
lowest prices
● Reduce the threat of substituting goods and
decrease competitive rivalry
● Provide in-store shoppers with the benefits of online
discount retailers
○ In store shopping- score of 69% for most reliable and 77% for
safest
2 Price Match
(Friedman)

11. Recommendations
● Invest capital in virtual reality product research and development
● Draw in new customers and retain current customers
● Provide a unique entertainment experience to eventually replace
declining entertainment sales (TVs, DVDs, etc.)
● Source of competition against online retailers
● Capitalize on the first mover advantage, credible as a market
leader
3Invest in Virtual Reality Products
(Lang)

12. Questions?

13. Appendix A:
Best Buy Financials and Operating Performance
(Wells)

14. Appendix B:
(“Best Buy”)
Measured in millions of dollars

15. Works Cited