MHE-FTR-076
1264124317
FEBRUARY 4, 2023
FRANK T. ROTHAERMEL
DAVID R. KING
Best Buy Co., Inc.
After being promoted from her position as chief financial officer, Corie Barry has just completed her third year
as Best Buy’s chief executive. Barry replaced Hubert Joly, who served as CEO beginning in 2012 and resigning in
2019; he remained as Chairman of the Board until 2020.1 Hubert Joly is credited with Best Buy’s adapting to online
competition from Amazon that forced other retailers (e.g., RadioShack, Sears, and Toys-R-Us) into bankruptcy.
Hubert Joly’s strategy was to leverage Best Buy’s physical stores to engage customers in “high touch” products and
offer competitive prices. Joly also focused on Best Buy offering complements, such as recycling and in-home installation, to further engage with customers. Additionally, in 2013, Best Buy pioneered the “store-within-a-store” concept, initially with Samsung, to highlight its products within Best Buy locations.2
Under Corie Barry, Best Buy has continued to increase sales revenues and profit (Exhibits 1-4); however, Best
Buy’s stock performance has been volatile, yet outperforming the S&P 500 index3 (Exhibit 5). Best Buy’s share price
initially fell at the start of the Covid-19 pandemic in 2020 but then rapidly rebounded as Best Buy benefited from
additional technology spending to facilitate working from home. In response to the pandemic, CEO Barry acted
quickly. First, 51,000 employees were furloughed with four weeks of pay as stores were closed.4 Next, Best Buy
increased inventory and set up an operating model of customer curbside pickup for orders. However, in 2022, the
firm’s stock price fell as Best Buy suffered from having too much inventory and the inflationary pressures placed on
consumers.5
As CEO, Corie Barry continues to confront multiple challenges. Firstly, competition in the consumer-electronics
industry remains cut-throat, making it difficult for Best Buy to meet expectations for continued performance. Secondly, Best Buy depends on consumer electronics, a product category experiencing supply chain problems.6 The
impact of supply problems is more significant for Best Buy, as a handful of suppliers (Apple, Samsung, HewlettPackard, Sony, and LG) provide over half its inventory.7 Thirdly, unemployment remains low, and retailers, including
Best Buy, face challenges in recruiting and retaining employees.8 Best Buy’s “high touch” approach to retail rests on
attracting and retaining qualified employees. Any of these challenges would be a formidable challenge for a CEO,
and Barry is confronting these and others concurrently. For example, consumer electronics sales fell 9.9% between
July 2021 and July 2022.9
Inflation & supply chain = megatrends
Professors Frank T. Rothaermel and David R. King prepared this case based on public sources; it is not intended to be used for any kind of endorsement, source of
data, or depiction of efficient or inefficient management. The authors gratefully acknowledge Professor Arthaud-Day’s contribution to an earlier version of this case.
All opinions expressed, and all errors and omissions, are entirely the authors’. © by Rothaermel and King, 2023.
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or 800-988-0886 for additional copies.
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Brief History of Best Buy
Together with his business partner James Wheeler, Richard Schulze founded Sound of Music, an audio specialty
store, in Minnesota in 1966. The fledgling company ended its first fiscal year with gross sales of $173,000 and grew
rapidly. By its initial public offering (IPO) in 1969, the hometown enterprise had acquired two local competitors and
opened two new outlets near the University of Minnesota in downtown Minneapolis.
Schulze bought out Wheeler in 1971,10 shortly after Sound of Music hit the $1 million mark in annual revenues.11
Subsequent years saw continued expansion through additional locations, new product lines, and novel promotional
techniques. For example, in 1979, Sound of Music became the first video and laser-disc equipment supplier from
companies such as Panasonic, Magnavox, Sony, and Sharp. After a tornado hit the Roseville, Minnesota, store in
June 1981, the company responded with a “Tornado Sale,” which became an annual event, storm or no storm. This
strategy boosted Sound of Music’s average sales per square foot to $350, compared with an industry average of $150
to $200.
ARRIVAL OF THE SUPERSTORE
With ambitions to capture an even larger market share, Sound of Music changed its name, in 1983, to Best Buy
Co., Inc. Then, it adopted its now-familiar superstore format, with an increasingly diversified product range. Boosted
by an infusion of cash from a series of public offerings, Best Buy grew from eight to 24 stores and saw revenues
increase from $29 million in 1984 to $290 million in 1987.12 On July 20, 1987, Best Buy made its debut on the New
York Stock Exchange (NYSE: BBY) with an initial offering of 8.3 million shares of common stock.
Best Buy changed its logo to the yellow tag in 1987, and its stores adopted a “grab-and-go” store format called
Concept II in 1989. Schulze’s revolutionary new approach to big-box retailing combined Walmart’s prices and Circuit City’s assortment within a shopping warehouse with a 35,000-square-foot footprint.13 The new stores consisted
of well-stocked showrooms with self-help information so that people could make their product selections independently and check out in a single stop. Answer Centers were still available for people who desired assistance, but
salespeople no longer needed to attend to each customer or fetch merchandise from storage. This change reduced
Best Buy’s employment costs by one-third, compensating for the corresponding de-emphasis on service contracts.
One analyst called Concept II “the most innovative thing to happen in this industry—ever.”14
However, Best Buy’s store format has continued to evolve. Before the pandemic, it focused on Concept IV stores
with an open floor format and cash registers throughout the store and dedicated space for vendors.15 In response to
the pandemic, employees operated “virtual stores” where they provided product demonstrations and engaged with
customers using video chat.16 Its store locations then offered curbside pickup of customer orders. In 2022, Best Buy
unveiled a small format, the digital-first store in Charlotte, NC, to exploit this trend.17
GROWTH THROUGH ACQUISITIONS
Beginning in 2000, Best Buy started using acquisitions to expand, and from 2000 to 2012, it grew revenues from
$12.5 billion to nearly $51 billion.18 The company first purchased Magnolia, a high-end consumer-electronics chain
with 13 locations throughout Washington, California, and Oregon, for $88 million in 2000.19 The following year,
Best Buy purchased Musicland for $425.1 million. The acquisition of the mall-based music and entertainment
retailer gave Best Buy access to 1,300 stores across the United States and Puerto Rico, including 650 Sam Goody
and 400 Suncoast Motion Picture outlets. In 2002, the company acquired Geek Squad, a 24-hour computer-support
task force. By 2004, Best Buy had opened a Geek Squad in every store.20
2
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In contrast to the rapid expansion of Geek Squad, Best Buy divested Musicland, in 2003, due to declining sales,
increased competition from Walmart and Target in the CD segment, and iTunes in the digital music segment. Sun
Capital Partners Inc., a private equity firm, purchased the failing firm for only the assumption of Musicland’s debt
and lease obligations. Brad Anderson, who succeeded Schulze as CEO in 2002, described the Musicland venture as
“a very expensive but powerful learning experience for Best Buy.”21
Best Buy desisted from additional acquisitions for two years before purchasing AudioVisions, a custom integrator
of electronic products such as flat-screen TVs and security solutions, in 2005.22 In December of that same year, Best
Buy acquired Pacific Sales, a Los Angeles–headquartered company specializing in selling premium kitchen appliances, for $410 million.23 In 2007, Best Buy announced plans to purchase Seattle-based Speakeasy Inc., a broadband
and VoIP services provider, for $97 million.24 This transaction was followed by the 2008 announcement of Best
Buy’s acquisition of Napster for $121 million in cash to compete with Apple’s 70% share of the digital-music marketplace.25
In 2008, Best Buy also acquired Dealtree, which became the backbone of Best Buy’s customer return, trade-in,
and liquidation programs.26 In 2011, Best Buy bought Mineshaft to move into managed IT services that were abandoned by 2014 through the divestment of Mindshift as a wholly owned subsidiary of Ricoh.27 Under CEO Joly’s
tenure, Best Buy did not make any acquisitions but divested its operations outside North America. As CEO, Corie
Barry has completed acquisitions, including the purchase of Yardbird to expand into outdoor furniture in 202128,
and both Critical Signal Technologies in 2019 and Current Health in 2021 to expand into health technology remote
patient monitoring.29
FAILED INTERNATIONAL DIVERSIFICATION
Best Buy had expanded internationally before refocusing on the North American market, and in 2022 only 7.4%
of its sales were international.30 Its first cross-border expansion was the 2001 acquisition of Futureshop Ltd., a Canadian electronics chain.31 Later, Best Buy strengthened its Canadian presence by opening 77 of its branded stores.32
Best Buy also established a presence in Asia with its 2006 acquisition of a majority interest in the retail chain Jiangsu
Five Star Appliance Co., Ltd., China’s fourth-largest appliance and consumer-electronics retailer, for $180 million.33
In 2007, the first Best Buy store in China—touted as the largest one—opened in Shanghai,34 and stores in other
regions quickly followed. By 2008, Best Buy had announced the opening of its first pilot stores in Mexico and
Turkey, as well as multiple branded superstores in the United Kingdom and other European countries.35 However,
Best Buy’s international expansion largely failed, and Best Buy exited Turkey in 2011,36 the United Kingdom in 2011,
all Europe in 2013,37 and China in 2014.38 In 2022, Best Buy only has a presence in North America (US, Canada,
and Mexico).
LEADERSHIP CHANGES
After having only two CEOs in its first 43 years of operations (Richard Schulze and his successor Brad Anderson), Best Buy went through three top leaders in six months in 2012.39 Brian Dunn assumed the helm in June 2009
and began trying to turn Best Buy around. Dunn planned to open 600 to 800 new Best Buy Mobile stores, focusing
on smartphones and other mobile devices.40 The goal was to increase the number of retail points of contact while
decreasing square footage, thereby increasing the company’s flexibility as a multichannel retailer.41 He also expanded
Best Buy’s online offerings by more than 20,000 items to broaden its “virtual” footprint.42 However, Wall Street was
not satisfied, and the company’s stock price continued to decline, as analysts felt Dunn was not aggressive enough in
shutting down underperforming units. When Dunn announced his resignation in April 2012 after 28 years as a Best
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Buy employee, many assumed it was due to the company’s financial woes. In reality, he left amid a board investigation into allegations of personal misconduct (a close relationship with a female employee).43 Ultimately, the independent investigators determined that there had been no misuse of company resources, but Dunn’s poor judgment and
lack of professionalism contributed to a hostile work environment.44
The fallout did not stop there. Richard Schulze, who was then serving as Chairman of the Board, stepped down
from his position at the June 2012 board meeting. The board “expanded his role” by granting him the honorary title
of “Founder and Chairman Emeritus” and permitted him to finish his term as director, lasting until 2013. The investigative report indicated that Schulze had learned about Dunn’s actions, confronted him, and warned him that such
behavior was contrary to company policy. However, he had dropped the issue when Dunn denied the allegations. To
rectify this breach of ethics, the board named Hatim Tyabji, chair of the audit committee, as the new Chairman and
hired an external consultant to run the search process for a new CEO.
Hubert Joly from France was appointed Best Buy CEO on August 20, 2012.45 In previous jobs, Joly had engineered successful turnaround strategies for Vivendi and Carlson Wagonlit Travel,46 and he saw no reason why Best
Buy should be different. Still, several investors were not happy with his appointment. Some saw Joly’s lack of retail
experience as a significant limitation, while others wondered if the company had rushed the search so that it could
proceed with its restructuring plan.47 However, by 2015, Joly began to win respect for his turnaround efforts. Hubert
Joly’s success received external validation by his selection as the “retailer of the year” by Forbes for 201648 and his
remaining as Chairman of the Board after selecting Corie Barry as his successor.49
Corie Barry was born in Minnesota, where Best Buy is headquartered, but she grew up in Texas with her father
and stepmother, self-employed artists who sold art pieces at fairs.50 The experience gave Corie a background in sales,
but it also led her to want more structure in her life, which she found initially at school. After college, Barry worked
as an auditor for Deloitte & Touche LLP before joining Best Buy as a Financial Analyst in 1999.51 She stayed at Best
Buy despite challenges and viewed Hubert Joly “as a breath of fresh air” that rejuvenated Best Buy and her interest
in the company.52 Within her first year as CEO, Corie Barry had to adapt to the Covid-19 pandemic. The new CEO
emphasized safety and used the stores as curbside pickup locations. She has also overseen acquisitions to move Best
Buy into digital healthcare.
Consumer-Electronics Retail
BRIEF HISTORY
The consumer-electronics retail industry grew rapidly in the second half of the 20th century due to several converging trends (Exhibit 6). At the end of World War II, a significant portion of the U.S. population migrated from
cities to suburbs, creating a need for suburban retail centers. At the same time, the cost of technology decreased,
leading to an increase in demand for televisions and other consumer electronics. Many of these new customers were
price-sensitive; first-time homeowners willing to accept reduced customer service in return for lower prices, which
led to rapid growth in discount stores.53
As the children of the WWII generation—the baby boomers—reached adulthood in the 1970s, demand for consumer electronics soared. Retailers shifted from carrying just one or two lines of equipment toward stocking a
diverse set of product lines. Strong industry growth continued through the late 1980s until the new video cassette
recorder (VCR) market became saturated, and recession slowed consumer sales. By 1991, 98% of all homes had a
color television (TV), and 77% of those owning TVs also owned a VCR. The United States alone had at least 10,000
radio, TV, and consumer-electronics stores that had sprung up to meet the surge in demand. With market saturation,
4
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however, growth in the 1990s was limited to replacing and upgrading existing devices. As a result, competition intensified, and many companies, such as Highland Superstores Inc., left the electronics market.
Technology advancements and improved economic conditions in the mid-to-late-1990s again led to a period of
growth that supported the rise of large superstores such as Best Buy and Circuit City. In 1998, sales at Best Buy and
Circuit City increased by 21% and 48%, respectively. Around this time, the industry faced yet another significant
disruption—the birth of online retailing.
In 1998, Amazon.com, a new competitor, entered the consumer-electronics market by offering music CD sales
online.54 Not willing to cede this potentially lucrative market, Circuit City, Tweeter Home Entertainment Group, and
Outpost.com all opened online consumer-electronics sites within the next year. Best Buy followed suit with Bestbuy.
com in 2000, making a relatively late move in e-retailing.55 However, CD sales were decimated following Apple’s
iTunes success, allowing consumers to buy only the songs they wanted and play them all on an iPod. As a result, Best
Buy shifted away from music sales and increased its reliance on selling consumer electronics.
An additional way Best Buy adapted to be able to offer lower prices and minimize customers buying products
elsewhere was by developing private label products. For example, under its Insignia brand of televisions, Best Buy
builds televisions based on the leftover parts from manufacturers for the prior year.56 Best Buy has a portfolio of
other private-label brands (i.e., Dynex, Init, Rocketfish, Geek Squad) as part of its defenses against online competitors.57 Dynex offers a variety of economically priced computer and entertainment accessories, such as storage media,
data and power cables, webcams, and office supplies. Init provides storage solutions for products made by both
Insignia and Dynex, including media storage, equipment bags, totes, and furniture for home theaters. Rocketfish’s
high-end cables are predominantly used in home-theater installation and setup, as well as on computer accessories.
These product brands complement larger purchases by consumers by offering them lower prices for accessories and
higher profits for Best Buy. The Geek Squad provides both computer repair and installation or complementary services to consumer hardware purchases.
Best Buy has also leveraged a commitment to environmental sustainability and corporate social responsibility by
recycling electronics.58 The company’s electronics recycling program has kept over 2 billion pounds of equipment
out of landfills.59 Initially, its recycling program turned a profit. However, lower commodity prices reduced revenues,
and higher costs led Best Buy to charge $25 to recycle televisions and computer monitors in 2016, so the recycling
program could break even.60 An advantage of the recycling program is that dropping off out-of-date electronics still
brings customers to Best Buy’s stores. Another adaptation by Best Buy is offering customers the ability to “trade-in”
older products for new ones, which helps drive additional sales.61
INDUSTRY DYNAMICS
Two characteristics make the consumer electronics industry distinctive. Firstly, over time the price of consumer
electronics decline. For example, the largest product categories are smartphones, computers, and televisions. The
price of older products falls as new products are introduced, increasing the risk of holding inventory. Secondly, consumer electronic sales follow established patterns, as they are cyclical and seasonal. As a result, understanding and
predicting consumer demand is imperative in the modern consumer electronics industry. Each of these factors has
observable implications.
Falling prices have led to the evolution of consumer electronics as a measure of socioeconomic status. Financial
wealth buys access to the latest and greatest technology. As prices fall, the technology becomes affordable to a broader
demographic, but the technological elite has already moved on to the next generation of devices. Cellular phones were
once fantasy gadgets seen only in James Bond movies. In the 1980s, yuppies proudly displayed their cell phones on
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belts as status symbols. Nowadays, nearly everyone in the U.S. has a cell phone whose design and functionality make
earlier phones outdated, making mobile phones the product category with the fastest refresh of products.62
Laptops, large-screen TVs, and smartphones have enjoyed a similar proliferation, and laptops remain relevant due
to businesses and gaming. Still, today’s must-have is tomorrow’s bargain commodity, so retailers must strike while
the product is hot. Further, in its boom days, a product will attract a very different clientele than in the later, lessexclusive phases of its shelf life. Declining prices place constant pressure on consumer-electronics manufacturers to
improve functionality, portability, and style to differentiate their products from competitors. As a result, product life
cycle has become increasingly shorter as manufacturers cannibalize their products to maintain customer interest and
loyalty.
Consumer-electronics retail sales are cyclical but also seasonal. Industry sales during the holiday season in the
fourth quarter typically exceed sales from the other three quarters combined. As most consumer-electronics items
are considered discretionary purchases, sales are directly correlated with macroeconomic factors, including consumer confidence, unemployment, the housing market, and the ability to obtain credit.63 In response to seasonal
sales, Amazon pioneered Prime Day in July to increase sales in another quarter. While other retailers have imitated
it, Amazon also benefits from increasing its Prime subscribers.64
Competitors
Competition in consumer electronics sales is robust, with various firms pursuing different strategies. The result
has enabled rapid changes in industry positioning. For example, in 2010, Best Buy was the largest consumer electronics retailer, with over 25% of the U.S. market, and Amazon’s market share was just over 5%. Still, by 2016, Best Buy’s
market share fell to over 20%, and Amazon’s grew to just under 20%.65 By 2018, Amazon passed Best Buy to become
the leading consumer electronics retailer.66 This development reflects that sales have increasingly shifted online, and
by 2021, Amazon and Apple both had higher online revenues than Best Buy.67 Below is a brief discussion of Best
Buy’s primary competitors in consumer electronics retail.
AMAZON.COM
Amazon is a formidable competitor for Best Buy and other retailers. Founded in 1994 by Jeffrey Bezos as an
online book retailer, and since the company went public in 1997, it has rapidly diversified into multiple product
areas.68 In 1998, Amazon.com launched its online music and video store and began selling toys and consumer electronics that year. As time passed, it added clothing in 2002, health and personal care items in 2003, and beauty
products in 2004.69 Amazon opened its marketplace to third-party vendors through the launch of its “Fulfillment by
Amazon” service in 2006. This move enabled small to medium-sized businesses to utilize Amazon’s order fulfillment
and customer service infrastructure, as well as broaden Amazon’s online presence.70 Amazon expanded its vast array
of products and services beyond traditional retail boundaries by offering Amazon Web Services. Its foray into cloud
computing includes infrastructure (e.g., data storage) and applications such as database services and workflow software.71
Another prong of Amazon’s expansion strategy has been to enter the electronic device market directly through
manufacturing and selling its Amazon Kindle e-reader series, tablets, and the Amazon Echo and Dot featuring its
Alexa digital assistant. As opposed to merely selling electronic books for customers to read on competitors’ technology (e.g., the iPad), Amazon can now influence the development of both the content and the underlying technology.
The idea is to create an interlocking ecosystem that enhances sales in both categories. For example, Amazon has
begun offering in-home consultation with its digital assistant Alexa hosted on its Echo speakers.
6
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Amazon’s competitive advantage comes from its breadth of selection, the convenience of online shopping coupled with same-day delivery services, and its ability to undercut competitors on price. Until its 2017 purchase of
Whole Foods,72 Amazon’s lack of physical stores avoided the costs of retail real estate, inventory displays, and an
onsite sales force. The purchase followed Amazon collecting sales tax on purchases in all 50 states in 2017.73 Still,
traditional retailers, such as Best Buy, are frustrated that their stores serve as showrooms for Amazon buyers. People
come into Best Buy to try out the merchandise and speak with the trained sales associates, but then utilize their
smartphones to compare prices and purchase directly from Amazon if its prices are lower.74 Amazon’s strategy
appears to work and has grown from over 30% of U.S. online retail sales in 2016 to half of all sales by 2022.75
APPLE
Apple is both a supplier and competitor to Best Buy. Apple partners with Best Buy to leverage its retail locations,
expanding its partnership to allow Best Buy to repair iPhones and other products in 2019.76 Still, Apple forwardintegrated into consumer electronics by developing Apple Stores in 2001, thereby creating direct competition for
Best Buy and other firms that carry Apple products. Apple now has over 500 stores worldwide, with over half of
them located in the U.S.77
In addition to providing consumers with hands-on access to the latest iPods, iPads, iPhones, and Macs, Apple’s
retail stores offer one-to-one tech support and a variety of training workshops and youth programs. Apple places its
stores in high-profile, high-traffic locations in quality shopping malls and districts to attract new customers and provide a customized shopping experience. Management believes that direct customer contact helps demonstrate the
superior quality of Apple’s products. This approach requires a significant investment in property (leaseholds), equipment, information systems, inventory, and personnel. However, it has paid off, as Apple stores have higher revenue
per square foot than any other retail location.78 Further, Apple investors enjoy solid returns, and it became the first
company to have a $1 trillion valuation in August 2018.79 Perhaps Apple’s most significant challenge involves investors and consumers having big expectations.
DELL
Since 2007, Best Buy has offered Dell laptops, desktops, monitors, and other consumer electronics. However, Dell
also represents a vendor and a competitor to Best Buy.80 Named for its founder, Michael Dell, Dell pioneered selling
computer electronics online through a direct sales model that allows customers to custom order computers.81 The
direct sales model was key to Dell’s success, but after returning as CEO following taking Dell private in 2013,82
Michael Dell has signaled that the firm may need to change its business model. For example, Dell is shifting to a
channel-neutral strategy.83 This strategic initiative reflects that Dell has built standard versions of its products to use
excess inventory by selling to retailers in addition to direct sales. Indirect sales now represent a majority of Dell’s
revenues,84 causing them to be vulnerable to vendors offering computers from Dell’s competitors.85
TARGET
Target is the second-largest discount retailer in the United States, behind Walmart. Target was founded in 1962,
when a Minneapolis department store, Dayton’s, expanded into a shopping mall in Roseville, Minnesota. The store
was named Target to distinguish the discount retailer from Dayton’s higher-end stores. From 1970 to 1990, Target
grew from 24 to 420 stores through organic and inorganic growth, becoming the leading brand in the Dayton Hudson Corporation portfolio in 1977. In 1998, Dayton Hudson increased the company’s Internet presence by purchasing Rivertown Trading. In 2001, Target ended a partnership with Amazon, started in 2006, that leveraged Amazon’s
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e-commerce technology to compete more effectively online.86 In 2017, Target’s online sales were only 4.3% of sales.87
However, its online sales share has grown to over 18% of its 106.1 billion in revenues in 2021.88
Mirroring Walmart, Target increased its consumer-electronics offerings in 2010, including TVs and video games.
Store changes included the installation of new TV-merchandising walls to make side-by-side comparisons easier for
customers and expanding inventory to include larger and more technologically advanced TV sets. At the same time,
Target enlarged its video game section and added demo stations for players to try out new releases. Target was also
the first physical retailer to carry Amazon’s Kindle e-book reader.89 The company added a TV delivery and installation service in January 2010.90 Target caters to more of a middle- and upper-class clientele that is likely to appreciate
enhanced service offerings.91 Still, Target has prioritized other categories over consumer electronics, and while Target has more tech-savvy customers, Target customers are just as likely to buy from other retailers.92 As a general
merchandiser, Target also sees higher foot traffic than Best Buy, and it can capitalize on impulse purchases and
customers’ desire for a one-stop shopping experience.93
WALMART
As the world’s largest retailer, Walmart operates 10,500 stores under 46 brands in 24 countries and employs over
2 million people worldwide.94 While the number of customers it serves weekly has fallen following the pandemic, it
still serves roughly 230 million customers each week.95 Walmart was founded by Sam Walton, who opened his first
store in 1962 in Rogers, Arkansas. The young company expanded rapidly, reaching 24 stores and $12.7 million in
sales within its first five years of operations. In 1969, it incorporated as Wal-Mart Stores, Inc., and then it went public at a share price of $16.50 in 1970.96
As the leading discount retailer, Walmart is one of the few companies that stand to benefit from the commoditization of consumer electronic products, such as high definition televisions (HDTVs), computers, and smartphones.97
Walmart leverages its superior logistics and supply chain management capabilities to provide consumers with a wide
breadth of merchandise at low prices.98 In 2010, the company announced that it was significantly expanding its offerings of HDTVs, home theater systems, and wireless products for home networks. In addition to consumer electronics, Walmart stores offer family apparel, health and beauty aids, toys, home furnishings, housewares, hardware, lawn
and garden supplies, groceries, and automotive products/services. A large assortment of goods and services makes
Walmart a one-stop location for consumer shopping. Indeed, Walmart is the largest grocery store in the U.S.
However, by 2012, the company announced plans to reduce the amount of floor space dedicated to electronics in
its stores. According to one consultant, “You don’t need as much space in that area with products shrinking and
purchases going online, and electronics has narrow profit margins. Floor space is a scarce commodity.”99 As a result,
Walmart also expanded into online retail. While Walmart.com was launched in 2000 to compete with online retailers, it struggled online until it purchased Jet.com for over $3 billion in 2016.100 Since then, Walmart has had more
success in combining online sales with a physical presence and has experienced an increase in sales in both online
and physical store channels.101 For example, in 2017, Walmart’s online purchases grew by 60%.102 Still, Walmart’s
consumer electronics sales have trailed Amazon, Apple, and Best Buy.103
Best Buy: Key Success Factors and Diversification
Before becoming CEO, Corie Barry worked at Best Buy for two decades. While her predecessor confronted surviving the emergence of Amazon as an online retailer, Corie Barry confronts continuing business operations following a pandemic that coincided with supply disruptions, excess inventory, and inflation. Simply continuing past
practices will not be enough to ensure Best Buy’s continued success. Understanding what may happen requires
considering Best Buy’s relationship with its stakeholders and its expansion plans.
8
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CUSTOMER EXPERIENCE
Best Buy’s strategy had long been characterized by a commitment to customer service attained through in-depth
data analysis. Compared to traditional product-centered marketing, Best Buy looks at what problems its customers
are facing and provides solutions.104 Over time, this has resulted in Best Buy employing different store “concepts.”
During the pandemic, stores were closed and became customer pickup or shipping locations. As Best Buy contemplates a new “normal,” it is employing smaller stores and increasing its interaction with customers online. Integrating
mobile, online and physical stores represents an omnichannel strategy that integrates the customer’s physical and
online experience, and it is difficult for competitors (e.g., Amazon) to replicate. Best Buy’s shift to consider multiple
channels began with price matching to avoid lost sales to Amazon due to showrooming,105 and it continued to allow
Best Buy customers to pick up online orders at stores. The result has been an increased reliance on online orders and
Best Buy closing some retail locations.106 To put the shift in perspective, in 2019, 16% of Best Buy’s revenue was from
online sales; by 2022, over 30% of Best Buy’s revenue was from online sales.107 Shifting to an omnichannel approach
required cross-training staff to be able to fulfill online orders, support customers in stores, and provide virtual customer support.108
EMPLOYEES
To create a truly unique, omnichannel customer experience, Best Buy relies on an educated and motivated sales
force. The “Blue Shirts” played a vital role in the battle for market share against traditional competitors before ecommerce, and they have remained part of Best Buy’s success. This attitude reflects an investment in training to have
knowledgeable employees who attract customers.109 Through its employees, Best Buy has evolved the way it sells
products and expands what the firm sells. For example, Best Buy’s Geek Squad agents help over 4 million customers
annually, reflecting the importance of service to Best Buy.110 However, low unemployment and inflation have
increased employee turnover. While Best Buy’s employee turnover rate of 33% is below the national average,111 retaining employees is integral to providing a differentiated customer experience. Additional training, however, increases
employee costs for Best Buy, which may offset the savings from closing store locations.
VENDOR RELATIONSHIPS
Beginning in 2015, Best Buy worked with vendors to create stores-within-a-store that allocated floor space to a
vendor.112 Best Buy’s stores have offered vendors a chance to allow customers to try their products out in a physical
setting, thus increasing purchases.113 In addition, Best Buy’s trained salespeople provide product support that is
generally unavailable through online channels.114 Beyond the terms of any revenue-sharing agreements, Best Buy
benefits from increased store traffic and the positive buzz surrounding new products. Having such vendor agreements also helps the company compete more effectively against competitors with their own branded products and
stores (e.g., Apple).115
DIVERSIFICATION
Samsung***
Having failed to expand internationally, Best Buy is looking to expand its customer service into digital healthcare.116 Aging baby boomers are living longer and want to stay independent.117 With the pandemic, more customers
are comfortable with online shopping and services, and the demand for telehealth has grown. Under Corie Barry,
Best Buy has made acquisitions to expand into setting up telehealth solutions for businesses118 and monitoring for
individual customers to prolong independent living.119 In 2021, the digital health market in the U.S. was worth
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$66 billion, with an anticipated annual growth rate for the next decade of over 20%.120 However, Best Buy is a new
entrant in an unfamiliar market with established competitors.
Rolling the Dice
Best Buy has weathered past challenges and continues to grow online revenues and expand its omnichannel presence. However, continued growth needs to come from new markets, and Best Buy is attempting to leverage its customer service into digital healthcare. As it takes on new competitors, Best Buy must continue to remain competitive
in its core consumer electronics business. While Hubert Joly was CEO, Best Buy balanced differentiated service with
trained staff to sell consumer electronics at competitive prices. Now under the leadership of Corie Barry, Best Buy
will need to continue to balance its online and physical stores to provide customers with an omnichannel experience
and confront new competitors in digital healthcare. While Corie Barry cannot simply rest on Best Buy’s past success,
expansion into new markets increases risk. She wonders if she made the right decisions when setting the company’s
new corporate strategy. CEO Barry also contemplates how to execute the new strategy best while improving current
performance.
10
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rot24317_BestBuy_case.indd 10
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Exhibit 1 Best Buy Financial Data (in $ millions, except EPS data), 2018–2022
Fiscal Year
2022
2021
2020
2019
Cash and short-term investments
2,936
5,494
2,229
1,980
1,101
Receivables-total
1,042
1,061
1,149
1,015
1,049
Inventories-total
5,965
5,612
5,174
5,409
5,209
Property, plant, and equipment-total (net)
2,250
2,260
2,328
2,510
2,421
Depreciation, depletion, and amortization (accumulated)
2018
6,996
6,091
6,900
6,690
6,279
19,067
17,504
15,591
12,901
13,049
Accounts payable
6,979
6,803
5,288
5,257
4,873
Long-term debt
1,253
1,216
1,257
1,332
811
Liabilities-total
14,480
14,484
12,112
9,595
9,437
4,587
3,020
3,479
3,306
3,612
Assets-total
Stockholders’ equity-total
Sales (net)
51,761
47,262
43,638
42,879
42,151
Cost of goods sold
40,121
36,689
33,590
32,918
32,275
8,635
7,928
7,998
8,015
8,023
574
579
452
424
818
Income before extraordinary items
3,039
2,391
2,009
1,464
999
Net income (loss)
2,454
1,798
1,541
1,464
1,000
Earnings per share (basic), excluding extraordinary items
9.94
6.93
5,82
5.30
3.33
Earnings per share (diluted), excluding extraordinary items
9.84
6.84
5.75
5.20
3.26
Selling, general, and administrative expense
Income taxes
Source: Depiction of publicly available data.
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rot24317_BestBuy_case.indd 11
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Exhibit 2 Best Buy U.S. Revenues, 2012–2022 ($ million)
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$0
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Source: Depiction of publicly available data. Trendline added.
12
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rot24317_BestBuy_case.indd 12
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Exhibit 3 Best Buy Revenue by Segment (in %), 2022
Entertainment
6%
Services
5%
Appliances
14%
Computing and
mobile phones
44%
Consumer
electronics
31%
Source: Depiction of publicly available data.
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rot24317_BestBuy_case.indd 13
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Exhibit 4 Best Buy U.S. Operating Income, 2012–2022 ($ million)
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Source: Depiction of publicly available data. Trendline added.
14
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rot24317_BestBuy_case.indd 14
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Exhibit 5 Normalized Stock Performance of Best Buy vis-à-vis S&P 500, 2012–2022
Best Buy Co Inc (BBY) Price % Change
S&P 500 (^SPX) Level % Change
750.0%
500.0%
August 2012
Hubert Joly
appointed
CEO
June 2019
Corie Barry
appointed
CEO
255.5%
250.0%
179.6%
0.00%
–250.0%
2014
2016
2018
2020
2022
Source: Depiction of publicly available data.
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rot24317_BestBuy_case.indd 15
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Exhibit 6 Consumer Electronics Revenue, North America, 2015–2022 ($ million)
600
500
400
300
200
100
0
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Source: Depiction of publicly available data.
16
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Endnotes
1 R. Smith, 2020, “Best Buy Chairman to Retire in June,” Motley Fool, https://www.fool.com/investing/2020/03/12/best-buy-chairman-to-retirein-june.aspx.
2 Erply, “Store-within-a-Store: The Next Stage of In-Person Retail,” https://erply.com/store-within-a-store-the-next-stage-of-in-person-retail/.
3 The S&P 500 index is a stock market index tracking the stock performance of 500 large companies listed on stock exchanges in the United
States.
4 J. Bariso, 2020, “The Coronavirus Could Have Destroyed Best Buy. Then, Best Buy Fought Back,” Inc., https://www.inc.com/justin-bariso/
corie-barry-best-buy-strategy.html.
5 S. Nassauer, “Shopper Pullback Hurts Best Buy,” The Wall Street Journal, August 22, 2022, B1.
6 A. D’Innocenzio, 2022, “Best Buy Reports Q4 Sales Miss Hurt by Supply Chain Clogs,” U.S. News, https://www.usnews.com/news/business/
articles/2022-03-03/best-buy-reports-q4-sales-miss-hurt-by-supply-chain-clogs.
7 Best Buy2019 Annual Report.
8 T. Keith, 2022, “Best Buy CEO Says High Worker Turnover in US Economy Lasting 12-24 Months,” Fox9, https://www.fox9.com/news/bestbuy-ceo-sees-high-worker-turnover-in-us-economy-lasting-12-24-months.
9 N. Bomey, 2022, “Consumer Electronic Sales Still Lag,” Axios, https://www.axios.com/2022/08/17/consumer-electronic-discounts-retail-salesprices-inflation.
10 Best Buy Co., Inc. (October 1), Hoover’s Company Records, 10209.
11 “Best Buy Timeline,” www.bby.com/wp-content/uploads/2010/04/BBY_TimeLine.pdf.
12 Best Buy Co., Inc. (October 1), Hoover’s Company Records, 10209.
13 “Best Buy and Circuit City: The Gloves Come Off,” Bernstein Research, April 1994, http://web.ebscohost.com/bsi/
pdf?vid=10&hid=111&sid=260056c3-7252-467f-acdf-688f3a981bfa%40sessionmgr13.
14 Funding Universe, www.fundinguniverse.com/company-histories/Best-Buy-Co-Inc-Company-History.html.
15 T. Lee, “Best Buy Bets Big on Store-Within-Store Concepts,” Star Tribune, last modified July 24, 2013, http://www.startribune.com/best-buybets-big-on-store-within-store-concepts/215301161/.
16 N. Norfleet, “Best Buy Experiments with Store Concepts to Keep Ahead of Customer Trends,” Star Tribune, 2021, https://www.startribune.
com/best-buy-reports-another-blockbuster-quarter-with-earnings-up-70/600090495/.
17 Best Buy, https://corporate.bestbuy.com/small-format-store/.
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19 Funding Universe, www.fundinguniverse.com/company-histories/Best-Buy-Co-Inc-Company-History.html.
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26 Crunchbase, https://www.crunchbase.com/organization/dealtree-com#/entity.
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rot24317_BestBuy_case.indd 17
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27 S. Kuranda, “Best Buy Stops Dabbling In Managed Services, Sells mindSHIFT to Ricoh,” CRN, last modified January 21, 2014, http://www.
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49 K. Safdar, “Best Buy, After Turnaround, to Switch Leaders; CEO Hubert Joly Hands Top Job to Finance Chief Corie Barry,” The Wall Street
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50 N. Dunehew, “Best Buy CEO: Corie Barry Biography,” Brooksy, 2021, https://brooksysociety.com/2021/10/14/best-buy-ceo-corie-barrybiography/.
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52 N. Dunehew, “Best Buy CEO: Corie Barry Biography,” Brooksy, 2021, https://brooksysociety.com/2021/10/14/best-buy-ceo-corie-barrybiography/.
18
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Copyright © 2023 McGraw Hill Education. All rights reserved. No reproduction, distribution, or posting online without the prior written consent of
McGraw Hill Education.
21
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or 800-988-0886 for additional copies.
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