Best Buy Analysis


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Deep analysis of Best Buy\'s operations strategy. Includes SWOT for Best Buy and competitors

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Best Buy Analysis

  1. 1. Dennis Chang Kayla Heelan Rachanda King Vinny Donato Edward Sitt Jonathan Monahan
  2. 2. The Business Mission: To obtain and maintain the market share and profits associated with consumer electronics and appliances. SITUATION ANALYSIS:
  3. 3. •Grow Market Share •Connected Digital Solutions •International Growth •Efficient and Effective Enterprise
  4. 4. Consumer Electronics: Segment Trends/Challenges
  5. 5. Best Buy in the Consumer Electronics Industry: •Best Buy is one of the top specialty retailers in the country. •Best Buy’s top priority is to increase the level of connectivity/interactivity with its customers. •Growth for Best Buy exceeded the industry average. •Best Buy faces intense challenges as Wal-Mart bolsters efforts to take market share in electronics as consumers seek out extreme value.
  6. 6. •Top Retailers in electronics are: Best Buy, Wal-Mart, Target,, RadioShack, and Apple. •Tough economic times have retailers scrambling to pick up their share of sales freed up by Circuit City. •Increased competition with Wal-Mart and Apple. •Many suppliers (ex: Sony; Apple) are increasing their own branded show rooms.
  7. 7. •Future spending shaped by opposing forces: Price deflation will stimulate demand but frugal consumer spending habits, unemployment, and credit restrictions. •Electronic stores surged in the computer sector with share of growth of nearly 5% in 2008. •During FY2009, electronics had revenues of $16,263 million. A DECREASE of 0.1% compared to FY2008. •Electronic sales is forecasted to increase by 2011.
  8. 8. •Difficult to sustain the pace of home buying because of tax credits expiring. •The new credit-card bill does not cap interest rates and higher fees for some services are likely on the way which will affect consumer spending. •Federal Reserve winds down bond-market intervention which means credit availability will remain tight.
  9. 9. Ownership and Management Alternatives: •Best Buy operates within a multi-business unit structure. It’s designed to maximize efficiencies across multiple business units and service areas; support new business initiatives; advance future digital strategies; and enhance unit performance. •US-public traded corporation, with company-owned stores. Goods/Services Category: •Consumer electronics, home office equipment, software, and appliances. •Products and services include- Computers, audio and video systems, appliances. •Brands include: Future Shop, Geek Squad, Five Star Appliances, Napster.
  10. 10. Best Buy S.W.O.T Strengths: • Consumers have a positive view of Best Buy as opposed to competitor, Wal-Mart. • Strong market presence and wide consumer base provides competitive advantage. • Loyalty Programs – “Reward Zone” • Acquisitions like Future Shop, Geek Squad, Napster. • Knowledgeable Staff Weaknesses: • Constrained Credit Availability • Private-Brand Recalls • Drop in Comparable Stores (-1.30) for FY2009 while Wal-Mart increased (3.5)
  11. 11. Opportunities: • Expanding presence in China, Mexico, Europe, Canada, and Turkey. • Private Brand potential. • Growing Online sales among consumers. • Circuit City’s demise has freed up some of the market. Threats: • The Economic slowdown • Excessive dependence on “Accenture” for I.T and H.R operations. • Quality issues with Chinese exporters. • Political disputes between U.S, China, and other countries. • Intense Competition Best Buy S.W.O.T Continued…
  12. 12. RadioShack S.W.O.T Strengths: •Wide Network of locations (4,453 locations throughout U.S, Puerto Rico) •Diverse Product Portfolio •Vendors/Third Party Relationships Weaknesses: • Continuous decline in Comparable Sales. • Low sales from Wireless platform. • Store closings • Franchised
  13. 13. RadioShack S.W.O.T Continued… Opportunities: • Growing wireless-telecommunications market. (348.9 mill. by 2013) • Electronics Trade-In Program: Launched in 2008. • Store Refurbishment and Development. • Forming relationships with powerful vendors. Threats: • The Economic Slowdown. • Intense Competition with Wal-Mart and Best Buy. • Quality issues with Chinese imports. • Presence is weakening.
  14. 14. WAL-MART S.W.O.T General Strengths: • Large scale of operations, world-wide. (3,615 stores). • Efficient Working-Capital Management. • One-Stop Retail Destination. • Low Costs Electronic Strengths: • From 2003 to 2008, 9.0% increase in electronics while Best Buy experienced 8.8% and RadioShack experienced -1.5%. • From 2003 to 2008, 18.2% increase in PC sales, while Best Buy experienced 10.5%. (3rd Place after Best Buy and Dell) • Electronic online sales had 21.0% increase, Best Buy had 20.0%
  15. 15. WAL-MART S.W.O.T Continued… Weaknesses: • Self-Cannibalization. • Involvement in numerous Legal/Safety Issues. • Consumer Opinions. • Non-Knowledgeable Staff in Electronics. • Product Recalls. Opportunities: • Upgrades to Electronic departments. • Joining with e-Play, an entertainment Kiosk company. • Beginning to have special in-store/on-line events. • The Economic Slowdown. • Market share left by Circuit City. Threats: • Intense competition with Best Buy, Target, Apple, RadioShack, Sears. • Price Matching Programs by competitors. • Foreign Currency Fluctuation.
  16. 16. Demographics  Best Buy now targets “lifestyles” described as wealthy suburban families, trendy urban residents, and the closely knit families of Middle America.
  17. 17. Consumer Characteristics • Best Buy Identifies five core customers: – Barry – Ray – Buzz – Jill – BB4B (Best Buy For Businesses) • Consumers are placed into two groups: – Angels – Devils
  18. 18. The biggest consumer electronics outlet in the US is also the best, Best Buy, that is. The company operates more than 3,900 stores throughout North America, Europe, China, and now Mexico, mostly under the Best Buy and The Phone House banners. Best Buy stores sell a wide variety of electronic gadgets, movies, music, computers, and appliances. In addition to selling products, the stores offer installation and maintenance services, technical support, and subscriptions for cell phone and Internet services. Averaging about 40,000 sq. ft., the big box stores are located in 49 states, Puerto Rico, and all Canadian provinces. While the US accounts for about 75% of the company's sales, it's growing quickly overseas. BestBuy in 2008 became the leading retailer of PC products, it also become the leader In consumer electronics. BestBuy is an electronic store that offers the consumer the “BestBuy” this means buying the right product at the right price.
  19. 19. Identify business positioning  BestBuy is the leading retailer of CE it has a 16.4% market share as of 2008.  BestBuy is the leading retailer of PC Products it has a 19.3% market share as of 2008.  Competitive Position as it relates to pricing: In the “price war” between Wal-Mart and Best Buy, Best Buy comes in second behind Wal-Mart. Instead of lowering prices to compete with Wal-Mart, Bets Buy has decided to change the show rooms and make them interactive which will hopefully bring in more revenue.
  20. 20. Pricing Strategy • Pricing Techniques – Core Merchandise – Merchandise that drives traffic into store • Competitive Position – In the “price war” between Best Buy and Wal-Mart, Best Buy is second behind Wal-Mart. • Multiple Pricing • Service Components – Geek Squad – Installations – Free “Haul-Away” • Warrantees – Product Service Plan – Product Replacement Plan Eddie 10 years ago
  21. 21. Multiple Channels of Distribution  Retail Stores  Stores sell product as well as provide Geek Squad support and Magnolia Home Theatre service. Geek Squad and Magnolia Home Theatre provide on site services as well.  Online Website  Offer product and services offered in stores, with occasional online discounts and promotions.  Products can be shipped or arranged for in store pick up
  22. 22. Channels of Distribution Continued  Airport Kiosks
  23. 23. Promotion  Advertising and Promotional Plan  Brick and click strategy ○ Designed to empower consumers to research and purchase products seamlessly, either online or in stores. ○ Online shopping sites offer expanded inventory- Acquisition  Acquisition ○ The Magnolia acquisition allowed Best Buy to start selling their own audio and video products at a cheaper price  Promotion in-store includes the Magnolia Home Theater Store-Within-A-Store. ○ The Geek Squad acquisition provides residential and commercial product repair, support, and installation services  Offers customers a smooth transition between buying and bringing it home ○ Pacific Sales Kitchen  Expanded their product selection to kitchen and bath  Focus on builders and remodelers  Acquired to enhance the ability to grow a customer base ○ Best Buy Mobile ○ Speakeasy (Data, Telecom Services) ○ Napster  Changed business model ○ Converted their business model to a customer centric model from 2005 to 2007 ○ Each store custom tailors their strategy to target market segments locally and to certain customer groups ○ In 2007 they upgraded their model to target customer lifestyle groups instead of customer groups  Affluent suburban families  Trend-setting urban dwellers  Closely knit families of Middle America
  24. 24. Costs Allocated for Adv. And Promotion  Net advertising expenses  2009 - $765m  2008 - $684m  2007 - $692m  Allowances received from vendors  2009 - $117m  2008 - $156m  2007 - $140m
  25. 25. Types of Media Used  Newspaper Catalogs  In-store fliers  Online advertisements  Radio advertisements  Television commercials  vRvk
  26. 26. Analysis  “The company delivered strong results in fiscal 2010 and we are very pleased with our performance given the environment of the past 12 months. We delivered a comparable store sales gain for the year, capitalized on market share opportunities and managed expenses to deliver a financial outcome well above the expectations we had at the beginning of the year.” ○ Jim Muehlbauer, Best Buy’s executive vice president of finance and CFO.
  27. 27. Analysis  Were long-term and short-term goals met?  Grow Market Share: This goal was met. Best Buy’s revenue increased in the fourth quarter of fiscal 2010.  Connected Digital Solutions: This goal was met. Best Buy made an effort to connect to their customers through a connected digital lifestyle. They did this through the sale of mobile, television, and computer.  International Growth: While the international growth revenue increased in 2010, Best Buy does not present any evidence of expanding their Best Buy Mobile concept to existing Canadian stores, integrating their Five Star and Best Buy operations in China, and delivering on planned synergies in Europe  Efficient and Effective enterprise: The increase of operating income has provided as a source of revenue for Best Buy in fiscal 2010.
  28. 28. References: • Industry Outlook: Consumer Electronics • Business Source Premiere: Best Buy • Business Source Premiere: RadioShack • Business Source Premiere: Wal-Mart •