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BestBuy Co.
BEST BUY REPORT
Prepared by: Aziz Ghani & Sola Soetan

Aziz Ghani : azizghani0@gmail.com 1416-856-6737
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ADMN 4604 Business Strategy and Policy 1
BestBuy Co.
Table of Contents
Executive summary 3
Current performance 4
Mission, Vision 6
Objectives 6
Strategies 6
Corporate Governance 9
External Environment: PESTLE 9
Political-legal factors 9
Economic factors 10
Socio-cultural factors 10
Technological factors 11
Environment factors 11
Porters Five Forces 11
Threat of new entrants 11
Bargaining power of buyers 12
Bargaining power of suppliers 12
Threat of substitute products 12
Rivalry among competing firms 12
Other Environmental Factors 13

Customers 13
Competitors 13
Corporate Structure 16
Corporate Culture 16
Corporate Resources 17
Marketing 17
Finance 17
Human Resources 20
Research and Development 20
Operations and Logistics 20
Information system 21
Strategic Alternatives 23
Recommended Strategy 26
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BestBuy Co.
Implementation 27
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BestBuy Co.
Executive summary
BestBuy is one of the largest consumer electronics retailers in the world with 19% share of the
global retail consumer electronics market. Although extremely successful in the past starting in
FY 2012 the retailer has been reporting net losses. The purpose of this report is to analyze what
is happening and how the company can overcome its financial difficulties and emerge on as a
leader again.
Using several analysis techniques including PESTLE and Porters Five Forces, we have
concluded that the company is dealing with fierce competition both online and offline. This
fierce competition drives prices down, thus eating into the live-blood of any retailer the
margins. Sluggish economy, gloomy customer expectations towards the future and resulting
reduced spending on consumer electronics have provoked a price war and made BestBuy
introduce a price-matching policy. The latter eats into the margins as well. These unfavorable
changes lead to corporate culture changes as well, shifting from results-oriented culture to be-
there-40-hours-a-week culture. This coupled with the companys plan to attract and retain its
employees will eventually negatively impact employees morale and will lead to outflow of long-
time employees.
To offset the negative impacts of the companys fragile financial position a number of strategic
alternatives is being offered. These include partnering with a famous fast-food chain of
restaurants and place restaurants in each of the stores; acquire a third-party manufacturer to have
full control over BestBuys private label production; increase offerings in kitchen and household
appliances. While each of the strategic alternatives has pros and cons, the second alternative is
deemed the most viable.
BestBuy relies heavily on private label. These are exclusive products, sold only at BestBuy under
a variety of brands belonging to the company. The retailer can acquire a third-party manufacturer
of these products, tap into consumer electronics market and start selling products at a higher
profit margin, thus contributing directly to the bottom-line. The implementation of this strategy is
done in 4 steps. Step 1 allocate the budget, step 2 allocate the team, step 3 allocate the
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product, step 4 - train employees.
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BestBuy Co.
Current performance
BestBuy is the largest retailer of consumer electronics in the world. The company has 1,503
stores in the U.S. and 2,876 stores in Canada, China, Mexico and eight European countries.
BestBuy is the tenth largest online retailer in the U.S. and Canada and more than 1.6 billion users
visit the companys websites or the stores each year. BestBuy currently employs approximately
165,000 people and its world consumer electronics market share is 19 percent.
BestBuy unlike its competitors Amazon and Walmart does not employ a low price strategy. The
companys current strategy focuses on differentiation driven by employee training, online and in-
store enhanced consumer experience, and cost control.
During the year 2013 the domestic segment (consisting of operations only in the U.S.) operated
under various brand names such as BestBuy, BestBuy Mobile, Geek Squad, Magnolia Audio
Video and Pacific Sales. The company opened 105 US BestBuy Mobile stand-alone stores and
closed 47 US BestBuy stores, one US BestBuy Mobile stand-alone store and one Magnolia store.
BestBuy continues to offer Geek Squad support services, and BestBuy Mobile store is still
active. In the year 2014, the company expects to close additional between five to ten US BestBuy
stores and open a small number of US BestBuy Mobile stand-alone stores.
The International segment is operated under the brand names of BestBuy, BestBuy Mobile, Cell
Shop, Connect Pro, Future Shop and Geek Squad. In Europe the corporation operates under the
brand names of The Carphone Warehouse, The Phone House and Geek Squad. In China BestBuy
sells under the brand names of Five Star and BestBuy Mobile. The operations in Mexico are
registered under the brand names of BestBuy, BestBuy Express and Geek Squad.
In 2013 BestBuy Mobile concept and the store-within-a-store experience was introduced in
China in select Five Star outlets. BestBuy Express was also introduced in a small-format store in
Mexico. The latter focuses on high-traffic and convenience purchases with a large volume of
accessories offerings. In Europe BestBuy repositions and resizes the existing stores aiming at
revenue maximization. In 2013 alone the corporation closed 126 stores and opened 122 new
ones.
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BestBuy Co.
To remain competitive in online electronic segment the company implemented Enhanced Price-
Matching Policy in the U.S. in March 2013. The online promotion allows consumers to request
a price match for comparable products offered by a retail store and an online operator. This
initiative was put into place after a successful pilot conducted over the holiday season of 2013.
BestBuy is able to match competitors prices by taking full advantage of its economies of scales,
global vendor partnership and sustaining efficient, low-cost operations.
Internationally store sales varied from country to country in 2013. In the European continent the
company reported store sales gain due to effective promotions and an increase in sales of higher-
priced mobile phone handsets. In Canada store sales declined with major contributors being
televisions, computers and gaming sales lacking behind and reinforced by overall industry
weakness. The sales decline was partially offset by increase in sales of mobile phones and
tablets. In China, increasing competition from online vendors drove down prices across most
product categories. Abolishment of U.S. government stimulus programs in December 2011
contributed to weaker sales. Overall lower gross profit and operating income in international
segment was driven by a combination of lower sales in Canada and China, a decrease in gross
profit in Europe, adverse product mix and increased promotional costs.
BestBuy incurred a net loss of $443 million US dollars (USD), a significant reduction from last
year net loss of $1.3 billion USD. In 2013 the company had $45.1 billion USD in revenue, which
represents a decrease of 5.6 billion USD compared to the previous year. The decrease in revenue
is attributable to store sales decline of 2.9 percent and closure of 47 large-format stores in the
U.S. Gross profit decreased by one percent to 23.6 percent of revenue. The reduction in gross
profit was the result of increased revenue from the wholesale channel in Europe and increased
global promotion costs. The company recorded $451 million USD of restructuring expenditures
related to Renew Blue cost-reduction initiatives, European store transformation and U.S. large-
format store closures among other operational changes.
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BestBuy Co.
Mission, Vision
Currently BestBuy does not have an official mission statement. However the following mission/
vision statement is referenced as such on several regional websites:
Our formula is simple: were a growth company focused on better solving the unmet needs of
our customers and we rely on our employees to solve those puzzles. Thanks for stopping.
Objectives
In the last quarter of 2012, BestBuy announced the strategies to follow to improve the companys
performance in 2013. The company established that it would remain focused on increasing
profitability across the whole organization. The strategic plan aimed to increase revenue was
called Renew Blue strategy and was focused on making BestBuy the preferred brand and
destination for technology products and services.
The Renew Blue strategy has the following objectives: reinvigorate and rejuvenate the customer
experience, attract and inspire leaders and employees, work with vendor partners to innovate and
drive value, increase return on invested capital and continue the companys leadership role.
In FY 2014, BestBuy plans to open a limited number of small-format stores in Europe and to
continue to review its portfolio of stores globally. Also, 2014 will be a transition year for the
organization with special emphasis on the following areas:
1. Accelerating online growth,
2. Enhancing the multi-channel customer experience,
3. Increasing revenue and gross profit per square foot through enhanced store space
optimization and merchandising,
4. Driving down cost of goods sold through supply chain efficiencies,
5. Continuing to gradually optimize the U.S. real estate portfolio and
6. Reducing selling, general and administrative costs.
Strategies
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To remaining consistent with its mission and vision BestBuy is currently implementing the
following:
1. Accelerate online growth through the improvement of online traffic by:
generating online recommendations based on customers' requirements and
preferences;
employ a new search platform with increased product find and relevance capabilities;
create integrated product pages with generation of consistent browsing experience
across devices;
improve access to reward zone points management and redemption capabilities;
develop easy process to supplementary products and services, such as extended
warranties and support;
increase product mix and product detail information.
BestBuy expects to have made significant improvements against these initiatives by the
beginning of 2014 holiday season.
2. Enhance the multi-channel customer experience. To measure customer satisfaction

BestBuy introduced a new tool known as the Net Promoter Score (NPS). The NPS will
measure the level of customer satisfaction in the following areas: offer of devices and
services, level of knowledge of the companys sales representatives, price
competitiveness, shopping schedule, technical support during useful life of products,
availability of stock as well as the customer price perception with low price guarantee,
higher personalization in online offers and re-allocation of store hours.
3. Increase revenue and gross profit per square foot through enhanced store space
optimization and merchandising. In 2014 BestBuy plans to reduce the square footage
allocated to declining or low margin segments, such as music and movies, and replace
them with inventory from higher-growth segments, such as mobile phones, appliances
and accessories. The company plans to increase its product selection, store employee
training and re-evaluate marketing investments.
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4. Drive down cost of goods sold through supply chain efficiencies. BestBuy will include
shipment in cost of goods sold to fulfill online purchases from all existing distribution
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5. centers. Additionally, the company will batch multi-unit customer orders in one shipment.
6. Continue to gradually optimize the U.S. real estate portfolio. BestBuy reduced occupancy
costs through store closings and renegotiation of leases. In 2013 the company closed forty
seven large-format stores and expects to close at least five more in 2014. Also, the
company expects to open new stores in selected markets, including 12 new BestBuy
Mobile stores, 10 Magnolia Design Center, and 18 to 25 Pacific Kitchen and Home.
7. Reduce selling, general and administration costs. As part of the initial phase of the Renew
Blue strategy the company is expecting to reduce its expenditures by estimated $150
million USD annually through discontinuing non-core activities and eliminating
management layers.
8. The company implemented a customer-centricity model that includes online and in store
customer experience, employee training and engagement, partnership with vendors, retail
execution and cost control.
9. BestBuy implemented a price matching policy that allows the company to remain
competitive by offering consumers the same price as certain other retail stores and online
operators.
10. BestBuy offers loyalty programs, so members can earn points with each purchase. The
retailer also offers points to consumers using cobranded credit cards in the U.S. and
Canada. The points earned through the loyalty program are used by consumers to get
discounts on future purchases.
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BestBuy Co.
Corporate Governance
In 2012 BestBuy went through major corporate governance restructuring at top management
level. Mr. Hubert Joly became President and Chief Executive Officer in September 2012 and the
Executive Vice President, Chief Administrative Officer and Chief Financial Officer Ms. Sharon
McCollam was appointed in December 2012. The board of directors of BestBuy Co. is
comprised of directors in charge of appointing the Chairperson and the members of the Public
Policy Committee. The Public Policy Committee is composed of independent directors that meet
four or more times in the year depending on the discretionary judgment of the members. At the
end of March 2013, the company had 3,185 common stock shareholders. BestBuy offers
quarterly cash dividend to its shareholders. The dividend has grown by $0.10 USD to $0.17 USD
per share since 2012.
External Environment: PESTLE

Political-Legal factors
The BestBuy sales of its exclusive branded products represent an important component of the
companys revenue. Most of these products are manufactured under contract by producers based
in Southeast Asia. Although China and other countries-producers of consumer electronics are
somewhat politically unstable, almost entire economy is fueled by American and European
demand for consumer products. Unless there is a 75% decline in demand for consumer products,
this factor does not pose any serious threat to the companys business.
The company is currently under litigation regarding two class action lawsuits. The first lawsuit
was filed in February 2011 and alleges that corporate officers violated earnings guidance
regulations in 2011 financial statements. The second laws suit filed in June 2011 and claims
breach of fiduciary duty and failure to correct public misrepresentations and material
misstatements and/or omissions regarding fiscal 2011 earnings projections. Also the plaintiffs
declare that certain directors sold stock while in possession of material adverse non-public
information. This factor is not a serious threat as it is person-related and the company may and
will remove the individuals provoking negative publicity, invest further in positive publicity and
will overcome the short-term reputation damage.
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BestBuy Co.
Also, BestBuys encounters a liability for warranty replacements and repairs resulting from
product defects, while suppliers do not reimburse or cover such costs. In addition, BestBuy is
accountable for personal injury, death or property damage caused to customers by exclusive
brand products. These two factors require a serious financial analysis with access to privately-
owned information on brands, models, claims, lawsuits from consumers (if any), thus it is
impossible to evaluate these factors as posing threat to the company.
None of the above-described factors can significantly influence BestBuys business except for
the third group, which cannot be fully analyzed at this point.
Economic factors
North American slow economic recovery created uncertainty and reduced consumer spending in
2013. Low level of consumer confidence and perception of electronics as discretionary items
may have had a negative impact on historically expected high earnings in the fourth quarter of
2012. BestBuys is a seasonal business and relies heavily on revenues gained during holiday
shopping season in the U.S., Europe, Canada and Mexico. This is a strong factor against BestBuy
and unfortunately out of its reach to control it.
Vigorous competition in consumer electronics industry has considerably decreased revenues and
margins. There are several online businesses competing on price and driving everybodys prices
and hence revenue and profit down. This is another factor that inevitably undermines BestBuys
finances, however it is important to note that exclusive brands are responsible for a big part of
the companys revenue. This is sell-cheaper-strategy-proof for BestBuy.
Socio-cultural factors
In FY 2013 there was an increase in demand for tablets, eReaders, mobile phones and
appliances. At the same time, consumers were buying less of televisions, games and notebook
computers. In the same year BestBuy took full advantage of the consistent growth of ecommerce
by introducing their price-matching policy resulting in increased revenue and declining margins.
Customer traffic increased in the traditional bricks-and-mortar retail stores since price-conscious
customers analyzed the product in traditional stores and then purchased them online to take
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advantage of the discounted prices. Changing fashion is expected and plays in favor of BestBuy
as the company may and will change product offerings towards a higher-margin ones. Increased
traffic to physical stores will serve as additional promo tool as consumers will see the turn-
around. Thus both are positive for BestBuy.
Technological factors
Smartphones mobile purchasing capability is pushing boundaries between online and offline
retail. Consumers have twenty four hours access to stores by literarily just reaching into their
pockets. BestBuy has been able to positively embrace the current online purchasing customer
behavior by allowing consumers to shop, have personalized shopping lists, match competitors
prices, implement self scanning and self checkout and reward its customers with loyalty points.
Another step in the mobile purchasing industry is led by tablets. Recent research indicates that
by 2014, more than one in three American Internet users will have a tablet device, and 52 percent
of tablet owners prefer to shop online using their tablets. Another fashion trend is again positive
for BestBuy. Being a retailer and being able to switch, drop, add products to their online and
store displays is to BestBuys advantage that they absolutely have to jump on.
Environmental factors
These are not relevant to retailer, unless we look into the kind of suppliers BestBuy chooses and
what kind of requirements for environmental consciousness they have to meet.
Porters Five Forces

Threat of new entrants
The threat of new entrants in the consumer electronics market is medium to low. Even though it
is relatively easy for any small Asian electronics producer or a no-name electronics vendor in the
Americas or Europe to set up their website and start selling, there is a number of factors
preventing just about anybody from entering this market. First, advertising is costly; it takes a
long time to get recognized by potential consumers. Second, logistics is close to impossible to do
since one container shipment may take 6 months from China to US. Third, a huge initial
investment is needed to start the business, invest in the first production batch, advertising and
delivery to customers. This threat is virtually non-existent for BestBuy.
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Bargaining power of buyers

The bargaining power of buyers is high due to a strong competition from Internet-based
businesses, wholesalers, discount chains and home improvement superstores. Consumers have
numerous alternatives when purchasing online, therefore prices remain relatively low and profit
margins thin; as sellers compete among each other using a low-price strategy. The fact that
consumer electronics are non-essential products also increases purchasing power of consumers.
BestBuy is a disadvantage and has to do price-matching, eating into its margins, but they can
attract more people than other retailers due to repair and exchange guarantee, as well as
exclusive brands, as well as wide product line-up offered.
Bargaining power of suppliers

The bargaining power of suppliers is low due to the organization economy of scale. BestBuy is
the largest retailer of consumer electronics in the world and the tenth largest online retailer in the
North American market; therefore suppliers rely on BestBuys network to sell their products.
Moreover, BestBuy has the power of driving down purchasing prices, thus compensating or
limiting decrease in their margins.
Threat of substitute products

Threat of substitute products is low since BestBuy has a broad spectrum of consumer electronics
products the retailer offers. Suppliers need BestBuy to attain high volumes of sales; therefore
BestBuy will always have access to the latest technology and devices.
Rivalry among competing firms

Rivalry among competing firms is high. There is a strong price competition from brick-and-
mortar retailers and online operators. BestBuys main competitors are Amazon and Walmart.
These competitors product offers are more diversified into various types of products besides
consumer electronics, which makes them less category-dependent. Due to the wide selection and
similarity of consumer electronics products offered by all competitors, there is low customer
retention and strong competition for maintaining their market share.
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Other Environmental factors

Customers
BestBuy successfully changed from being a commission-based company to a fully-integrated
customer-centric company. BestBuy implemented customer-centricity strategy as a manner of
differentiating itself from competition. Over the years, BestBuy has acquired different companies
in other segments to serve customers better. For example, Magnolia Hi-Fi Inc. was acquired with
the purpose of targeting upscale customer segment. In FY 2012 the retailer acquired mindSHIFT
Technologies Inc. to be able to offer cloud services, data center services and professional
services. To change the consumer shopping experience, BestBuy bought Future Shop, started
operating dual brand to attract more customers. BestBuy sells consumer electronics products
online and in retail stores under different brand names. Due to the accelerated innovation in
consumer electronics, consumer demand shift from one consumer electronics product to another,
there is a need to respond to changing consumer preferences in a timely manner.
Competitors
BestBuy operates in a highly-competitive industry. BestBuys primary competitors are consumer
electronics retailers, such as Walmart and Internet-based businesses, such as Amazon. BestBuy's
competitors thrive to compete on price. The company works to beat its competitors by providing
excellent customer service and in-store experience; also BestBuy price match. In the U.S.
BestBuy has seen bigger impact from its online competitors due to the fact that online-only
businesses are exempt from collecting sales taxes in some of the states.
The following table provides comparison of BestBuy to their direct competitors.
Direct Competitor Comparison
BBY AMZN AAPL WMT Industry

Market Cap: 14.67B 150.28B 462.33B 246.47B 2.24B
Employees: 165,000 88,400 72,800 2,200,000 17.00k
Qtrly Rev
-0.00 0.22 0.01 0.02 0.11
Growth (yoy):
Revenue (ttm): 48.15B 66.85B 169.40B 473.00B 4.19B
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Gross Margin
0.23 0.26 0.38 0.25 0.30
(ttm):
EBITDA (ttm): 1.89B 2.92B 55.87B 36.65B 129.68M
Operating
0.02 0.01 0.29 0.06 0.01
Margin (ttm):
Net Income
-349.27M -101.00M 37.75B 17.09B N/A
(ttm):
EPS (ttm): -1.39 -0.23 40.11 5.14 -1.39
P/E (ttm): N/A N/A 12.69 14.74 31.28
PEG (5 yr
2.15 10.53 0.85 1.59 1.30
expected):
P/S (ttm): 0.30 2.25 2.73 0.52 0.31
BBY = BestBuy Corp.

AMZN = Amazon.com Inc.
AAPL = Apple Inc.
WMT = Walmart Stores Inc.
Industry = Consumer Electronics Stores
Source: http://ca.finance.yahoo.com/q/co?s=BBY
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Weighted
External Factors Weight Rating Comments
Score
1 2 3 4 5
Opportunities
Increased demand for tablets, The demand for these
eReaders, mobile phones and products increases
appliances. revenue.
0.10 3.50 0.35
Increased mobile purchasing Online retail is more
capability. accessible than ever, due
to increased capabilities
of cell phones and
0.10 3.00 0.30 tablets.
Short product life-cycle and Technology innovation
obsolescence. has reduced product life-
cycles and increased
product obsolescence.
0.20 2.00 0.40
Diversification of the business: This will increase profit
offering further supporting margin and overall
services along with the competitiveness.
products sold.
0.05 1.00 0.05
Threats
Slow economic recovery and Consumers are spending
reduced consumer spending. less due to high
unemployment rates and
economic instability in
North America.
0.10 3.00 0.30
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BestBuy liability regarding Current manufacturers of

warranty replacements and branded products do not
product defects. cover the cost of
defective merchandise.
0.10 1.00 0.10
The strong competition in the Internet-based business
low-cost strategy
0.20
decreased traditional
electronics industry decreases 2.50 0.50
retailers profit margins.
revenue margins.
Consumer electronics products Discretionary items sales
are discretionary items. decrease in times of
economic uncertainty.
0.15 3.50 0.53
Total Scores 1.00 2.53
Internal Environment
Corporate Structure
BestBuy is structured in a way that information travels from top to bottom. The CEO passes
information to company executives in which at this point information flow to the 3 main sub-
organizations. These 3 sub-organizations have their own management team headed by middle
management that connects top level management to regional managers. There are over 40
regions, each of which consists of districts. These districts each has its own district manager that
report to the regional manager. There are over 20 stores headed by General Manager in each
district. Each stores departments are overseen by a supervisor who answers to General Manager.
BestBuy has a good structure that allows communication from top to bottom through company
designed communication channels, such as Employee News Feed and email system. The
company develops a list of objectives, goals and duties, which employees must accomplish.
BestBuys chain of command is clear and easy to understand.
Corporate Culture
BestBuy corporate culture reflects change from traditional business methods to a more
contemporary and flexible work schedule. Their culture is the result of employees complaints
about the demanding nature of their work and is well-defined and consistent with knowledge-
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BestBuy Co.
based human-resource objectives. BestBuy introduced Results-Only Work Environment (ROWE),

which over time was adopted by all departments of the company except for the legal department.
ROWE allows employees to carry out their duties however they want as long they got the job
done. After the implementation of the ROWE program, the company experienced a rise in
productivity, reduction in voluntary turnover and increase in employee morale. The ROWE
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program enables manager to review and re-evaluate their relationship with their subordinates and
assess the level of stress they undergo. Managers then create a well-organized method of
communicating to employees more efficiently and gain deeper understanding of an employees
strengths and weaknesses. Despite being a multinational company, BestBuy successfully
integrated employees from acquired companies into its organizational culture.
Regardless of the success of the program, the current CEO Hubert Joly announced that the
ROWE culture would be totally revamped to a culture that encompassed accountability.
Furthermore, he stated that for accountability to be restored there was a need to have all
employees on board, something current corporate culture does not require. All employees will
have to work 40 hours per week with few exceptions. Joly believes this is the first step in
changing the basic corporate culture in BestBuy. (Source: Business Insider, 2013)
Corporate Resources
Marketing
BestBuy's current marketing objectives include meeting the technological needs of customers
and making products available to customers with end-to-end solutions. The current marketing
objectives are in line with the company's mission, strategy and policy. BestBuy strives to become
a service-oriented company. The company spends a large amount of money on advertisement in
print, TV and other media. Industry analytical reports state that BestBuy spent $913 million USD
in FY 2013, $995 million USD in FY 2012, $862 million in FY 2011. BestBuy offers customer
loyalty program that allows customers to earn points on purchases. These points may later be
redeemed towards future purchases. Currently this program is only effective in the U.S. and
Canada. BestBuy operates 1,503 domestic stores and 2,876 international stores.
Finances
BestBuys current financial objective is to increase revenue. BestBuy funds its operations by
cash and cash equivalents, short-term investments and cash flow generated from operations.
BestBuys revenue tends to be decreasing. In FY 2012, revenue was reported to be $51 billion
USD, whereas in FY 2013 it went down to $45 billion, in most part caused by decreasing sales.
The total revenue decline in FY 2013 was 2.1%. Sales declined 2.9% in FY 2013 vs. FY 2012.
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Cash
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flow was $1.5 billion USD in 2013. BestBuy needs to maintain enough liquidity to meet current
financial objectives and expand globally.
Further breakdown of 2.1% revenue decline in 2013 are shown in the table below.
Comparable store sales impact (2.8%)
Net store changes (0.2%)

Non-comparable store sales channels(1) (0.6%)
Impact of foreign currency exchange rate fluctuations (0.3%)
Total revenue decrease (2.1%)
During FY 2013 BestBuy made dividend payments in four installments, $224 million USD.
In terms of liquidity, for FY 2013 company managed the current ratio of 1.1x vs. 1.2x in 2012.
This means that the company's liquidity is declining which is not a good sign, if the retailer is to
maintain access to current credit facility as a source of external funding. BestBuy currently holds
$1.0 billion USD of 364-day credit facility and $1.5 billion USD of five-year credit facility.
Current financial condition of the company is deteriorating which is mostly due to the
inefficiency of maintaining global expansion.
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The following table summarizes the major ratios of BestBuy for the FYs 2011 - 2013.
1. Liquidity Ratios F/Y 2013 F/Y 2012 F/Y 2011
Current Ratio 1.1x 1.2x 1.2x
Quick Ratio 0.44x 0.39x 0.40x
2. Profitability Ratios F/Y 2013 F/Y2012 F/Y2011

Net Profit Margin -3.12% -2.43% 2.54%
Gross Profit Margin 24.1% 24.8% 25.1%
Return on Investment -21.43 -18.48 14.85
Earnings Per Share -4.63 -3.36 3.08
3. Activity Ratios F/Y 2013 F/Y2012 F/Y2011

Asset Turnover 2.49x 3.00x 2.78x
Inventory Turnover 4.39x 6.56x 6.61x
Accounts Receivable Period 8.94 Days 14.30Days 13.15Days
Accounts Payable Period 37.40Days 33.51Days 27.42Days
4. Leverage Ratios F/Y 2013 F/Y2012 F/Y2011
Financial Leverage (Average) 3.69 4.27 2.69
Source: http://ca.finance.yahoo.com/q/sec?s=BBY
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Human Resources
As of FY 2013, BestBuy employs 165,000 people globally. BestBuy employees are well-trained,
experts in their fields and offer the best quality services to consumers. The company works to
attract and retain its employees for the future. Employees are trained and educated about the
products offered in stores. BestBuy offers Stock Compensation Plans to all its employees under a
plan called "Omnibus Plan"1.
All employees are expected to comply and work towards BestBuy's objectives and mission.
Employees are permitted to buy the company's common stock at 15% discount from the market
price.
Research & Development

Consumer electronics industry experiences continuous innovation and technology advances.
BestBuy must be up-to-date with new products to allow it in adapting to the change in
technology and consumer preferences. BestBuy seeks to collaborate with new and existing
manufacturers to sell their products to enable it to be a one-stop-shop for consumer electronic
products. The stores are continuously changing their design to allow customers to interact more
with products and to allow the stocking of products efficiently. Research is done in customer
service as well to make sure their experience is at the best possible level. BestBuy also
continuously researches competitors pricing, to enable them in pricing competitively.
Operations & Logistics

BestBuy operates through its physical retail locations and its website. The retailer currently
operates in 11 different countries. BestBuy reported having 4,379 stores around the blobe. The
majority of BestBuy stores operate under the same standard procedure in terms of inventory
1
http://www.sec.gov/Archives/edgar/data/764478/000076447813000014/bby2013x10kt.htm#sA97A074035424C493
8E47AAECA5AC4F5
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management, customer relations, staff training, displaying of merchandise, product sales and
services, designed and controlled through the corporate management team. Products are shipped
to stores from distribution centers or directly from manufacturers to stores. The company
currently operates 35 distribution centers globally which allows it to efficiently transport the
products from the manufacturer to its stores. BestBuy has implemented a strategy to reduce the
cost of its transportation by forecasting store sales effectively, transporting fuller trucks, and
using railway as the most cost-effective means of transportation. Stores can also supply each
other with products in case of a stock out.
Information System
BestBuy is highly dependent on its information system to operate its business. The system
employed assists in running their operations at all management levels. Furthermore the system
aids in forecasting sales, provides an efficient supply chain management, processes transactions,
operates its ecommerce website and allows for efficient staff planning. All this has resulted in
revenue increase and lower costs. BestBuy is focused on growing its online sales. The website
has been redesigned and currently uses Oracles ecommerce platform to operate online sales.
BestBuy reported $477 million USD sales through its website in 3Q 2013. This is an increase of
10.5% compared to 2Q 2012.
26
BestBuy Co.
Strategic Alternatives
Internal Weighted
Weight Rating Comments
Factors Score
1 2 3 4 5
Strengths
Largest 0.10 5.00 0.50 BestBuys size and purchasing power
retailer of provides the company with a strategic
consumer advantage.
electronics in
the world
Exclusive 0.20 4.00 0.80 The organization has exclusive rights to
right to sell products such as music, and TV sets.
certain
products
Broad range 0.20 3.00 0.60 BestBuy offers a wide selection of products
of electronic and services.
product
offerings and
prices
Customer- 0.10 3.00 0.30 BestBuy provides an enhanced in-store
centric model customer experience.
Weaknesses
High 0.15 2.50 0.38 BestBuy spend considerable resources on
marketing advertising
cost
They are less 0.15 1.00 0.15 Walmart and Amazon do not rely exclusively
diversified on consumer electronic sales.
that its
competitors
27
BestBuy Co.
High cost of 0.20 3.00 0.60 BestBuy carries significant expenses

operations associated to employee overhead and stores
lease.
Total Scores 1.00 3.33

Make space available for a chain of popular fast food restaurants in all stores. Building lease will
28
BestBuy Co.
be partially offset plus BestBuy will be receiving a small percentage of the fast food chains
revenue. The restaurant must operate during regular business hours of BestBuy.
Pros
This will help to partially offset buildings lease costs.
The restaurant will attract more customers to walk into the store and will keep them in the
store longer.
A low-cost strategy to implement, it will be at the cost of the fast-food to set the
restaurant and the operation.
Cons
All stores will have to change the layout to fit the restaurant.
The restaurants food quality and service is controlled by a third party, and any bad
publicity can have a negative impact on BestBuy.
This move may lose more business to BestBuy due to store layout change, than bring new
business in. Unfortunately, this may be known once the restaurant is established.
Offer same-day shipping.
Pros
Provide customers with a service that would allow it to differentiate itself amongst its
competitors.
Corporate offices and businesses will be easy targets to take advantage of the service, this
will increase BestBuys customer base.
Compete against Amazon in a way thats very hard for them to implement, due to its
limited number of distribution centers around the country.
Increases sales to customers who are willing to pay the price and need an expedited
service.
Its a low cost strategy to implement, and can have a positive effect in sales.
BestBuy has the necessary infrastructure to efficiently implement this strategy, due to
29
BestBuy Co.
their retail presence in different cities.
30
BestBuy Co.
Cons
Stores must hold larger inventory on stock to prevent stock outs.
Customers dont walk into the store to purchase other items, only the products they need
are purchased.
Reduce profit margin if cost is passed onto to BestBuy.
If shipping cost is passed to the consumer, it will make the price too high for
competitiveness in the market place. Therefore, BestBuy would lose potential sales and
possibly market share.
BestBuy increases its product offering in private labels, particularly in kitchen and household
appliances.
Pros
Higher profit margins when compared to branded products.
Reduced dependence on branded products.
Exclusivity of the product, competitors will not have the same product.
Control over price, and marketing plans.
Cons
The setup of the private label has to go through intensive research, logo, brand name, and
design.
BestBuy must audit the quality of the manufacturers that will be used to manufacture for
their private label.
The quality of the product will impact BestBuy and not the manufacturer that produces it.
BestBuy trusting a third party to manufacture a product that will be sold under their
name.
There is no support from manufacturers in marketing and selling the product.
If the product does not sell, BestBuy will be responsible for liquidating the unsold
merchandise.
31
BestBuy Co.
Warranty of the product will be BestBuys responsibility.
Acquire a current third-party supplier that BestBuy uses to outsource its private label products.
32
BestBuy Co.
Pros
Higher profit margin due to backward integration.
Reduce dependence on third-party suppliers, and instead take control of the
manufacturing.
A stepping stone into consumer electronic manufacturing.
Have a competitive advantage over competitors who retail products manufactured by
popular electronic companies.
Have more control over the quality of its private label product.
BestBuy will be manufacturing consumer electronics products that already sell in all its
stores, allowing forecasting and supply of products to flow effectively from the
manufacturer to the retail outlets.
Reduce the cost of logistics and distribution due to the private label brands being
manufactured in one place rather than many different manufacturing plants.
Consistency in the quality of the product due to having a sole manufacturing plant for all
the private label brands.
Cons
Large investment in acquiring a manufacturer.
Dependence on products from one manufacturer. In case of disruption BestBuy will not
be able to be supplied with products.
Trade embargo and tariff rate changes can make manufacturing of the product in that
country unfeasible.
Recommended Strategy
BestBuy has been incurring losses since FY 2012. Competition in the market has been on the
rise, Market share is being lost to Walmart and Amazon due to low prices they offer. BestBuy
differentiates among competitors in concentrating on the service it offers to its customers rather
33
BestBuy Co.
than price. BestBuy will need to come up with a strategy to allow it to gain back the market share
back. They have done a number of strategic moves to maintain their position in the market by
34
BestBuy Co.
opening separate mobile stores, expanding to European and Asian countries and diversifying
their product offerings, but investors have lost the confidence in BestBuy to be able to come with
a strategy to turn the company around. Due to current challenges faced by BestBuy from
shareholders and both internal and external environmental factors, the strategy feasible and
viable to BestBuy current situation is vertical growth through backward integration. BestBuy
gets a third party to manufacture private labels it carries and backward integration will increase
the existing positive profit margin. BestBuy currently generates large portion of its revenue
through sales of product from its private label brand.
Although the retailers private label brand has the highest profit margin among other well-known
brands that it currently sells, it has the highest risk due to the low quality and the liability of the
product warranty is the responsibility of BestBuy. The company has a well-known brand in
consumer electronic retail and has one of the highest market share (over 19%) which will aid the
success of this strategy. BestBuy currently own brand names such as Dynex, Insignia, Init,
Rocketfish and Geek Squad which its uses to offer cost-competitive consumer electronics
product to the market. Warranty liabilities under these brand names are on BestBuy even though
the products are produced by outsourced manufacturer. Also BestBuy has a team that designs,
develops and tests consumer electronics products under these brand names. The qualities of these
products under its brand name are not controlled by BestBuy even though it is liable for any risk
caused by the usage of these products. Since the formula that drive BestBuy is to focus on better
solving the unmet needs of its customers, acquiring one of its third-party manufacturers to
produce product meeting the needs of consumers will differentiate from competition and give it a
stepping stone into consumer electronics manufacturing. BestBuy has the necessary
infrastructure and human resources experience needed to implement this backward integration.
Some of the consumer electronics products currently offered under its brand name include
televisions, car electronic accessories, Blu-ray, Home Audio and tablets. The demand for these
products is high and they accounted for large share of BestBuys revenue. Acquiring one of its
manufacturers to produce these products under one of its brand name will give BestBuy
competitive advantage in the market and will discontinue dependence on third-party
manufacturers of its private label products. This strategy will address BestBuys objective for FY
2014 to reduce cost of goods sold, increase profit margin, rise in stock price and end continuous
35
BestBuy Co.
net losses. BestBuy will undergo a corporate restructuring to integrate the newly-acquired
company.
Implementation
To successfully implement the recommended strategy, BestBuy should carefully analyze and
allocated the available resources. Also, BestBuy should carefully choose manufacturers as our
strategy is vertical growth through backward integration. Implementation of the recommended
strategy is followed by several stages. For this particular strategy implementation period would
be 3 years which can be subdivided into short, medium and long horizons.
The first stage is to allocate the budget and manage financial requirement for the
implementation. This is very crucial stage for BestBuy. The team responsible for strategic
planning should be able to convince the future success of recommended strategy to the
stakeholders and present information to related parties very effectively. Mission, vision and goals
of the strategy should be clearly stated to all employees. BestBuy currently holds cash and cash
equivalents of $1.2 billion USD and $1.5 billion USD of five-year credit facility. BestBuy also
holds long term investments, classified as available-for-sale securities. We believe that available
funds should be adequate to acquire electronics manufacturer. The second stage is to form a team
who are experts in the field and select three manufacturers in Asia and do negotiations with
them. The team will negotiate in terms of products, cost, quality and supply chains. The third
stage followed by this process is to determine what kind of products to offer and design of the
products. At this point BestBuy is looking to acquire a manufacturer who can supply various
consumer electronics products, such as TV sets, Tablets and E-Reader at one stop. The cost of
acquiring manufacturer is estimated to be $250 million USD. Acquiring a manufacturer who can
supply all these products will benefit BestBuy in various aspects of the business. This will create
consistency in the quality of the products that are being offered to customers under private labels.
This is another significant advantage BestBuy will achieve from this is economies of scale and
reduce dependency on third- party suppliers as BestBuy can have more control over its private
label manufacturers. Implementation of this strategy is in the best interest of the company and
excels the sales from existing and potential new customers. There should be very effective flow
of information between BestBuy and the manufacturer. The systems that allow manufacturer to
36
BestBuy Co.
integrate with
37
BestBuy Co.
BestBuy which can make the process of easier for products BestBuy needs in future. The fourth
stage of implementation is to train employees on what they are dealing with and also to provide
excellent customer service. The final stage would be to remain constantly innovative, be price-
effective and meet the needs of consumers.
Evaluation and Control

After the strategy has been successfully implemented, BestBuy must assess if the new strategy is
taking company in the desired direction. The evaluation of the strategy implemented is made
through series of actions. A detail survey has to be conducted by the company to figure out if the
customers are satisfied or not. Sales, Revenue and Return on Investment are also to be examined.
If the figures and trends show all these three elements of financial statements have increased and
created satisfactory results, it should be assumed that the strategy we implemented is doing well.
Corrective measures are to be adopted to fix any issues that are creating problems for the
company. (Please refer to page 19 to view pro forma statement)
Contingency
In case if the above recommended strategy does not perform well, BestBuy should adopt
alternative third mentioned above which is BestBuy increases its product offering in private
labels, particularly in kitchen and household appliances.
38
BestBuy Co.
BestBuy Co.
Pro forma Income Statements
For 2014 to 2015
2014 2015 2016

Revenue
Revenue Of Tv and E-Reader $2,418 $2,491 $2,541
Revenue Of Tablets $536 $568 $585
Net Revenue $2,954 $3,059 $3,126
Cost of goods Sold

Direct Material 531.72 $550.57 $562.65
Direct Labor 443.1 $458.81 $468.88
Factory Overhead $797.58 $825.85 $843.98
Manufacturers Margin $443.10 $458.81 $468.88
Total Cost of goods sold $2,215.50 $2,294.03 $2,344.40

Gross Profit from new factory $738.50 $764.68 $781.47
Income Realized from new Plant

Manufacturers Margin(from above) $443.10 $458.81 $468.88
Less: Cost of Investment ($250)

Gross Profit $193.1 $458.81 $468.88
Revenue for FY 2013 is $4085 (million) USD. This revenue consist of consumer electronics,
computing and mobile phones, entertainment, appliances, services and others. 33% of the total
revenue coming from consumer electronics consist of 65% revenue coming from TVs and E-
readers and 25% revenue is from BestBuy's private label brands. Computing and mobile phones
make up 44% of the total revenue out of which 19% is accounted for tablets and 30% from
private label tablets. The total revenue from TVs and E-reader comes to be $2,418 million USD
and tablets is estimated to be $536 million which makes the total amount to be $2,954 million
USD taking into account all other factors. The cost of goods sold which comprises of Direct
material, direct labor and factory overhead is forecasted for FY 2014 is $ 2,215 million.
Manufacturers margin of is then calculated to be $ 443.10 which after deduction of $250 million
39
BestBuy Co.
paid for investment gives a gross profit of $193.1 million.
References
1. http://www.aacstudents.org/informative-essay-example-exploring-the-organizational-
structure-of-best-buy.php
2. http://journalofinternationalmanagement.wordpress.com/2011/05/15/trusting-your-
employees-the-case-of-best-buys-rowe-program/
3. http://www.businessinsider.com/best-buy-ceo-workers-need-to-feel-disposable-not-
indispensable-2013-3
4. http://finance.yahoo.com/blogs/daily-ticker/best-buy-losing-best-chance-survival-jeff-
macke-181740101.html
5. http://www.forbes.com/sites/lauraheller/2012/03/29/best-buy-cost-cutting-to-profitability/
6. http://seekingalpha.com/article/941701-best-buy-corporate-governance-and-financial-
risk-heightens
7. http://businessfinancemag.com/risk-management/best-buy-needs-confront-its-residual-
risk
8. http://business.time.com/2012/11/01/brand-names-just-dont-mean-as-much-anymore/
9. http://www.computerworld.com/s/article/9220698/Best_Buy_rebuilding_IT_capability_it
_outsourced_starts_hiring
10. http://finance.yahoo.com/news/pf_article_112269.html
11. http://www.techspot.com/news/49294-best-buys-new-retail-layout-borrows-heavily-
from-the-apple-store.html
12. http://www.grinningcheektocheek.com/best-buy-new-store-format
13. http://online.wsj.com/article/BT-CO-20130821-710360.html
14. http://www.insigniaproducts.com/support/warranty.html
15. http://forums.bestbuy.com/t5/TV-Home-Theater/Insignia-offers-breakthrough-two-year-
TV-warranty/td-p/32782
16. http://www.forbes.com/sites/lauraheller/2013/04/30/best-buy-quits-carphone-warehouse-
bids-europe-adieu/
17. http://voices.yahoo.com/expanding-foreign-markets-international-operations-
2131554.html
18. http://www.extremetech.com/computing/112363-bye-bye-best-buy
19. http://vdonnell.pbworks.com/f/Best%2BBuy%2BStrategic%2BChange.pdf
20. http://www.businessinsider.com/how-best-buy-is-turning-things-around-2013-7
21. http://www.cnbc.com/id/100470877
22. http://phx.corporate-ir.net/phoenix.zhtml?c=83192&p=irol-irhome
23. http://www.investopedia.com/stock-analysis/062513/best-buy-ecommerce-its-savior-bby-
wsm-msft-aapl.aspx
40
BestBuy Co.
24. http://www.businessinsider.com/best-buy-e-commerce-presidents-3-step-plan-2012-10
25. http://ca.finance.yahoo.com/q/co?s=BBY
26. http://financials.morningstar.com/ratios/r.html?t=BBY&region=USA&culture=en-US
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BestBuy Co.

BEST BUY REPORT

Prepared by: Aziz Ghani & Sola Soetan

Other Environmental Factors 13

product, step 4 - train employees.

2. Enhance the multi-channel customer experience. To measure customer satisfaction

External Environment: PESTLE

Porters Five Forces

Bargaining power of buyers

Bargaining power of suppliers

Threat of substitute products

Rivalry among competing firms

Other Environmental factors

The following table provides comparison of BestBuy to their direct competitors.

Direct Competitor Comparison

BBY AMZN AAPL WMT Industry

BBY = BestBuy Corp.

BestBuy liability regarding Current manufacturers of

based human-resource objectives. BestBuy introduced Results-Only Work Environment (ROWE),

Net store changes (0.2%)

Total revenue decrease (2.1%)

Current Ratio 1.1x 1.2x 1.2x

Quick Ratio 0.44x 0.39x 0.40x

2. Profitability Ratios F/Y 2013 F/Y2012 F/Y2011

3. Activity Ratios F/Y 2013 F/Y2012 F/Y2011

Inventory Turnover 4.39x 6.56x 6.61x

Accounts Receivable Period 8.94 Days 14.30Days 13.15Days

Accounts Payable Period 37.40Days 33.51Days 27.42Days

4. Leverage Ratios F/Y 2013 F/Y2012 F/Y2011

Financial Leverage (Average) 3.69 4.27 2.69

Research & Development

Operations & Logistics

High cost of 0.20 3.00 0.60 BestBuy carries significant expenses

Total Scores 1.00 3.33

Offer same-day shipping.

their retail presence in different cities.

Warranty of the product will be BestBuys responsibility.

Evaluation and Control

Pro forma Income Statements

For 2014 to 2015

2014 2015 2016

Cost of goods Sold

Manufacturers Margin $443.10 $458.81 $468.88

Total Cost of goods sold $2,215.50 $2,294.03 $2,344.40

Income Realized from new Plant

Less: Cost of Investment ($250)

paid for investment gives a gross profit of $193.1 million.

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