COMPANY SECTION
The full name of my company is Best Buy Co., Inc. It is a Fortune 100 (#66) corporation and its
headquarters is in Richfield, Minnesota. Best Buy’s current CEO, Mr. Bradbury Anderson, oversees the
operations of this publicly-owned company whose stock ticker symbol is BBY. Best Buy has changed a
great deal since its origin in 1966 as a car stereo company. Best Buy’s lines of business have expanded to
include video games, computer software and equipment, compact discs and DVDs, as well as both small
and major household appliances. With over 155,000 employees and $45 billion in annual sales, Best Buy
ranks as one of the major players in the Radio, TV, and Other Electronic Stores industry.
According to its income statement, Best Buy’s sales revenue as of March 2009 (the end of its fiscal
year) was $45 billion - an increase of over 10 percent from the previous year. However, net income
tumbled from the $1.4 billion reported last year down to $1 billion currently. Much of the drop in income
is blamed on the economic recession and the liquidating of inventory from the demise of Best Buy’s largest
rival, Circuit City. An analysis of several years’ worth of balance sheets indicates that periods of growth
usually coincided with ballooning long-term debt as Best Buy acquired other companies or expanded
business lines. Although slowed by a dismal economic climate, Best Buy stands to gain a fair share of
Circuit City’s customer base which will continue to increase cash flow. However, Best Buy is facing
increased competition for customers from retail powerhouses such as Wal-Mart, Target and Amazon. That
is why sales growth is only projected to be about 6 percent a year for the next five years.
A recent SWOT analysis finds Best Buy’s strengths to be strong market presence and financial
performance, as well as strategic international acquisitions. Its weaknesses are seen to be a dependence on
few suppliers (just five suppliers supply one-third of Best Buy’s total merchandise) and a potentially
image-marring lawsuit that alleges Best Buy used deceptive and fraudulent business practices on its
customers. Best Buy’s opportunities are seen to be its recent agreement with Carphone (a major cell phone
retailer in Europe), a growing global computer and electronics retail sector, and the opening of dozens of
new stores that allow for deeper market penetration. At the same time, threats to the company are
increased competition, rising labor wages, and a soaring consumer price index which erodes customer
confidence and slows spending.
Best Buy stock, like its industry, can be very volatile. Severe increases and declines in value make
it a hard stock to analyze on a day-to-day basis. Historically, the stock does yield a strong rate of return –
about 7 percent over the course of 10 years. Currently, Best Buy stock has been given a four-star rating
(five stars being the highest) from Morningstar Investment Research Center. The high rating was given
because Morningstar’s analyst has determined the stock’s Fair Value is greater than the current price. The
positive rating is also bolstered by a stewardship grade of a ‘B’ which means the analyst was pleased with
Best Buy’s current management. Morningstar’s analyst believes that Best Buy will not only survive the
downturn in the economy but will emerge stronger because of it. By differentiating itself from its
competitors and expanding its presence in international markets, Best Buy should enjoy greater profits once
consumer spending levels are restored.
In 2008, Best Buy’s share of the U.S. consumer electronics market was close to 40 percent. Its
nearest single competitor was Circuit City which had just 13 percent of the market. Circuit City declared
bankruptcy and was forced to liquidate earlier this year and Best Buy is sure to pick up an even larger share
of the U.S. market as a result. Best Buy’s target market is the individual consumer between the ages of 35
to 54. It is that section of the market that makes the most purchases. Best Buy spends close to $700
million a year on advertising. It advertises in virtually every medium including newspapers and magazines,
radio and TV spots, billboards and trade shows.
INDUSTRY SECTION
The United States Department of Labor has assigned Best Buy a SIC code of 5731. The title for
that SIC number is Radio, Television, and Consumer Electronics Stores. The description is as follows:
Establishments primarily engaged in the retail sale of radios, television sets, record
players, stereo equipment, sound reproducing equipment, and other consumer audio and video
electronics equipment (including automotive). Such establishments may also sell additional lines, such as
household appliances; computers, computer peripheral equipment, and software; musical instruments; or
records and prerecorded tapes. Establishments in this
industry may perform incidental installation
and repair work on radios, television sets, and
other consumer electronic equipment. Establishments
primarily engaged in the installation and repair of these products are classified in Services, Industry 7622.
Establishments
primarily engaged in the retail sale of computer equipment are classified in Industry
5734, and those selling electronic toys are classified in Industry 5945.
The United States Census Bureau has assigned Best Buy a NAICS code of 443112. The title for
that NAICS number is Radio, Television, and Other Electronics Stores. The description is as follows:
This U.S. industry comprises: (1) establishments known as consumer electronics stores
primarily engaged in retailing a general line of new consumer-type electronic
products; (2)
establishments specializing in retailing a single line of consumer-type
electronic products (except
computers); or (3) establishments primarily engaged in retailing these new electronic products in
combination with repair services.
According to the Census Bureau’s 2002 Economic Census, totals for the industry included 23,521
establishments sharing sales revenue of close to $50 billion dollars. A recent IBIS World Industry report
shows that over the past five years, annual sales ceased their upward climb and started retracting. The sales
revenue growth rate went from 6 percent in 2004 to a negative 4 percent in 2008. Because the industry is
sensitive to various consumer indexes, total sales revenue is expected to keep declining through the next
year or two. Faced with rising unemployment rates, shrinking household income and an uncertain
economic future, consumers may continue to delay consumer electronics purchases they consider frivolous.
However, when the economy turns around sometime in the next five years, sales revenue will begin its
upward climb again and is projected to reach $100 by 2016.
RECOMMENDATION
I recommend that the LIS613 investment club put some or all of its $10,000 in Best Buy stock.
With this recommendation comes a warning that the club should expect investment returns to be poor for
the next year or two. With continued high unemployment rates and an unstable economy, most consumers
will delay purchasing consumer electronics which they consider frivolous in comparison to staples such as
clothing and food. However, the economy should turn around and with more discretionary income
consumers will begin making electronics purchases again. Fortunately for our club, the demise of Circuit
City means Best Buy will have an even larger share of the industry going forward. A greater market share
means a greater share in the sales revenue which generally means higher profits.
References
44311—Consumer Electronics Stores in the US. (2009, April 2). Retrieved from Industry Market Research
Database.
Analyst Report. (2009). Best Buy Co., Inc. BBY. Retrieved from Morningstar Investment Research Center
Database.
Best Buy Co., Inc. (n.d.). U. S. Businesses. Retrieved from Reference USA database.
Best Buy Co., Inc. (2004). International Directory of Company Histories (Vol. 63, p. 61-66). Farmington
Hills, MI: Thomson Gale.
Best Buy Co., Inc. (2009, May 23). Standard & Poor’s Corporate Descriptions plus News. Retrieved from
LexisNexis Academic database.
Best Buy Co., Inc. (2009, May 26). Hoover’s Company Records – Basic Record. Retrieved from
LexisNexis Academic database.
Best Buy Co., Inc. (2009, May 4). Standard & Poor’s Register of Corporations. Retrieved from
LexisNexis Academic database.
Best Buy. (n.d.). Investor Relations: Overview. Retrieved May 26, 2009, from: http://phx.corporateir.net/phoenix.zhtml?c=83192&p=IROL-IRhome
Blogging Stocks. (2009, January 7). Best Buy gains market share while seeing declining sales in
December. Retrieved June 1, 2009, from:
http://www.bloggingstocks.com/2009/01/07/best-buy-gains-market-share-while-seeing-decliningsales-in-dece/
CEA - Consumer Electronics Association. (n.d.). Consumer Research. Retrieved May 30, 2009, from:
http://www.ce.org/Research/Consumer_Research/276.asp
CEA - Consumer Electronics Association. (n.d.). Economic Analysis. Retrieved May 30, 2009, from:
http://www.ce.org/Research/economic-analysis.asp
CEA - Consumer Electronics Association. (n.d.). Homepage. Retrieved May 30, 2009, from:
http://www.ce.org/default.asp
CEA - Consumer Electronics Association. (n.d.). Industry Sales Statistics Overview. Retrieved May 30,
2009, from: http://www.ce.org/Research/Sales_Stats/default.asp
Class 24B: Home Technology/Entertainment. (2008). SRDS Consumer Magazine Advertising Source
(Vol. 90, pp. 504-506). Des Plaines, IL: SRDS.
Computer & Electronics Retail (2009, March). Standard & Poor’s Industry Surveys (Vol. 2). New York:
Standard & Poor’s.
Consumer Electronics (2009, March). Standard & Poor’s Industry Surveys (Vol. 2). New York: Standard
& Poor’s.
Customer Survey: Best Buy, Wal-Mart Top CE Chains. (2009, April 6) TWICE: This Week in Consumer
Electronics, 24(8), 6. Retrieved from Business Source Premier database.
Datamonitor. (2008, October 27). Best Buy Co, Inc. Company Profile. Retrieved from Business Source
Premier database.
Datamonitor. (2009, March). Global Computer & Electronics Retail Industry Profile. Retrieved from
Business Source Premier database.
Downing, Kevin. (2009, May 8). Best Buy. Retrieved from Value Line Investment Survey Online
database.
Dun & Bradstreet Credit Services. (2008). Introduction. Industry Norms and Key Business Ratios. New
York: Dun & Bradstreet.
Electronics, Radio & Television: Best Buy Co., Inc. (2009). Advertising Red Books (pp. 757-758). New
Providence, NJ: LexisNexis.
Electronics. (2008). Lifestyle Market Analyst (pp. 774-777, 1185). Wilmette, IL: Standard Rate & Data
Service.
Financial Statements. (2009). Best Buy Co., Inc. BBY. Retrieved from Morningstar Investment Research
Center Database.
Formatted Report. (2009). Best Buy Co., Inc. BBY. Retrieved from Morningstar Investment Research
Center Database.
Google Finance Quote. (2009). Best Buy Co., Inc. Retrieved May 28, 2009, from:
http://www.google.com/finance?q=BBY
Key Ratios. (2009). Best Buy Co., Inc. BBY. Retrieved from Morningstar Investment Research Center
Database.
Leading Consumer Electronics Retailers. (2008). In R.S. Lazich (Ed.). Market Share Reporter (Vol. 2, p.
657). Farmington Hills, MI: Thomson Gale.
Minnesota Secretary of State. (n.d.). Business Organizations Inquiry. View Entity: Best Buy. Retrieved
May 28, 2009, from: http://da.sos.state.mn.us/minnesota/corp_inquiryentity.asp?:nfiling_number=1K1056&entity_type_id=DC&:Nsession_id=&:Ndocument_number=0&filename=1068545228.txt&pgcurrent=6&:Norder_item_type_id=10&:Ssearch_Parm=Best+Buy+Co
Randall, D. (2009, February 2). Last Man Standing. Forbes, 183(2), p.41. Retrieved from Business
Source Premier database.
Retailing: Specialty (2009, March). Standard & Poor’s Industry Surveys (Vol. 2). New York: Standard &
Poor’s.
Risk Management Associates. (2008-2009). Radio, Television, and Other Electronics Stores. Annual
Statement Studies: Financial Ratio Benchmarks (pp. 67, 930-931). Philadelphia: The Risk
Management Association.
Snapshot. (2009). Best Buy Co., Inc. BBY. Retrieved from Morningstar Investment Research Center
Database.
Spending Potential Indices. (2007). Community Sourcebook of County Demographics (46E-47E).
Redlands, CA: ESRI.
Spending Potential Indices. (2007). Community Sourcebook of ZIP Code Demographics (220 D, 347).
Redlands, CA: ESRI.
Spending Power of Young Adults – US- October 2008. (2008). Retrieved from Mintel Oxygen database.
Stock Quote. (2009). Best Buy Co., Inc. BBY. Retrieved from Morningstar Investment Research Center
Database.
Troy, L. (2008). Electronics and Appliance Stores. Almanac of Business and Industrial Financial Ratios
(pp. 209-210). Chicago: CCH.
U. S. Securities and Exchange Commission. (2009). Best Buy Co, Inc.: Form 10-K. Retrieved May 26,
2009, from: http://www.sec.gov/Archives/edgar/data/764478/000104746909004730/a2192410z10k.htm
U.S. Census Bureau. (n.d.). American FactFinder. Industry Series: Summary Statistics. Retrieved May
30, 2009, from: http://factfinder.census.gov/servlet/IBQTable?_bm=y&-NAICS2002=443112&ds_name=EC0244I1&-_lang=en
U.S. Census Bureau. (n.d.). American FactFinder. Industry Series: Product Lines. Retrieved May 30,
2009, from: http://factfinder.census.gov/servlet/IBQTable?_bm=y&-NAICS2002=443112&ds_name=EC0244I3&-_lang=en
U.S. Census Bureau. (n.d.). American FactFinder. Subject Series: Sales by Class of Customer. Retrieved
May 30, 2009, from: http://factfinder.census.gov/servlet/IBQTable?_bm=y&NAICS2002=443112&-ds_name=EC0244SXSB2&-_lang=en
U.S. Census Bureau. (n.d.). Economic Census. Annual Retail Trade Survey. Retrieved May 30, 2009,
from: http://www.census.gov/svsd/retlann/pdf/sales.pdf
U.S. Census Bureau. (n.d.). North American Industrial Classification System (NAICS) Search. Retrieved
May 30, 2009, from: http://www.census.gov/cgi-bin/sssd/naics/naicsrch
U.S. Department of Labor. (n.d.). Standard Industrial Classification (SIC) System Search. Occupational
Safety & Health Administration. Retrieved May 30, 2009, from:
http://www.osha.gov/pls/imis/sic_manual.display?id=40&tab=description
Wolf, A. (2009, April 20). Best Buy Revamps Store Operations. TWICE: This Week in Consumer
Electronics, 24(9), 1-8. Retrieved from Business Source Premier database.
Wolf, A. (2009, April 6). Chains Say Inventories Are Turning Around. TWICE: This Week in Consumer
Electronics, 24(8), 6-18. Retrieved from Business Source Premier database.
Yahoo! Finance Historical Prices. (2009). Best Buy Co., Inc. Retrieved May 28, 2009, from:
http://finance.yahoo.com/q/hp?s=BBY&a=11&b=16&c=1995&d=11&e=16&f=1995&g=d
Yahoo! Finance Quote Summary. (2009). Best Buy Co., Inc. Retrieved May 28, 2009, from:
http://finance.yahoo.com/q?s=BBY