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Best Buy Turnaround Strategy

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Best Buy Turnaround Strategy

  1. 1. Turnaround Best Buy By Cranium Crushers Consulting Team: Aditya Thakur Rashi Sanghvi Dhruv Soman Syed Rehan Zafar 1
  2. 2. Best Buy at a Glance Stores 1,447 (305 mobile) Employees 167,000 Revenue $50B (5% from Online stores) ROE (28%) (18% in 2011) D/E 34% Gross Profit Margin 23.4% Net Profit Margin (2.4%) Inventory Days 55 A/R Days 16 A/P Days 51 Cash to Cash Cycle 20 2CapitalIQ
  3. 3. Unfavorable Situation for BigBox BusinessesInternal ExternalSales growth is declining Economic situation: Reduced Consumer spending across industriesManagement – A new Turnaround CEO Consumer behavior – Shifting towardshas been hired by the company online & mobileBig-box stores are being shutdown Perception about big box brands turning negativePresident for Online Business hired to People are pessimistic after the collapserevamp Best Buy’s Internet strategy of CircuitCityFounder and majority shareholder BestBuy, Schulz, offered to buy the companyat a price higher than the market valueSales per store are declining – LowerfootfallsNon-Competitive pricing 3
  4. 4. Continued Underperformance will lead to Bankruptcy Company Perception Expected Performance Same Store Sales Infancy Stage Stagnation Management Team Early Stage Underperforming Cash & Cash Equivalents Midstage Significant Performance Impairment Shareholder Value Late Stage Crisis Deep Yogurt! 4
  5. 5. Strategic & Operational challenges hindering sales growth• Strategic: – Weak positioning – Value proposition not compelling enough – Price disadvantage – Negative customer perception – No clear vision – From ‘Brick & Mortar’ to ‘Brick & Click’ – changing business model• Operational: – High overheads – Poorly designed online store interface – Too many products – Cluttered service model – Unstable leadership/management 5
  6. 6. Stabilize, Analyze & Strengthen• New Store Formats:- Best Buy Express- Best Buy Studio- Online Store• Change in Focus:- Competing on Price- Product Mix- In-store experience- Service- Loyalty 6
  7. 7. Turnaround ImplementationReduce Big Box Outlets:1. Best Buy “Studio” stores in major cities – Store in Store model2. Using Market analysis, consolidate stores based on customer behavior - Online purchases3. Significant reduction in overheads 7
  8. 8. Turnaround ImplementationBest Buy Express:• Small stores in high traffic locations• Product Mix: Small & fast moving goods• Acts as Geek Squad (Service center) branchOnline Store:• Exploit Amazon’s lack of focus in electronics• Redesign User Interface• Develop competencies in faster delivery for loyalty program members 8
  9. 9. Turnaround ImplementationPrice Matching:• Price comparison part of core sales process in stores• Matched to direct competitors -Amazon• Consistent in all store formats• Price checking kiosksProduct Mix:• Trim product categories and lines• ‘Featured Products’ section for high margin products 9
  10. 10. Turnaround ImplementationLoyalty Program• Annual fee• Covers services for all products• Focus on Geek Squad• Offer a flat fee off services• Notional discount on matched prices initially• Free shipping of products 10
  11. 11. Why it will work? “Experience, Convenience & Price”Revenues:• Capitalize on the “Showrooming” nature of customers - Store Experience• Mobile store offers convenience for servicing• Membership program serves to locking in customers• Competitive pricing will boost sales• Additional revenue from partners in studio modelCosts:• Consolidation of stores: Reduction in rent expenses• Reduction in employees• Lower Overheads 11
  12. 12. Financial Estimates 2012 2013 2014 2015 2016Revenue $50,705 $51,681 $50,131 $49,630 $49,630Revenue Growth 2% 2% -3% -1% 0%Gross Profit (75%) $12,592 $12,834 $12,533 $12,407 $12,407SG&A $(10,242) $(10,439) $(8,522) $(7,444) $(7,444)Operating Income $2,350 $2,395 $4,010 $4,963 $4,963Operating ProfitMargin 4.6% 4.6% 8.0% 10.0% 10.0%Interest Expense $(134) $(134) $(198) $(165) $(132)Restructuing Costs $(58) $(250) $(400) $(400) $(400)Net Profit $(1,231) $1,193 $2,239 $2,880 $2,902Net Profit Margin -2% 2% 4% 6% 6% 12

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