This document provides a strategic analysis of Best Buy Company. It begins with an overview of Best Buy's transformation efforts in 2012 to reverse declining sales and profit margins. It then reviews Best Buy's internal issues across key functions like distribution, marketing, sales and customer service. An external analysis identifies factors in Best Buy's highly competitive environment with very high rivalry and buyer bargaining power. The analysis concludes with recommendations to address critical issues like inventory management and showrooming, such as creating an in-store pickup partnership with Amazon and introducing a Best Buy loyalty club.

1. Strategic Analysis of
By Richard Chan, Christina Latyn, Joe McGuigan,
Omkar Paratkar, and Debra Wieben
Strategic Management, Summer 2014, Professor Kevin Johns
Monday, July 21, 2014

2. Best Buy Company Background
Internal Analysis
External Analysis
Recommendations
AGENDA
2

3. BEST BUY BEGAN A STRATEGIC TRANSFORMATION IN FALL 2012
Reinvigorate and rejuvenate the
customer experience
Attract and inspire leaders and employees
Work with vendor partners to innovate and
drive value
Increase our return on invested capital
Continue our leadership role in positively
impacting our world
Reverse trends of:
 Declining
comparable
store sales
 Shrinking profit
margins
3

4. Source: BBY FY 2014 10K (Annual Report)
BBY FY 2014 Revenue by Geography
$, millions
100% = $42,410 MM
BBY FY 2014 Revenue by Segment
%
30%
48%
8%
7%
6%
1%
Consumer
Electronics
Computing and
mobile phones
Entertainment
Appliances
Services
Other
-6%-16%
+5%
+17%
+0%
 Decline drivers: Device convergence, shift from physical to digital media
 Growth drivers: Higher priced smartphones, successful promotions
Domestic
84%
Canada
11%
China
4%
Other
1%
BBY IS FOCUSED IN THE US AND THE COMPUTING AND MOBILE
PHONE SPACE
4

5. Best Buy Company Background
Internal Analysis
External Analysis
Recommendations
AGENDA
5

6. BEST BUY FACES A VARIETY OF CROSS-FUNCTIONAL ISSUES,
PARTICULARLY RELATED TO “RENEW BLUE”
Source: Team analysis of Best Buy analyst reports, SEC reports
6
Distribution/Logistics Marketing Sales Customer Service
CurrentStateIssues
 Shipping - direct to
consumers direct and
1,900+ retail stores
 Days on Inventory
trending up
recently
 Inventory turnover
at all time low
 Marketing focused on
“showrooming” strategy,
Geek Squad concept
 Omnichannel marketing
 Benefits from marketing
of manufacturers
 Seamless integration of
marketing strategies
 Differentiation from
competitors
 Showroom provides
competitive advantage
for selling
 Building mobile and
social platforms for
online selling
 Sales revenue growth
rates have been weak
(-8.9% YOY)
 Decline driven by
fierce competition
from online retailers
 BBY’s historic
competitive
advantage (in-store,
online, Geek Squad)
 Need to reinvigorate the
customer experience
 Room for improvement
for online and in store
non-buyer satisfaction

7.  Need to improve
inventory turnover to
accommodate rapid
changes in electronics
market
7
KEY ISSUES INCLUDE
 Take action to
differentiate BBY from
low-priced online
competitors
Distribution/Logistics Marketing Sales Customer Service

8. BEST BUY FACES A VARIETY OF CROSS-FUNCTIONAL ISSUES,
PARTICULARLY RELATED TO “RENEW BLUE”
Source: Team analysis of Best Buy analyst reports, SEC reports
8
Human Resources
Information
Technology
Executive
Organization
Real Estate
Management
Communications
CurrentStateIssues
 Ongoing cost-cutting
org rationalization
 “Field and store” op
model
 140k employees
 Continue to
strengthen digital
talent
 Continued
improvements to
employee
engagement
 Recent restructuring
for cost cutting
 Ongoing digital
capability upgrades
(e.g., website, ship-
to-store)
 Surpassing and
differentiating from
competitors’ digital
capabilities
 New CEO and
CFO (2012)
 Need to make
continued talent
upgrades,
particularly to
enhance digital
capabilities
 US: # of stores
flat in FY 2014
 Int’l: Opened 13,
closed 27 stores
during FY 2014
 Store layout
changes, “store
within a store”
implementation
 Renegotiating
leases, selective
opening/closing
 Non-priority
functional area;
used opportunistically,
not strategically
 Use communications
to:
 Alter consumer
brand perceptions
 Drive improved
employee
performance

9.  Making changes to
facilitate enhanced
digital capabilities
9
KEY ISSUES INCLUDE
 Implementing
significant real
estate changes to
improve op margins
Human Resources
Information
Technology
Executive
Organization
Real Estate
Management
Communications

10. Best Buy Company Background
Internal Analysis
External Analysis
Recommendations
AGENDA
10

11. ECONOMIC ENVIRONMENT FACTORS
• Low economic growth since 2008
• More consumer disposable income, but consumers are more price-consciousMacro-economic
• Best Buy stands to benefit from the E-Fairness initiative
• Rise in global free trade (more FTA) is a welcome sign for Best BuyPolitical & Legal
• Ever-changing and demanding “Millennial” consumer preferences
• The recession in 2008 has resulted in more discreet and sophisticated
consumers
Demographic
• Consumer product life cycles continue to grow shorter and shorter
• Ever changing products and technologies
• High growth in developing technology categories
Technological
• “Socially connected” consumers driving sales of high-margin tablets &
smartphones
• Always-on, always-connected lifestyle means rapid changes in product life-cycles
Social Forces
• Compressed time-to-market duration and fast-changing product lines
• The preference towards “social purchasing” and seeking instant feedback and
price-comparison
Market Trends
11

12. Rivalry/
Competition
Very High
Buyer’s
Bargaining
Power
High
Supplier’s
Bargaining
Power
Medium
Risk of Entry
Medium
Complements
Medium
12
EXTERNAL ANALYSIS

13. Rivalry/
Competition
Very High
Buyer’s
Bargaining
Power
High
Supplier’s
Bargaining
Power
Medium
Risk of Entry
Medium
Complements
Medium
13
EXTERNAL ANALYSIS

14. Rivalry/
Competition
Very High
Buyer’s
Bargaining
Power
High
Supplier’s
Bargaining
Power
Medium
Risk of Entry
Medium
Complements
Medium
14
EXTERNAL ANALYSIS

15. Rivalry/
Competition
Very High
Buyer’s
Bargaining
Power
High
Supplier’s
Bargaining
Power
Medium
Risk of Entry
Medium
Complements
Medium
15
EXTERNAL ANALYSIS

16. Rivalry/
Competition
Very High
Buyer’s
Bargaining
Power
High
Supplier’s
Bargaining
Power
Medium
Risk of Entry
Medium
Complements
Medium
16
EXTERNAL ANALYSIS

17. Rivalry/
Competition
Very High
Buyer’s
Bargaining
Power
High
Supplier’s
Bargaining
Power
Medium
Risk of Entry
Medium
Complements
Medium
17
EXTERNAL ANALYSIS

18. Threats
 Largest brick & mortar electronics retailer
 Brand image
 Core competency in tech services
 Focus on customer service & support
 Solid DC infrastructure and logistics
 Declining financial performance
 Dependence on third-party vendors/OEMs
 Senior Management turnover
 Poor inventory management
 Higher penetration of exclusive brands
 International growth markets (i.e. China)
 Obsolescence rate of mobile technology
 Reduce real estate – mobile stores
 “E-fairness” laws – level playing field
 Intense competition from online retailers and
cost leaders (Amazon & Walmart)
 Price-matching programs – reduced margins
 “Showrooming”
 Manufacturers direct-to-consumer (Apple)
18
STRENGTHS WEAKNESSES
OPPORTUNITIES THREATS
SWOT ANALYSIS

19. Best Buy Company Background
Internal Analysis
External Analysis
Recommendations
AGENDA
19

20. MOST IMPORTANT ISSUES TO ADDRESS
20
Inventory turnover improvement
Internal
Low overhead online retailers capitalizing on price conscious
consumers & using Best Buy as a showroom
External

21. RECOMMENDATIONS
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Create “in-store pick-up”
partnership with Amazon
Introduce BBY loyalty
club
 Fee-based club provides access
to real-time customer support,
reviews, Geek Squad services
 Points system to reward volume
purchasing
 Partner with Amazon to sell
products purchased online from
BBY store
 Profit sharing based on sales
Description
 Monetizes BBY’s competitive
advantage in customer service
 Encourages customers to use
BBY as one-stop shopping for
electronics purchases
 Instant access to online audience
 Capitalizes on “need it now”
shopping attitude
 Potential for additional spending
by online customers once they
are in store
Rationale
1
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22. QUESTIONS?
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