Abstract report is to analyze what is happening

Abstract

 

Best Buy is one of the largest consumer electronics retailers in the world
with 19% share of the global retail consumer electronics market. Although
extremely successfull in the past, starting in FY2011 the retailer has been
reporting losses. The purpose of this report is to analyze what is happening
and how can company overcome its financial difficulties and emerge on as a
leader again.

 

 

Introduction

 

The purpose of this paper is to examine Best Buy’s strategies using EFAS,
IFAS, SFAS tables and Porter’s 5 forces Industry, SWOT, TOWS analysis.  It
proposes business strategies that can evolve Best Buy’s current organizational
problems and improve its competitiveness.

Best Buy is a multinational consumer electronics retailer founded in 1966 and
headquartered in Minnesota. The public company has operations more than 1,100
stores in United States with almost 115,000 employees. It also operates more
than 2,800 stores in Canada, China, Mexico and Turkey. The company has 19% of
US market as it’s main dominance.

The company provides home office products, entertainment software,
appliances, and related services. Consumer electronics is Best Buy’s largest
product category, which includes video and audio equipment such as television
sets, DVD players, audio systems, portable audio players, and car stereos. Home
office products include personal computers and related peripheral equipment,
telephones, cellular phones, copiers and calculators. Entertainment software
includes CDs, DVD movies, computer software, and video game hardware and
software. Appliances consist of washing machines, dryers, air conditioners,
dishwashers, ranges and refrigerators. In addition these four main categories,
the company offers residential and commercial computer repair, support,
installation and related services.

 

Since 2000, Best Buy made various strategic acquisitions in order to expand
it’s market both domestically and internationally. The company’s current
portfolio consists of 11 brands. The domestic acquisitions includes the U.S.,
and the international acquisitions includes Canada, Europe, China and Mexico.

    First brand is Best Buy which offers consumer
electronics, home office products, entertainment software, appliances, and
related services in the U.S., Canada, China and Mexico. Future Shop is
the second brand who is a Canada-based retailer also sells similar products as
Best Buy. Third one is Geek Squad, they provide residential and
commercial computer repair, support, installation and related services in U.S.,
Canada, China, and U.K. It operates in both Best Buy stores. Fourth
brand is a Seattle-based, high-end retailer of audio and video products, Magnolia
Audio Video. It operates also in both Best Buy stores. Jiangsu Five Star
Appliances is the company’s fifth brand, it’s the fourth-largest appliance
and consumer electronics retailer in China and they sell similar product line
like Best Buy. Sixth brand is The Carphone Warehouse which is the
Europe’s leading independent retailer of mobile phones and services.

Seventh one is Best Buy Mobile, it’s a U.S.-based retailer who sells
similar products like The Carphone Warehouse. It operates in both Best
Buy stores as well.
The eights brand is Pacific Sales, it’s a brand who offers kitchen, bath
and home improvement products in Southern California.

Speakeasy is the company’s ninth brand they are U.S.-based
provider of broadband, voice, data and information technology services.

The tenth one is also a U.S.-based commercial and residential video/audio
systems integration firm, Audiovisions. And Napster is the last
brand, it’s an online provider of digital music.

 

Company’s Mission and Business Model

The company’s mission and business model has shaped in customer-centric
way. Providing technology to its customers and helping them to realize the
benefits of technology and technological changes so they could enrich their
lives in a variety of ways through connectivity, “To make life fun and easy” as
Best Buy puts it. In order to achieve that the company improved their products
and created tools to help their customers. We see the effort especially on
their exclusive trainings to its employees who are intensely involving in
customers buying experience. While implementing that customer-centric model to
it’s business model the company deeply evaluated their customer’s by observing
their behaviors. As a result they identified and created 5 customer
segmentation;

1. Jill, the busy suburban mom who wants to enrich her children’s lives
with technology and entertainment.

 

2. Buzz, the focused, active, younger male customer who wants the latest
technology and entertainment.

 

3. Ray, the family man who wants technology that improves his life – the
practical adopter of technology and entertainment.

 

4. Barry, the affluent professional who wants the best technology and
entertainment experience and who demands excellent service.

 

5. BB4B (Best Buy for Business), the small
business customer who can use Best Buy’s product solutions and services to
enhance the profitability of his or her business.

It allowed Best Buy to meet with customer needs in each segment better by
training their employees and making stores more appealing those specific
customer segments. Sales were average of 7% higher, the percentage of shoppers
purchasing was 6% higher and eversince Best Buy constantly observes customer’s
behaviors and adapting it’s business model to gain growth.

PORTER’S 5 FORCES ANALYSIS

Barriers to Entry

The threat of potential new entrants into
the consumer electronics retail industry is relatively low. Athough to that the
potential pool of entrant is actually quite large as it consists of numerous
online electronics retailers. Since Best Buy has reputable brand name and good
relations with its customers with many stores and operations in both domestic
and international market it’s not a dangerous challange for Best Buy.  

Supplier Power

Moderate and Steady, since Best Buy had
few number of main suppliers for its most of the products in stores it creates
dangerous dependency on those suppliers which might a big disaster in order to
meet with customer demands if any of the main vendors fails to supply the
products.

Buying Power

It’s quite low effect because the cost of
buying electronic products is not a huge percent of a buyer’s budget, unlike
purchasing a house or car. Since the customers are in individual level they
will purchase one item of a specific product as a reason buyers actually do not
have big influence on prices.

Rivalry in the Industry

It’s often high and increasing. There has
always been competition between various electronic retail stores. Best Buy is
the dominant player in the industry especially in US market. Eventhough that
competiton comes from the cheap retailers like Wal-mart or online retailers
like Amazon. since the products are not differentiated buyers are able to get
similar products at almost all of the different electronic stores. Thus,
companies compete on prices and non-tangibles, such as customer service and
goodwill. In other hand, while economic situation turning down for companies
and pushing them to the brink of bankruptcy, competition is quite severe and
destructive.                

Threat of Substitutes

The substitute products that may take a
portion of the market share away from the consumer electronics retail industry
do no pose a huge or direct threat. Today’s society and culture places a lot of
emphasis on technology and is highly dependent on electronics. As a result,
there are few substitutes for electronics that will directly take their place,
such as books, magazines and other non-electronic hobbies to occupy people’s
time. Some of the main retailers of books are Barnes and Noble, Borders and the
online retailer Amazon.com.  

SWOT Analysis

 

 

 
Table 1: SWOT
Analysis                               

INTERNAL FACTORS

STRENGTHS (+)

WEAKNESSES (-)

 
·        
Customer orientation.
·        
Quality product and service portfolio.
·        
Domestic and international stores.
·        
Large customer base.
·        
Good warranty policy.
·        
Highly trained sales partners.
·        
Integrating employees from acquired
companies who are able to offer and provide installation services, product
repair, and ongoing support.
·        
Creating high quality in-store service
offerings for customers
·        
By constantly growing and increasing
company’s revenue
·        
Reputable brand nameand recognized by its
excellent product and service offerings
·        
Highly trained sales professionals had
become a unique resource to gain competitive advantage

 
·        
Marketing different product and services is
a difficult task have less location than Gamestop.
·        
Amazon.com was able to maintain a lower
cost structure.
·        
Netflix began offering streaming downloads
through its website.
·        
Depressing economic conditions,
technological advances and increased competition.
·        
Unexperienced  CEO.

EXTERNAL FACTORS

OPPORTUNITIES (+)

THREATS (-)

 
·        
Adaptation to changing customer.
·        
Developed Best Buy mobile by buying Pasific
sales.
·        
Expanding the product line constantly.
·        
Developments and changing trends in mobile
technology.
·        
Bankruptcy of Circuit City allowed a
tremendous opportunity for Best Buy to gain market share from competitors
scramble.
·        
Using database of customer information to
offer different products to match customer needs
 

 
·        
Saturation in TV market. Since the
television sales 77% of Best Buy’s  total sales revenue.
·        
Overwhelming promotional offerings from competitors Wal-Mart is 
the world’s largest retailer, with a focus on being a low-cost
provider.
·        
Wal-Mart  considered to offer
diverse products.
·        
Second tier competitors were rapidly increasing.
·        
Amazon.com was positioned perfectly with online shopping.
·        
Margins started to decrease with technology improved,product life
cyles and prices decreased.
·        
Growing popularity of the online market-place.

 

 

Internal Fix-It Strategy

BB must review spending in connectivity,
services, online, retail and home and pay specialattention to the power of
suppliers such as Apple, Dell, HP, etc. The corporation must re-vitalizeits
about new technology and perform an internal audit of how they areusing their
Big Data and Analytics initiatives to make thoughtful strategic decisions. It
isimperative that BB take advantage of its own consumer insights and market
intelligence toanticipate changing trends.BB does not have a published mission
or vision statement on its website. The organizationshould create a new,
compelling mission and vision that gets employees excited, re-energized
andengaged. In addition to closing non-performing stores, the use of in-store
square footage and the company’s pricing strategies must be reviewed. To be
competitive, a clarification of value streamsis needed (i.e. for OE treat
stores as additional channel of distribution; for CI ensure items areavailable
to deliver when purchased by the consumer, empower associates, custom
choicesthrough online near infinite selection etc.

 

 

 

External Fix-It strategy

BB needs to rethink its strategy for new
markets and cultivate plans to integrate culturaland economic factors by
developing specific entry strategies for emerging markets that have agrowing
discretionary income and a desire for electronic status symbols. This should be
done byleveraging a concentric diversification strategy ix and understanding
how other cultures use retailand mobile technology differently than North
Americans (i.e. mobile payments, money transfer,pay as you go, etc.) BB may
face state owned or supported monopolies in mobile technologies.Thus, it must
explore cooperation with state capitalism drivers as a market penetration
tactic.In an effort to capture early adopters and be perceived as a progressive
company, they should seek exposure to a captive social media community of
people in public relations, journalism,advertising, music and film who can
championBB’s brand and create opportunities to expand the enterprise’s
affiliate marketing channel reach. This will differentiate BB from Wal-Mart,
Apple,Amazon and others. BB must also ideate innovative strategic alliances and
partnerships with othercompanies and organizations that align with the brand.

 

 

 

Company Strategies

·        
As Best Buy’s cost
was boosted by high-level training for its affiliates and service
professionals, it was important for the company to remain vigilant to reduce
costs without compromising customer experience.

·        
Best Buy’s
electronics have become a unique source of industry and an important source of
competitive advantage.

·        
To increase sales
revenue, many retailers, including Best Buy, have offered low interest
financing to their customers with private label credit cards. These promotions
were successful at Best Buy. From 2007 to 2009, these private brand credit card
purchases accounted for 16-18% of Best Buy’s internal revenue.

·        
Whether Best Buy and
other retailers were expanding these credit lines could have had a huge
negative impact on future revenues.

·        
Best Buy has tried to
keep up with the demand for brick-and-mortar sites and offer value-added
services from stores that compete against the Internet-based competition
threat. Customer service, repairs and interactive product screens were just a
few examples of these services.

 

 

Recommendations

Although the Best Buy’s sales force is one of
the primary aspects of the company’s model that sets it apart from online
retailers, it is also one of the company’s biggest disadvantages. A salesforce
that can barely justify the cost of its own maintenance – a present reality for
Best Buy’s sales force – is nothing but dead weight for a retailer. If the
sales force cannot perform, then underperforming aspects of that sales force –
whether entire departments or individual employees – need to be trimmed from
the company’s list of expenses.

Best Buy’s recent move of shifting loss
prevention associates to the sales floor is probably a losing decision for the
company. In the status quo, Best Buy stores show no lack of salespeople of
every kind and variety – and they simply don’t seem to be able to convince enough
customers to make their electronics purchases at Best Buy. Worse, the sheer
number of employees that Best Buy must keep on staff to cover its sprawling
stores – most of which exceed an acre in floor area – is a major contributing
factor in the company’s inability to match the prices offered by online
retailers, recently
however, this has been turning around.

Though a sales force of some sort needs to be
maintained, it needs to consist of solely top-performers from the existing
sales force. Since US consumers seem quite content with the necessarily “self
service” shopping model implemented by online retailers, Best Buy could adapt
to running its stores with less employees by expanding the amount of
information provided on product demonstration displays, and perhaps by placing
touchscreen computer terminals that answer “frequently asked questions” about
each category of item offered on the store’s showroom floor. These measures
should only be implemented in a way that is comparatively less expensive than
employing the workforce that they are intended to compensate for.
    

We believe that some
of the following strategic moves might be required:

·        
The company should
consider a merger with rival Amazon

·        
Explore new ideas and
unique integration with suppliers?

·        
Close the least
profitable stores and invest the resources in further vertical integration

·        
Evaluate use of
in-store square footage and consider leasing space in the corporate office

·        
Assess internal spending,
financing and hedging to protect against currency risk

·        
Review pricing
strategy since a big portion of profits is derived from margins onaccessories,
home theatre and extended warranty protection

·        
Review debt
financing, cost of capital and capital structure