University of Chicago
Type of paper: Thesis/Dissertation Chapter
Best Buy Project Company Analysis
Best Buy Co. was founded in 1966 by Richard Schulz under the name Sound of Music. The company headquarters are located in Minnesota, and the company is the largest retailer of consumer electrical appliances in the US with more than 1200 stores (Wikinvest, 2012). In FY2008, the company had net revenue of $40 billion. Financial crisis that proceeded in 2008 had a significant impact on the consumer behavior and consequently affected electronics market. The electronics market is subject to discretionary purchases and therefore prone to downturns. Some of the competitors of the company such as Circuit have filed for bankruptcy in the recent past while Best Buy has been prospering. Best Buy also benefits from Repair services and Installations. These services cushion the company against recessions since the company is viewed by many people as a necessity rather than commodity. Brands of the company include Best Buy Mobile, Best Buy, Pacific Sales, Geek Squad, and Magnolia Audio Video (Bensen, Haddi, Fitzsimmons & Marotske, 2012).
In 2001, the company became an international company after it acquired Future Shop that was the market leader at the time. The company entered into china, one of the largest consumer markets in the world, in 2006 after it acquired Five Star Appliances. Consumer electronics constitute majority of the company sales with more than 41% income (Wikinvest, 2012). The company generated more than 17% revenue from China and Canada in 2008. Even though the firm has recorded consistent increase in the international operations, they have proven to be less efficient than domestic operations and only managed to contribute a meager 2.4% in operating margin. There are also partnerships between Best Buy and some other companies such as Carphone Warehouse, which is the largest retailer of mobile phones. The company has opened stores in the United Kingdom, Mexico, and Turkey.
Best Buy has had good and bad times just like most businesses. In 2004, the company scooped Forbes award for the best company of the year. In 2001, it won an award as the Specialty Retailer of the Decade given by Discount Store News. In 2006, the company was ranked by Fortune as one of the most admired firms in the US. In addition, the company was also ranked among top ten most generous companies by Forbes in 2005. The company was the sole supplier of electronics in 2009 both online and brick and mortar after Circuit City filed for bankruptcy and went out of business. The main competitor to Best Buy in Western United States remains Fry’s electronics. Best Buy offers both in-store pickup and online marketing. Buyers are also able to purchase electronics online and use their preferred delivery means (Bensen, Haddi, Fitzsimmons & Marotske, 2012).
An analysis of the strengths, weaknesses, opportunities and threats facing the company is crucial as it makes understanding the future of the enterprise. In terms of strengths, the company has shown willingness to adopt multiple approaches and solutions. Such a move is critical as technology and economy climate are always changing. The company operates on a decentralized structure and therefore branch stores do not have to wait for decisions from the central management. This fastens the decision making process and hence creating a better management. The company has also managed ti create local market familiarity. In cities such as Chicago, certain products are found i.e. Jewel. Another major strength of the company is that it has up to date information on distribution and logistics from its wholesale businesses. Best Buy also has the capability and capacity to create supply chains across the US. Best Buy also has a variety of store brands and regional banners and therefore customers have a wide range (Abhijeet, 2010).
Weaknesses: Best Buy lacks shopper data for targeted market programs or local insights. This can be a big hindrance as customer communication is critical in satisfying their needs. Best Buy also has an underdeveloped marketing expertise (Abhijeet, 2010). The company’s online presence has been surpassed by even smaller companies. Online marketing has proven to be the most common in modern day with the current technological advancement. Best Buy also faces challenges in alignment of the divisions of the organization. The retail systems are poorly integrated. The company also experiences difficulties due labour expertise in short supply experienced in the store operations. The company also has high overhead costs and consequently may go out of business.
Opportunities: Best Buy has a leverage card program for its loyal clients. Such a program attracts more customers as they provide shoppers with deeper insight of the company. The company’s ability to create nationwide supply chains is also an opportunity. Such ventures can result in increased sales. Best Buy can also benefit from centralization of its operations. Centralization will lead to better coordination of the activities of the company (Abhijeet, 2010). There is also a potential of increased sales if the company was to focus on higher-margin retail business. Some of the other departments the company can concentrate on organics. Best Buy can also create national banners as a way of improving its marketing strategy. The company can also benefit from the leverage acquired from the acquisition of Albertsons in West Coast, and, therefore, expanding the scope of its operations.
Threats: one of the biggest threats facing Best Buy is the high leverages it experiences. History has it that companies with great leverages have higher levels of fixed costs. Consequently, such firms tend to experience more significant break-even points than companies without leverages (Abhijeet, 2010). The only benefits Best Buy can have from such an arrangement is that its sales may increase beyond a break-even point. The companies also face competition from Wal- Mart Super competition in most key markets. The fact that the primary system of management is decentralized; there are challenges of dependency on local management managerial skills, which may lead to failure of some stores. Decentralized management also lacks an established integration of systems. The wholesale business is not appropriate for many customers, and Best Buy risks are losing customers. There are also possible operation failures which can result in centralization operations in an attempt to establish standardization.
The current operating system comprises of both domestic and international markets. The domestic market generated the highest revenue with over 83% of the market share while International markets generates the least with approximately 17% in 2008. The domestic market comprises of all retail stores in the United States including Geek squad, Speakeasy, Best buy, Best Buy Mobile, Bath, Magnolia Audio Video and Pacific Sales Kitchen. However, the domestic market experienced slower growth rate as compared to the international market. The international segment of the market mostly comprises of Canada and China, even though there are newcomers such as the United Kingdom. Some of the main stores in the international market include Future shop, Best Buy, and Geek Squad in Canada while there is Best Buy and Jiangsu Five Star in China. In FY08, the international market contributed to 17% of the total revenue. In the same year, sales grew by 37% more than the previous year (Wikinvest, 2012).
Future Shop and Best Buy deal in Consumer electronics and services such as installation and repair. Future Shop was acquired in 2001. Geek Squad retails stores deal in computer technical services, and these are mostly standalone systems. These retail stores were acquired in 2002. Best Buy Mobile specializes in Cell phone Sales and Services, and was acquired in 2008. Magnolia Audio Video specialized in home theater and related services and was acquired in 2000. Pacific Sales Kitchen and Bath specializes in remodeling homes and related products and services, and was acquired in 2005. Jiangsu Five Star Appliances were acquired in 2006 and these stores specialize in appliances and consumer electronics. Speakeasy was acquired in 2008 and deals in information technology services.
Since mid-2007, consumers have been keen on their spending habits, cutting expenses on unnecessary items such as video games and flat screen televisions. Even during such turbulent times Best Buy still managed to record an increase of up to 13% in 2008 while firms such as Dick’s Sporting Goods recorded depreciation in sales (Best Buy Project Analysis, 2013). After the global financial crises in 2008, Best Buy was still able to record a 16% ($11.5 billion) in 3Q 2009. In expanding its services to increase its profit gains, BBY has acquired Geek Squad, which specializes in computer and consumer electronics technician service subsidiary. Geek Squad contributed 4% of the total revenue in 2007 (Wikinvest, 2012). However, the business has a high operating margin (10-20%). Best Buy also started in-house Geek Squad areas and consequently there has been a cut down on the existing stand-alone Geek Squad locations in the US.
Some of the other services introduced to generate more income include Best Buy Mobile and Home Installation. Best Buy Services specializes in selling and servicing cellular phones. Having been launched in 2007, Best Buy Mobile operated 14 stand-alone locations and more than 599 in-store concept areas. It is Best Buy Mobile that joint a venture with Carphone Warehouse, the largest retailer of mobile phones in Europe, with the aim of setting up Best Buy stores in Europe. Home installation is offered through several venues such as Magnolia Home Theater centers, Best Buy in-store employees, and Magnolia Audio Video stand-alone stores within Best Buy stores (Best Buy Project Analysis, 2013). Most of the installation sales are from consumers who purchase items such as flat televisions and require assistance in installing their new devices.
As the leading retailer of consumer electronics, digital to analog migration across the globe will be beneficial to the firm. The firm has been focusing on the retailer market mostly in Canada, China, and Europe to boost its sales (Bensen, Haddi, Fitzsimmons & Marotske, 2012). Best Buy also partners with a company such as apple as a third party retailer of its products. The first initiative was selling Apple’s 3G iPhone.
In Conclusion Best Buy needs to reduce its overhead costs to avoid going out of business. The firm also needs to improve its marketing strategy and online presence. Based on the varied nature of the services offered by Best Buy, the firm can benefit greatly from restructuring and improve their customer relations. The leadership structure may also benefit from changes. While some financial experts and analysts recommend that the firm should be privatized due considerations should be made before further decisions. Early restructuring may minimize occurrences such as massive layoffs and stores closing
Abhijeet S. (2010). SWOT ANALYSIS ON Best Buy Co. Management Paradise. Retrieved from http://www.managementparadise.com/forums/principles-management-p-o-m/208348-swot-analysis-best-buy-co.html
Best Buy Project Analysis. (2013) StudyMode.com. Retrieved 06, 2013, from http://www.studymode.com/essays/Best-Buy-Project-Analysis-1749089.html
Bensen, S., Haddi, El, A., Fitzsimmons, F., Hussein, A., & Marotske, H. (2012). “Best Buy Corporation: Strategic Management Analysis.” Strategic Management. Retrieved from http://www.academia.edu/2377926/Best_Buy_Corporation_Strategic_Management_Analysis?login=&email_was_taken=true
Wikinvest. (2012). Wiki Analysis. Retrieved from http://www.wikinvest.com/stock/Best_Buy_%28BBY%29