Best Buy Co., Inc. is a multi-national retailer of consumer electronics facing challenges from increased competition and changing consumer preferences. Revenues have grown slowly while profits have declined. Best Buy has strengths in extensive product knowledge and offering end-to-end solutions, but weaknesses in high operating costs and perceptions of inferior service compared to competitors. Critical challenges include differentiated in a commoditized market, enhancing the customer experience, and managing international operations. Options to address issues focus on consultative home office and business services, store-within-a-store concepts, improved cost management, and building value through customer support.

1. Case #4:
Finding the Best Buy
BUSA 4980 (Strategic Management)
Dr. Steven Dionne
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Strategy Formulation
Summer 2014

2. Company basics …
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• Best Buy Co., Inc. is a multi-national retailer of
consumer electronics, computing and mobile
phone products, entertainment products,
appliances and related services
– Founded by Richard Schulze in 1966 (Sound of Music)
– Grew rapidly in US from 1989
– Domestic (84.5%) and International (15.5%)
• Variety in its retail format:
– Big Box stores, Geek Squad, Best Buy Mobile, Bestbuy.com,
The Carphone Warehouse (Europe), and Five Star
Appliances (China)
• Roughly 1,500 locations, $42B in annual
revenue, 140,000 employees, and among top 10
largest retail websites

3. Problems have emerged: Best Buy has not kept pace
with its industry in returning value to its shareholders
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• Presence of competitors with different business
models / strategies
• 2400 US layoffs in July 2012 alone!
• 950 Canadian layoffs in January 2014
• Schulze made a proposal to acquire Best Buy for
$26 per share in August 2012 (failed)
• Discontinued BestBuy Europe, large-box format in
China, and Napster in 2013
• Is big box retailing dead?
• Stores provide hands-on experience with a product
• Best price?
• Exclusive
gadgets?
• Knowledge
center?

4. What issues have emerged from the General Environment?
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Segment Elements
Demographic • The rise in dual income families and women’s purchasing power also affect
product and marketing decisions
Economic • Impact of a slow recovery: With less disposable income, consumers reduce the
types of purchases that make up Best Buy’s product line
Political / legal • The controversial sales tax legislation for online retailers
Socio-cultural • The popularity of the online marketplace: Online shopping has brought new
rivals, with lower cost structures
• The availability of product information online means that technology and
product questions can be addressed without the expertise of in-store staff
• Universal connectivity: Offers opportunities as the complexity of functionality
and the need for interaction between devices increases
Technological • The emergence of new ways of conducting business and accessing customers
• The consolidation of functions into single electronics devices
Global • Opportunities to achieve greater economies of scale, to integrate backward into
the supply chain with lower risk, and to move inventory into secondary markets
Physical
environment
• N/A

5. Again, the slow pace of recovery and talk of fiscal cuts
present challenges to this industry
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• Real income for US
households has
remained stagnant,
given weak overall
economic and
employment growth
• As a result,
discretionary
spending for US
households will likely
remain weak
• Global discretionary
spending was down
in Q4 2013
• Q1 2014 GDP: -2.9%

6. What about the Industry Conditions?
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Moderate
Moderate
Pressure
Pressure
• Globalization and broad access to the
Internet reduce capital requirements and
customer loyalty
• New entrants differ significantly in
structure, focus, and sources of
competitive advantage
• Economies of scale and capacity to
launch advertising campaigns provides
some protection
High Pressure
High Pressure
• Consumers research products online,
determine purchasing intentions, and
then seek the lowest price
• Low switching costs
• Not consolidated, but pricing pressures
have increased due to emerging
purchasing tools and processes
Moderate Pressure
Moderate Pressure
• Consumer electronics are not priority
items, and many alternatives exist that
satisfy consumers’ entertainment needs
• Yet, older forms of communication are not
good substitutes for advanced devices
Moderate
Moderate
Pressure
Pressure
• Scale gives the company good leverage
with suppliers → 1400 domestic + 473
foreign stores ($42 billion in sales)
• Shifts in supplier distribution policies
have reduced the exclusivity Best Buy
once enjoyed
• Some supplier concentration and
forward integration (e.g. Apple)

7. Consumer
Electronics
Segment Segment Segment Primary
Strengths • Efficiencies
• Innovative apps
• Price / tax
advantages
• Range of products
/ services
• Scale / scope
economies
• Bargaining power
with suppliers
• Lower end
• High inventory
turnover
• Service oriented
• Customer value
• Higher quality
• Market niche
• Specialty
electronics
• Rebranding with
cell phones
TTM Revenue $74.5 billion $476.3 billion $107.9 billion $3.43 billion
3-yr Sales Growth 29.6 4.1% 10.5% -7.0%
TTM Net Income $274 million $16.0 billion $1.96 billion ($400.2 million)
3-yr Profit Margin 0.4% 3.5% 1.8% -4.0%
Increased Competitive Intensity in an Evolved and Less
Familiar Form → Price Centric Rivalry
• Switching costs for consumers are low and retailer differentiation is minimal
• Given economic conditions, rivals seeking growth further intensify
competitive pressures
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Financial data as of April 2014

8. How would you characterize BBY’s strategy? …
Connected World approach
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1. Where will we be active?
• Global: +1400 locations in the USA;
473 in Canada, China, Mexico
• Consumer electronics, Home office,
and related services
• Retail
Arena
Staging Vehicles
Economic
Logic
Differentiators
2. How will we get there?
• Internal: New stores / concepts
• M&A: Magnolia Hi-fi,
Musicland, Napster, Geek
Squad, Future Shop (CA), Five
Star Appliance (75%, China)
3. How will we win?
• Extensive product knowledge
• Service levels
• End-to-end solutions
• Price
4. What will be our timing?
• Quick responses to
competitive challenges
5. How will we obtain our returns?
• Premium prices by providing
superior services and product
knowledge across extensive
electronic categories
• BL Strategy:
Broad Differentiation → Integrated
1. Accelerate online growth
2. Escalate multi-channel experience
3. Optimize US real estate
4. Achieve supply chain efficiencies

9. How has Best Buy performed financially?
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10. Recent results show improvements in profitability but
continued weakness in revenue growth
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11. Are there any bright spots across BBY’s various
segments and/or product categories?
• Europe and China had been sources of sales growth …?
• Home office products accounted for 55% of international sales,
compared to 37% in the USA (2011)
– Computing/Mobile phones and appliances account for 60% of foreign sales
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What concept is utilized
outside the United States?

12. Does Best Buy have an optimal product mix and
store configuration?
• Computing and mobile phones account for 48% of total sales
• Entertainment has been contracting, accounting for just 8% of sales
revenue in fiscal 2014
• Oddly enough, appliances are growing, even though accounting for
just 6% of sales
– Appliances are 17% of international sales and a growth category (+8.4%)
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13. What are BBY’s Strengths and Weaknesses?
• Extensive product knowledge provides value-added services in an
environment where technology is changing rapidly
• Provide customers with end-to-end solutions through installation services,
product repair, and ongoing support
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Strengths
• Strong industry presence: 1,495 retail
locations in North America and more
than 473 stores in China / Canada
• Unique, value-added business segments
(e.g. Geek Squad, Best Buy Mobile)
• Standardized processes: Scale economies
and low operating expenses
• Immediate product fulfillment
• Provides an extensive product offering
and is highly adept at anticipating and
satisfying customer needs
Weaknesses
• Market perceptions of Best Buy’s service
levels do not put the company ahead of
its competitors
• Financial vulnerabilities stemming from
downward economic and competitive
pressures on prices
• 16% increase in accounts receivable for
2011 → Bad debt losses
• Business model → Competitive
disadvantage for competing on price

14. What are the Critical Challenges for Best Buy?
• Increased competitive intensity: Rivals with alternative
approaches exerting margin pressure
– Cost of brick-and-mortar stores?
– Combat sales losses and manage financial stress?
• Products are increasingly becoming commoditized
– Difficulty differentiating and finding new ways to add value
• How will BBY execute its strategy?
– Strategy centers on the customer: How does it revamp products and store
design to serve customers’ new needs?
– How does BBY enhance perceptions of superior customer service?
• How to manage international ventures to realize potential in
foreign markets?
14

15. “Our ability to transform Best Buy is highly dependent
on our ability to transform our in-store experience”
• Enhancing customer experience:
– Ship-from-store (1400 locations)
– Opened 1400 Samsung and 600 Windows stores-within-a-store concept
– Pacific Kitchen and Home and Magnolia Design Centers
– Google announces intentions for 2014
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Ties success to specific brands – Samsung and Microsoft

16. How would you address Best Buy’s issues?
• Home Office: Reposition on consultative services and products specifically for
business / home office applications → Compete against Staples / Office Depot
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Element Options
Arena • Continue retail to offer consumer consultation during purchase →
Fashion a Best Buy Complex: store-within-a-store concept
• Cautiously seek growing, foreign markets (e.g. India and Brazil)
Vehicles • Improve cost management and internal training, using supplier
partnerships / alliances
Differentiators • Concentrate on new technologies for which prices have not eroded and
new information is required to make the purchasing decision
• Seek ways to transfer its value-added knowledge model to its website
and closely integrate with store resources
• Build value through relevant customer services:
1. Reduce confusion around new, advanced devices, features, and
technologies
2. Support technology and device integration as well as customer
desire for connectivity, access, and immediacy