Retail Analysis
Prepared For:
Professor Anne Mägi
MKTG 452
4/29/13
Prepared By:
Hank Agnihotri
Eric Gess
Ryan Glynn
Michael Minogue
Feng Xu
Table of Contents
1. Executive Summary
1
2. A Brief Background
1-2
3. Situation Analysis
2-8
a. Financial Analysis
2-6
b. Best Buy Customer
6-7
c. External Trends
7-8
d. Situational Analysis Summary
8
4. Goals and Objective
8-11
a. Image and Positioning
8-9
b. Revenue
9
c. Net Profit Margins
9-10
d. Satisfaction of Publics
10-11
5. Strategy Recommendation
11-15
a. Target Market
11-12
b. Retail Mix
12-14
c. Digital Presence
14
d. Customer Relationship Management
14-15
6. Bibliography
16
7. Appendix
17
1. Executive Summary
Is Best Buy truly a “best buy” anymore? Most consumers would not agree with this
statement, and it is because of this that Best Buy is at somewhat of a crossroads. Competition,
especially from online retailers like Amazon.com is at an all time high. This is leading to
decreased revenue for Best Buy and is forcing them to revamp their company structure in order
to accommodate to a more digital marketplace.
Overall, the customers shopping at Best Buy stores tend to still be middle aged males.
With that being said, other retailers like Wal-Mart and Target still prove to be very competitive,
and online retailers like Amazon.com are even more so.
The way to fix that will be discussed more in detail more throughout the paper. Basically
though, a three year plan has been developed in order to make Best Buy sustainable for the
future. In order to develop a plan, Best Buy needs to create certain goals in key areas. These
areas are:

Image and Positioning: Narrow assortment and expand on value driven approach.

Revenue: Low prices, high volume strategy.

Net Profit Margin: Increase NPV by shrinking stores and hiring less personel.

Satisfaction of Publics: Treat employees better which in turn should lead to happier
customers.
Recommendations have also been made for Best Buy to be sustainable in the future, and at
least over the next three years. In short, it has been discovered that Best Buy is doing many
things right. The implementation of their Low Price Guarantee should help keep traffic flowing
through Best Buy stores, and other programs like the Reward Zone increase customer loyalty and
repeat customers. Ultimately, it comes down to store design and size, and as always location. If
Best Buy is able to shrink their stores, make sure they are more customer oriented, and in
densely populated locations, then that will lead to long term success.
2. A Brief Background
In 1966, Sound of Music Inc. opened its first store in St. Paul Minnesota. The revenues
from limited amount of audio equipment were relatively low so the company decided to expand
the assortment to include a wider range of products which included appliances and VCR’s. In
order to match its new products assortment, Sound of Music Inc. became Best Buy in 1982. The
company went public in 1985 and by 1987, they were listed on the New York stock exchange.
Since its humble beginnings back in 1966, Best Buy now operates 1100 different stores
in all 50 states. Of these 1100 stores, many of them are attempting to convert their store design
in order to accommodate to the newer retail industry.
3. Situational Analysis
3A. Financial Analysis
In this section, Best Buy’s financial performance will be evaluated. In Figure 1 below,
there are two graphs showing Best Buy’s financial performance compared to its three
largest competitors.
Annual Revenue
Best Buy and Competitor Revenue
2010
2011
2012
Revenue (USD in billions)
$500.00
$450.00
$400.00
$350.00
Best Buy
$ 50.27
$ 50.71
$ 49.62
Wal-Mart
$ 421.85
$ 446.95
$ 469.16
$ 65.23
$ 108.25
$ 156.51
$ 34.20
$ 48.08
$ 61.09
$300.00
Best Buy
Apple
$250.00
Wal-Mart
Amazon
$200.00
$150.00
Apple
$100.00
Amazon
$50.00
$-
2010
2011
2012
Year
Figure 1 Annual Sales of Best Buy and Competitors
The graph on the left shows the annual revenue of Best Buy and the three largest
competitors: Wal-Mart, Apple, and Amazon. Best Buy is the lowest in of all four, with annual
revenue of about $51 billion. Wal-Mart is the largest with $469 billion in annual sales. Apple has
the next highest revenue with $156 billion and finally comes Amazon with $61 billion. It is
important to consider that Wal-Mart does not make all of its revenue in the same product
category as Best Buy. They offer a wider product assortment, from electronics to clothes to
groceries. Amazon also offers a wide assortment of products from which they only made about
$11 billion more than Best Buy. Apple is the exact opposite. They sell a very specific product
category, yet their margins are so high because of the premium price of their products and their
brand following and recognition. The
Profit Margin
2012 Net Profit Margin
iTunes and App online stores also
25.00%
supplement their sales. Best buy does
20.00%
not have its own line of individual
15.00%
products, apart from the Geek Squad
10.00%
service that is almost independent of
5.00%
Best Buy. This tells us that we cannot
0.00%
-5.00%
2012
judge a retailer based on its product
Best Buy
-2.43%
WalMart
3.62%
Apple
Amazon
23.46%
-0.06%
categories alone.
Figure 2 2012 Net Profit Margin of Best Buy and Competitors
The net profit margin tells a
completely different story. Compared to its competitors, Best Buy and Amazon actually have a
negative net profit margin. Best Buy has a -2.43% profit margin and Amazon has a -0.06% net
profit margin, so they are just barely operating at a loss.
The company is not making money, but rather spending it. This could be a result of Best
Buy’s operating costs, pressure from the competition, or their pricing strategy. Best Buy could
address this issue by decreasing expenses or adjusting its pricing strategy to better respond to
competition. Wal-Mart’s margin is 3.62% and Apple has an astounding 25.35%. This is due to
the premium price that Apple consumers are willing to pay for Apple products. Other key
financial ratios can be found in the table below.
Table 1: Other Key Financial Ratios For Best Buy and Competitors 2012
Company/Median
Net Profit Margin
Return on
Inventory
Leverage
Name
(%)
Assets
Turnover
Ratio
Best Buy
-2.43%
-7.27%
6.56
4.27
Wal-Mart
3.62%
8.57%
8.34
2.66
Apple Inc.
25.35%
24.94%
71.10
1.49
Amazon.com
-0.06%
-0.13%
8.34
3.97
Table 2: Best Buy Income Statement 2009-2012 (Sales in Millions)
Feb 2012
Feb 2011
Feb 2010
Feb 2009
Revenue
50,705.00
50,272.00
49,694.00
45,015.00
Cost of Goods Sold
38,132.00
37,635.00
37,534.00
34,017.00
Gross Profit
12,573.00
12,637.00
12,160.00
10,998.00
1,085.00
2,114.00
2,235.00
1,870.00
334.00
1,364.00
1,393.00
1,026.00
(1,231.00)
1,277.00
1,317.00
1,003.00
Operating Income
Net Income After Taxes
Total Net Income
Table 1 compares other key financial ratios of Best Buy in the year 2012 to the three
other competitors mentioned above. Table 2 is part of the income statement for Best Buy from
2009-2012. The complete income statement is listed in the appendix. According to Table 2, Best
Buy had been operating at a gain from 2009-2011, hovering around a 3% profit margin when it is
calculated. But in 2012, Best Buy actually operated at a loss due to increasing cost of goods sold,
increasing non operating expenses and discontinuing operations factors. This all resulted in a
negative total net income, which also results in the negative net profit margin. Operating income
is also down significantly from 2011, suggesting that Best Buy was spending significantly more
money in 2012 than in 2011, because total revenues were actually up in 2012, and a lot of the
other income statement items from 2012 are not a lot different from their previous year levels.
The first thing of notice from Table 1 apart from the negative net profit margin is that
Best Buy posted a negative return on assets for 2012. This ratio is calculated by dividing net
income by total assets. Asset valuation can be found on the balance sheet. The resulting number
from that calculation is -7.27%. This means that Best Buy is not utilizing its assets the way it
should be because it is actually taking a loss. This may also be accompanied by high levels of
debt as well, and this makes sense considering in 2012 Best Buy started investing high levels of
capital into its stores. It began closing locations that didn’t perform well enough and shrinking
and consolidating stores into a more compact arrangement to better compete with competitors.
This is also reflected in the leverage ratio, which will be discussed later. Apple gets nearly 25%
return on the assets it uses, and that is impressive. Also, out of all its competitors, Best Buy is the
least adequate at turning over its inventory, with an inventory turnover ratio of 6.56, and this has
the potential to hurt its performance. The longer you have inventory sitting around in your store
room, the more inventory costs you incur maintaining and checking that inventory. Best Buy,
Wal-Mart, and Amazon do not even compare with Apple’s inventory turnover ratio, which is an
amazing 71.10. This is because of the brand image Apple has built around its products. People
line up days before a new iPhone launch, and Apple releases updated versions of all of its
products almost every year like clockwork, requiring them to sell their outdated product
inventory very quickly. Also, since Amazon and Wal-Mart keep larger inventories because of
their wider variety of products, it only makes sense that they would have a lower inventory
turnover ratio. People don’t always got to Amazon and Wal-Mart for the same things, so it takes
longer to cycle that inventory through.
Best Buy also has the highest leverage ratio of all its competitors. A higher leverage ratio
suggests that the company in question is more at risk for bankruptcy than a company with a
lower leverage rate. So the data above would suggest that Best Buy, out of the four companies, is
most likely to declare bankruptcy, and Apple is the least likely. There’s not necessarily any
reason to worry, because different leverage ratios mean different things for different companies,
so this may not be a bad situation for Best Buy per se. The 4.27 leverage ratio is telling us that
for every $4 of debt best buy has, it has $1 of equity if we reduce the numbers down, but
obviously Best Buy’s debt and equity numbers are much larger than that. Debt is not a bad thing
for a business to have. Every large company has debt, but you don’t want to fall into the mistake
of financing your entire operation with loans and by borrowing money. Build up too much debt,
and you might not be able to afford to pay it back with interest. Now, compare this with Apple’s
leverage ratio, which is 1.49. Apple operates with basically no debt and is sitting on nearly $137
billion in cash that it is not using. Amazon’s ratio is a little high, but it has been aggressively
expanding its distribution capabilities and has spent considerable money on the launch of its
Kindle line to compete with iPad. So its only natural they would incur more debt expanding.
Most companies would not be able to expand and make significant improvements without
lending.
Out of all of Best Buy’s competitors, Apple is clearly the strongest. Their financial ratios
combined with cash on hand and low levels of debt indicate that they are a healthy company.
However, Apple is not the most dangerous competitor. Many Apple products are sold in Best
Buy’s stores, so they rely on each other to a certain degree. Amazon would be considered by
most to be the most dangerous and direct competitor despite having no physical locations. To say
that Amazon sells everything isn’t an understatement. Practically everything that can be found in
Best Buy can be found on Amazon’s online store for a competitive price. With the ease and
convenience of online shopping, consumers are more willing to order items online that they
would have normally gone to Best Buy to purchase, and Best Buy has been feeling this pressure
as reflected in the financial information provided.
To summarize this financial data, it’s clear that Best Buy struggled in 2012 due to
increased competition from its competitors and due to a shifting trend from buying in store to
buying online. Faced with this, it is difficult for Best Buy to compete with companies like
Amazon who have a larger online presence, so they have resorted to spending money to renovate
and condense their store spaces, close struggling locations, and to increase their online presence.
The next few sections will look at some external trends affecting Best Buy’s performance, and
some of the specific goals Best Buy plans to follow in the next three years. We will also make
some recommendations that the retailer should follow to better increase performance.
3B. Best Buy Customers
Today, because of more easily accessible information and more alternatives available to
consumers, they are more empowered than ever before. In addition, Best Buy’s external
environment is changing significantly faster than before. Therefore, understanding customers and
the constantly changing environment becomes extremely critical to a retailer such as Best Buy.
This section will evaluate Best Buy’s customers and the environment based on the results of
research and secondary data.
People who tend to shop at Best Buy are middle-aged adults. These results were
consistent when observing in store at the location in Schaumburg, Illinois and Highland, Indiana.
The observation results show that the majority people who shop at Best Buy are young to middle
age adults. According to the data provided by Best Buy, the company’s average shopper is 38
years old, and on average its shoppers fall between the ages of 25-54 years old. According to
Best Buy’s own records, out of the company’s shopper base, 58 percent are males and 42 percent
are females (bestbuymediakit.com). In the survey conducted, 64 percent of respondents were
male and the other 36 percent were female. In the distributed survey, 62 percent of respondents
had an income level of $50,000 or below and the remaining 39 percent had an income level
above $50,000.
In the retail industry, keeping customers happy proves to be very beneficial to long term
success. The survey results support that Best Buy has maintained positive customer
relationships. In most cases, some form of customer loyalty exists towards Best Buy. This is a
potential sign that generally people are satisfied with the service they receive from the company
and they favor the in-store experience.
3C. External Trends
In order to make better decisions and strategy, other than understand its customers, Best
Buy should also be aware of external trends. Although the economic crisis in 2008 has been over
for 5 years, the influence of this meltdown can still be felt in many Best Buy stores. It has
become apparent in the last few years that Best Buy has become more of a “showroom” for
customers to test out products, before going to actually buy them online at a cheaper price. As a
result, Best Buy offers its customers a “Low Price Guarantee” and conducts a lot of promotions.
This help Best Buy gain those customers who are price sensitive. The survey results show that of
the people surveyed, 75% of them visited Best Buy 3 or more times within the last year support
this conclusion.
The rise of online retailers like Amazon.com has changed the way how people shop.
There are a lot of advantages to shop online. Instead of physically going to stores to shop,
consumers can just stay at home and shop by a simple click of their mouse. In addition, online
shopping provides customer a greater opportunity for price comparison. Consumers can easily
search to get the lowest price online. This significantly changed the retailing industry,
especially to electronics retailing industry for companies like Best Buy. Even though shopping
in stores allows customers to physically try products and get assistance from personnel
immediately, electronic retailers are seeing significantly fewer customers than before. According
to the financial analysis section above, in 2012 Best Buy achieve an annual sale of $50.71 billion
compare to Amazon.com’s annual sale of $61.09 support this idea.
3D. Situational Analysis Summary
It can be argued that many electronic retailers have been aware of the emerging
ecommerce industry for many years. Big electronic retailers like Best Buy have spent a
significant amount of money to develop an e-commerce infrastructure and allow customers to
shop through their website. Although online retailers like Amazon.com typically have better
prices, Best Buy does have its competitive advantages. It has physical store locations, which
allow customers to demo products and get customer service. Especially when people are making
decisions about buy high ticket electronics such as PCs or cameras, a brick and mortar location is
beneficial. Best Buy also has a good store image and customer relationship. In addition, Best
Buy introduced its low price guarantee in an attempt to regain lost customers due to higher
prices. As the economy gets better and consumers have more money to spend, they will tend
become customer service oriented instead of price oriented. With uncertainty still ahead, Best
Buy needs to develop goals and objectives to help make the future more stable and
predictable.
4. Goals and Objectives
Given the situation facing Best Buy, specific goals and objectives for the company within
the next three years are outlined below. These objectives are meant to strengthen Best Buy’s
financial position and address the issues of changing consumer preferences and extensive
competition within the industry. It is recommended that Best Buy examine their positioning as a
company, focus on increasing profit by reducing costs, drive sales, and satisfy certain publics.
4A. Image and Positioning
Best Buy should focus on refining its store format to adjust its image and positioning. In
regards to positioning, a retailer “devises its strategy in a way that projects an image relative to
its retail category and its competitors [in hopes of eliciting] a positive customer response”
(Berman/Evans, pg. 64). In short, positioning allows a retailer to determine the decisions it needs
to make to display a desired image of the company. Best Buy, like other specialty retailers,
currently employs a value oriented mass merchandising positioning approach. In this approach
the company offers a narrow assortment with a more depth. The assortment is limited to
electronics and electronic related products. In this era of bifurcated retailing where neither both
mass merchandising and niche retailing are popular (Berman/Evans, pg. 64), Best Buy is running
the risk of being a middle of the market retailer which include firms that are neither
competitively priced nor differentiated (Berman/Evans, pg. 65). Best Buy has addressed its
competitive pricing issues by instating a new price match policy that guarantees it has the lowest
price between brick and mortar competitors and a variety of e-commerce channels. This was in
hopes to gain back a customer base that is shifting toward lower priced items online. Within
three years Best Buy should hope to fortify its position as a value oriented mass merchandiser
but strive to make their in-store assortment even narrower than their current offerings. Best Buy
has started to drive this strategy by progressively changing their store formats from large box
retailers to smaller mobile stores. These stores focus on mobile devices and carry fewer products.
With these smaller stores being rolled out, Best Buy should consider investing further in its
online presence and carrying the majority of larger products through its website. The financial
benefits of this strategy will be outlined below.
4B. Revenue
A second objective that Best Buy should focus on for the next three years is to increase
its sales volumes. Best Buy has seen a decrease in sales and market share due to the
showrooming phenomenon in recent years. This occurs when consumers would visit Best Buy to
look at or try a product and then look for it at a cheaper price; usually with their smartphones
(Brown, 2013). The age of e-commerce sites such as Amazon.com and products being sold at
discount retailers such as Wal-Mart and Target have adversely affected Best Buy’s sales. Best
Buy used its price-match guarantee to gain back some of this lost volume. It can be argued that
Best Buy will have to engage in this discount strategy – low prices, high volumes –
(Berman/Evans, pg. 63) to ensure consumers continue to shop within its stores. Best Buy can
also hope to increase its sales volume by ensuring it adapts its product lines to current consumer
preferences and removes products that are not being purchased within the store. By using these
strategies Best Buy should hope to continue increasing its sales volumes back above $50 million
within the next three years.
4C. Net Profit Margin
Another objective that Best Buy should strive to reach is to increase its net profit margin.
This figure represents essentially how much money has been added to the bottom line of the
company after deducting costs, taxes, and other expenses from the sales revenue. Due to
executive decisions being made to alter store formats within the last two years, the company did
not have a positive net income in year ended February 2012 and January 2013. Since it is
recommended that the company open more of its Best Buy Mobile stores and close larger box
stores, the next two years may also see no net profit margin. This result should be a calculated
risk pivoting on the idea that more Best Buy Mobile stores will mean a decrease in overall
operating costs due to the smaller size of the store. In addition to the cost of the property being
lower, if the smaller stores employ fewer personnel, then the payroll costs could decrease
company wide. For this reason, Best Buy should hope to increase their net profit margin back
above 2.5% by 2016 which has been the approximate average in the three years prior to 2012.
Best Buy should be mindful however as not to sacrifice service in lieu of these new changes.
4D. Satisfaction of Publics
The final objective that Best Buy should focus on is ensuring that its stakeholders are
satisfied. Specifically, the company should ensure that it is striving to meet the needs of its
suppliers, employees, customers, and shareholders. It can be argued that the benefit of focusing
on its stakeholders is that there is a trickledown effect from the employees to the shareholders.
This means that theoretically if the company’s employees are treated correctly, they will serve
the customer properly; if the customers are adequately served, sales would potentially increase
resulting in increased shareholder satisfaction. Although no figures were found regarding
employee turnover within the company, within three years the company should strive to ensure
that turnover rate is low. It will be a challenge because turnover rates in any retail industry are
generally high. If Best Buy starts with better retaining and training of its employees, then the
company will be able to properly serve its customers. Best Buy should make strides to improve
its customer service within the next three years. The company should continue to develop its
image as providing expertise to continue to drive customers into its stores. If the customer is
served properly, in theory sales will follow.
Maintaining favorable relationships with Best Buy’s suppliers also can prove to be
beneficial. Best Buy will have to continue to be the primary retailer of manufacturers such as
Samsung, Apple, and Microsoft to ensure that the newest products that consumers demand are
available for purchase. Best Buy is currently employing Samsung modules within their stores
which is a specialty section dedicated to Samsung products. Best Buy should retain this
relationship as Samsung is progressively gaining popularity. Best Buy should also make it an
objective to entice companies such as Google or Microsoft to have their own sections within the
store (Brown, 2013). If Best Buy were to implement some of these things over the next three
years, it should lead to long term success for the company. Lets proceed to the final
recommendations that Best Buy needs to implement.
5. Strategy Recommendation
5A. Target Market
Best Buy’s largest target market is middle class males in their late twenties to early
forties. From the data that we have collected most Best Buy shoppers are generally satisfied
with the in store experience as well as online shopping on more of a product pending basis. This
is definitely the demographic that will spend the most time and money at Best Buy. Best Buy
could better serve this market by catering to what trends are indicating, larger purchases are more
likely to be made in store while less valuable items are more likely to be purchased online. A
great way to respond to this finding would be to have stronger in store marketing campaigns on
items such as entertainment systems and other major purchases while putting a greater emphasis
on online marketing for items such as video games, music, music devices, and movies. Whether
the intent is to raise in store traffic or online traffic, the best way to advertise is with social media
and dispersing coupons electronically. With this campaign Best Buy would attract potential
buyers as well as be able to reach more tech savvy consumers through Facebook and Twitter.
The best way to implement this form of advertising campaign would be to develop a
strong online presence. One idea would be to implement online coupons through Twitter and
Facebook with an emphasis on electronic purchases under $250 and with an emphasis on in store
deals over $250. What this campaign should do is encourage consumers who wish to purchase
smaller ticket items to use BestBuy.com as opposed to the competitors such as Amazon. The
larger ticket in store campaigns will keep potential in store purchasers from going to other
electronic stores such as Fry’s and even superstores such as Target or Wal-Mart. To even
elaborate on the social aspect of the campaign you could even set up e-coupons where the
number of people that you share the coupon with the more money you save. With this technique
you are able to turn consumers into potential marketers.
Beyond attracting their regular target demographic a digital coupon campaign will create
a buzz with coupon users as well as social media junkies. Implementing social marketing will
attract a younger crowd and may keep future consumers from choosing Amazon for their regular
electronic purchases. Social marketing is also seen as the future of marketing so by devoting a
greater percentage of their resources to developing and maintaining a strong social media
presence is not only beneficial in the short term but could really benefit Best Buy in the long run.
5B. Retail Mix
One area where Best Buy has taken great strides to ensure customer satisfaction is in
pricing. Best Buy currently has a price match system that reassures consumers that Best Buy is
willing to offer consumers the best price possible. The price match system makes sure that
consumers are getting their products for the best price possible whether online or in store. This
is an area where Best Buy has done everything they could do to ensure the customer is satisfied
with the Best Buy price scheme.
In terms of merchandising it is very important for Best Buy to develop a strong online
presence. A strong online presence is imperative to the overall sales in the current retail era.
This is an area that Best Buy is currently looking to expand upon. According to Best Buy
executive vice president Shari Ballard, “There’s a new definition of convenience: the ability to
interact with a company on your terms.” According to the same article from internetretailer.com,
“The company plans to expand on domestic e-commerce success,” she said, noting that 60% of
Best Buy store purchases are researched online and 40% of online purchases are picked up in
stores. The company looks to double its annual internet sales from $2 billion to $4 billion in the
next five years. It is quite clear that the direction Best Buy needs to go is in internet
merchandising; an area that has shown considerable growth recently. As stated earlier, online
promotions through social marketing will boost sales online and will create greater in store
traffic.
Service level for Best Buy has become a very important concern with a large amount of
consumers purchasing online for in store pickup there is a high demand for items. With a
growing number of online shoppers preferring in store pickup, it is important for Best Buy’s
delivery system to keep up with the demand. The best way to deal with this demand would be
developing a strong logistics team that is keen on making sure that all locations have an adequate
supply for both potential in store transactions, as well as pending online pickups. A greater focus
on restocking time will benefit the company while keeping customers satisfied with their
decision to shop at Best Buy. An area that Best Buy has been very successful is customer
service after the point of purchase. Best Buy’s Geek Squad has been very important to the
company’s image, as a “hands on retailer”. The Geek Squad assures customers that any
concerns or problems with equipment purchased from Best Buy will be dealt with in a timely,
professional manner.
Best Buy has recently been updating their store design to keep up with the changing
market. The new revamped stores include a Geek Squad station to help potential customers, as
well as people who have already made their purchases, and want to get the most out of their
devices. The stores also have areas where customers can demo items ranging from video games,
computers, tablets, smart phones, and televisions. These areas help develop a very personal in
store experience and help differentiate Best Buy from retailers such as Wal-Mart and Target.
The store also features brand specific sections such as an Apple section that assures that
customers are dealing with salespeople that are knowledgeable with specific brands and
products. Digital displays are used to inform the customer’s instantaneous updates and
information on sales and products. They have also increased the number of checkouts to keep
lines as short as possible. Best Buy’s new revamped locations are a great example of building a
store that is consumer friendly. As the company continues to update their locations it is
important to continue to offer customers the most intimate setting for possible consumers.
With Best Buy updating its stores to cater to the demands of the customer it is important
to consider location. With the rise in internet sales it is very important to keep locations to areas
where high traffic is easily attained. This leaves less populated areas to be served by Best Buy’s
online store. With the focus of Best Buy shifting toward the online market, the development of
new locations must be taken with extreme caution. Best Buy currently services metropolises and
there surrounding areas and it is important to stay in areas that will stay profitable. Recently,
Best Buy has closed many stores; opting to close certain locations rather than update them. It is
important for Best Buy to only place stores in profitable locations. With the increase in internet
sales the stores have become an afterthought for many consumers. The development of more
Best Buy Express kiosks to serve areas that would not be a right fit for an actual store is an idea
that Best Buy may want to consider. With express kiosks Best Buy is able to sell high action
items with very little overhead. The kiosks are a smart alternative for both extremely high traffic
areas such as airports as well as malls in areas that may not be a right fit for an entire store.
Best Buy currently has many promotional deals aimed at increasing sales. One major
example is the Best Buy Rewards Zone card that offers deals to members as well as rewarding
members for purchasing items from Best Buy. This is a good campaign but as it was stated
earlier Best Buy would be best suited using a promotional strategy that utilizes the current social
marketing trend. Sites such as Facebook and Twitter are easy ways to reach potential customers
and to keep current consumers coming back.
5C. Digital Presence
It is extremely important as a company to stay ahead in terms of innovative marketing. It
is even more important for a company that is in the electronics and technology industry. As the
marketing industry begins to rely more on social media sites such as Groupon, Twitter, and
Facebook, it is important for Best Buy to position themselves at the head of the pack. As a
company that deals with computers, smartphones, and tablets it is important to position the
company as a retailer that is always ahead of the game in the digital age. Best Buy has already
decided to raise its online budget to $4 billion and it is a very important step for Best Buy in the
digital age. With an innovative website Best Buy would be able to regain the revenue it has lost
to its online competitors. If Best Buy is able to establish an online presence that could rival
Amazon, they would be able to turn the current situation around. With strong website sales Best
Buy would be able to save some of the struggling locations either through shutting it down and
going to pure online sales or by allocating different resources to keep the store closures to a
minimum.
5D. Customer Relationship Management
Best Buy has made great strides to keep their customers happy. The implementation of
the price match system is one way that Best Buy guarantees that all customers will have the
opportunity to purchase their product at the lowest possible price. This shows both loyalty and
respect to the customer. The price match system rewards customers for shopping around and
choosing to purchase from Best Buy even if it means they are losing revenue on the sale.
Another place where Best Buy has shown great customer loyalty is the Geek Squad. As it was
mentioned earlier, the Geek Squad is the technological department for Best Buy and assures
customers that all of their questions and problems will be dealt with. Best Buy also has the
rewards zone card which helps keep the customer with a good view of the store through
promotions. The card also encourages repeat customers.
One idea for Best Buy to boost their customer relationship would be to get involved with
different charities and other events of that nature. If Best Buy began sponsoring charity events it
would send a positive message that they care about the community. Furthermore, it really does
not cost the company very much since the donations are tax deductible. This would mean a
boosted public image without any real financial setbacks. This approach would also position
Best Buy as more of a neighborhood store as opposed to Amazon who the consumer is much less
physically involved with while making their purchases. By getting further into the charity sector,
Best Buy would be able to attract a crowd that are more interested in companies philanthropic
activities as well as maintaining their current clientele.
Going with the m-commerce idea the presence of Best Buy through social media sites
will help build a strong bond with the customer since the sharing of coupons and friend functions
helps Best Buy develop a family feel. If a company like Best Buy is able to connect with the
consumer on a more personal level it will lead to a greater brand image as well as a strong
alliance between consumer and retailer. A strong social marketing campaign will also boost
sales for the proposed $4 billion dollar web store upgrades. The Twitter and Facebook
campaigns will drive traffic to the web store through links and electronic coupons.
Bibliography
Berman, Barry, and Joel R. Evans. Retail management: A Strategic Approach. Upper Saddle
River: Pearson, 2012. Print.
Best Buy Co., Inc. Jay P. Pederson, Susan Windisch Brown, David E. Salamie, and Jeffrey L.
Covell. International Directory of Company Histories. Ed. Jay P. Pederson. Vol. 141. Detroit:
St. James Press, 2013. p89-96. Word Count: 5716.
"Best Buy Co., Inc. SWOT Analysis." Best Buy Co, Inc. SWOT Analysis (2013): 1-10. Business
Source Premier. Web. 29 Apr. 2013.
"Best Buy Competitive Landscape." Hoover's. D&B Company, n.d. Web. 20 Apr. 2013.
"Best Buy On | Media Network." Best Buy On. N.p., n.d. Web. 29 Apr. 2013.
Briggs, Bill. "Best Buy Plans to Double Its E-commerce Business." Merchandising and
Design.
N.p., 14 Apr. 2011. Web. 28 Apr. 2013.
<http://www.internetretailer.com/2011/04/14/best-buy-plans-double-its-e-commerce-business>
Brown, Abram. "A New Move By Best Buy To Eliminate Showrooming Trap - Forbes."
Forbes.com. N.p., 4 Apr. 2013. Web. 25 Apr. 2013.
<http://www.forbes.com/sites/abrambrown/2013/04/04/a-new-move-by-bestbuy-to-eliminate-showrooming-trap/>.
Appendix
Best Buy Income Statement from 2009-2012
Feb 2012
Feb 2011
Feb 2010
Feb 2009
Revenue
50,705.00
50,272.00
49,694.00
45,015.00
Cost of Goods Sold
38,132.00
37,635.00
37,534.00
34,017.00
Gross Profit
12,573.00
12,637.00
12,160.00
10,998.00
25.00%
25.00%
24.00%
24.00%
10,242.00
10,325.00
9,873.00
8,984.00
945.00
978.00
926.00
793.00
1,085.00
2,114.00
2,235.00
1,870.00
Operating Margin (%)
2.00%
4.00%
4.00%
4.00%
Nonoperating Income
92.00
51.00
54.00
(135.00)
Nonoperating Expenses
(134.00)
(87.00)
(94.00)
Income Before Taxes
1,043.00
2,078.00
2,195.00
1,700.00
Income Taxes
709.00
714.00
802.00
674.00
Net Income After Taxes
334.00
1,364.00
1,393.00
1,026.00
Continuing Operations
330.00
--
--
(308.00)
--
--
Gross Profit Margin (%)
SG&A Expense
Depreciation & Amortization
Operating Income
Discontinuing Operations
--
1,003.00
--
Total Operations
(1,231.00)
1,277.00
1,317.00
1,003.00
Total Net Income
(1,231.00)
1,277.00
1,317.00
1,003.00
-2.43%
3.00%
3.00%
2.00%
Diluted EPS from Continuing Operations
(2.89)
3.08
3.10
2.39
Diluted EPS from Total Operations
(3.36)
3.08
3.10
2.39
Diluted EPS from Total Net Income
(3.36)
3.08
3.10
2.39
0.62
0.58
0.56
0.54
Net Profit Margin (%)
Dividends Per Share