TOWS/SFAS Matrix

C-1

encourages its employees to go out of their way to help customers understand what these products can do and how customers can get the most out of the products they purchase. Employees must recognize that each customer is unique and thus determine the best method to help that customer achieve maxi- mum enjoyment from the product(s) purchased.

From a strategic standpoint, Best Buy moved from being a discount retailer (a low-price strategy) to a service-oriented firm that relies on a differentia- tion strategy. In 1989, it changed the compensation structure for sales associates from commission based to noncommission based, which resulted in consum- ers having more control over the purchasing process and in cost savings for the company (the number of sales associates was reduced). In 2005, Best Buy took customer service a step further by moving from peddling gadgets, to a customer-centric operating model. It is now gearing up for another change to focus on store design and providing products and services in line with customers’ desire for constant connectivity.

Company History2

From Sound of Music to Best Buy Best Buy was originally known as Sound of Music. Incorporated in 1966, the company started as a retailer of audio components and expanded to retail- ing video products in the early 1980s with the intro- duction of the videocassette recorder to its product line. In 1983, the company changed its name to Best Buy Co., Inc. (Best Buy). Shortly thereafter, it began operating its existing stores under a “superstore” con- cept by expanding product offerings and using mass marketing techniques to promote those products.

In 1989 Best Buy dramatically altered the func- tion of its sales staff. Previously, the sales staff

Best Buy Co., Inc.: Sustainable Customer Centricity Model?

The author would like to thank Kevin Clark, Leonard D’Andrea, Amanda Genesky, Geoff Merritt, Chris Mudarri, and Dan Fowler for their research. Please address all correspondence to Dr. Alan N. Hoffman, MBA Program Director, LaCava 295, Bentley University, 175 Forest Street, Waltham, MA 02452; [email protected].

Best Buy Co., Inc.: Sustainable Customer Centricity Model?

Best Buy, headquartered in Richfield, Minnesota, is a specialty retailer of consumer electronics. It operates over 1,100 stores in the United States, accounting for 19 percent of the market. With approximately 155,000 employees, it also operates over 2,800 stores in Canada, Mexico, China, and Turkey. The company’s subsidiaries include Geek Squad, Magnolia Audio Video, Pacific Sales, and in Canada, it operates under both the Best Buy and Future Shop labels.

Best Buy’s mission is to make technology deliver on its promises to customers. To accomplish this, it helps customers realize the benefits of technology and technological changes so they can enrich their lives in a variety of ways through connectivity: “To make life fun and easy,”1 as Best Buy puts it. This is what drives the company to continually increase the tools to support customers in the hope of providing end-to-end technology solutions.

As a public company, Best Buy’s top objectives are sustained growth and earnings. This is accom- plished in part by constantly reviewing its business model to ensure that it is satisfying customer needs and desires as effectively and completely as possi- ble. The company strives to have not only extensive product offerings but also highly trained employees with extensive product knowledge. The company

Dr. Alan N. Hoff man / Rotterdam School of Management, Erasmus University and

Bentley University

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C-2 Best Buy Co. Inc.: Sustainable Customer Centricity Model?

worked on a commission basis and as a result was more proactive in assisting customers coming into the stores. Since 1989, when the commission struc- ture was terminated, sales associates have developed into educators assisting customers in learning about the products offered in the stores. The customer, to a large extent, takes charge of the purchasing pro- cess. The sales staff’s mission became to answer cus- tomer’s questions so that the customer could decide which product(s) fit his or her needs. This differed greatly from their former mission of simply generat- ing sales.

In 2000, the company launched its online retail store: BestBuy.com. This allowed customers a choice between visiting a physical store and purchasing products online, thus expanding Best Buy’s reach among consumers.

Expansion through Acquisitions Since 2000, Best Buy has begun a series of acquisi- tions to expand their offerings and enter interna- tional markets:

2000—Best Buy acquired Magnolia Hi-Fi, Inc., a high-end retailer of audio and video products and services, which became Magnolia Audio Video in 2004. This acquisition allowed Best Buy access to a set of upscale customers.

2001—Best Buy entered the international mar- ket with the acquisition of Future Shop Ltd., a leading consumer electronics retailer in Canada. This helped Best Buy increase revenues, gain market share, and leverage operational expertise. The same year, it also opened its first Canadian store. In the same year, the company purchased Musicland, a mall-centered music retailer throughout the United States (divested in 2003).

2002—Best Buy acquired Geek Squad, a com- puter repair service provider, to help develop a technological support system for customers. The retailer began by incorporating in-store Geek Squad centers in its 28 Minnesota stores and expanding nationally and then internationally in subsequent years.

2005—Best Buy opened the first Magnolia Home Theater “store-within-a-store” (located within the Best Buy complex).

2006—Best Buy acquired Pacific Sales Kitchen and Bath Centers Inc. to develop a new customer base: builders and remodelers. The same year, it

also acquired a 75 percent stake in Jiangsu Five Star Appliance Co. Ltd., a China-based appliance and consumer electronics retailer. This enabled the company to access the Chinese retail market and led to the opening of the first Best Buy China store on January 26, 2007.

2007—Best Buy acquired Speakeasy, Inc., a pro- vider of broadband, voice, data, and information technology services, to further its offering of tech- nological solutions for customers.

2008—Through a strategic alliance with the Carphone Warehouse Group, a UK-based pro- vider of mobile phones, accessories, and related services, Best Buy Mobile was developed. After acquiring a 50 percent share in Best Buy Europe (with 2,414 stores) from the Carphone Warehouse, Best Buy intends to open small-store formats across Europe in 2011.3 Best Buy also acquired Napster, a digital downloads provider, through a merger, to counter the falling sales of compact discs.

The first Best Buy Mexico store was opened.

2009—Best Buy acquired the remaining 25 per- cent of Jiangsu Five Star. Best Buy Mobile moved into Canada.

Industry Environment

Industry Overview Despite the negative impact the financial crisis has had on economies worldwide, in 2008 the consumer electronics industry managed to grow to a record high of US$694 billion in sales—a nearly 14 per- cent increase over 2007. In years immediately prior, the growth rate was similar: 14 percent in 2007 and 17 percent in 2006. This momentum, however, did not last. Sales dropped 2 percent in 2009, the first decline in 20 years for the electronics giant.

A few product segments, including televisions, gaming, mobile phones, and blu-ray players, drive sales for the company. Television sales, specifically LCD units, which account for 77 percent of total television sales, were the main driver for Best Buy as this segment alone accounts for 15 percent of total industry revenues. The gaming segment con- tinues to be a bright spot for the industry, as sales are expected to have tremendous room for growth. Smartphones are another electronics industry seg- ment predicted to have a high growth impact on the entire industry.

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Best Buy Co. Inc.: Sustainable Customer Centricity Model? C-3

The consumer electronics industry has sig- nificant potential for expansion into the global marketplace. There are many untapped markets, especially newly developing countries. These mar- kets are experiencing the fastest economic growth while having the lowest ownership rate for gad- gets.4 Despite the recent economic downturn, the future for this industry is optimistic. A consumer electronics analyst for the European Market Research Institute predicts that the largest growth will be seen in China (22 percent), the Middle East (20 percent), Russia (20 percent), and South America (17 percent).5

Barriers to Entry As globalization spreads and use of the Internet grows, barriers to entering the consumer electron- ics industry are diminished. When the industry was dominated by brick-and-mortar companies, obtain- ing the large capital resources needed for entry into the market was a barrier for those looking to gain any significant market share. Expanding a business meant purchasing or leasing large stores that incurred high initial and overhead costs. However, the Internet has significantly reduced the capital requirements needed to enter the industry. Companies like Amazon.com and Dell have utilized the Internet to their advantage and gained valuable market share.

The shift toward Internet purchasing has also negated another once strong barrier to entry— customer loyalty. The trend today is that consum- ers will research products online to determine which one they intend to purchase and then shop around on the Internet for the lowest possible price.

Even though overall barriers are diminished, there are still a few left, which a company like Best Buy can use to their advantage. The first, and most significant, is economies of scale. With over 1,000 locations, Best Buy can use their scale to obtain cost advantages from suppliers due to high quantity of orders. Another advantage is in advertising. Large firms have the ability to increase advertising budgets to deter new entrants into the market. Smaller com- panies generally do not have the marketing budgets for massive television campaigns, which are still one of the most effective marketing strategies available to retailers. Although Internet sales are growing, the industry is still dominated by brick-and-mortar stores. Most consumers looking for electronics— especially major electronics—feel a need to actually see their prospective purchases in person. Having

the ability to spend heavily on advertising will help increase foot traffic to these stores.

Internal Environment

Finance While Best Buy’s increase in revenue is encouraging (see Exhibit 1), recent growth has been fueled largely by acquisition, especially Best Buy’s 2009 revenue growth. At the same time, net income and operating margins have been declining (see Exhibits 2 and 3). Although this could be a function of increased costs, it is more likely due to pricing pressure. Given the current adverse economic conditions, prices of many consumer electronics products have been forced down by economic and competitive pressures. These lower prices have caused margins to decline, nega- tively affecting net income and operating margins.

Best Buy’s long-term debt increased substan- tially from 2008 to 2009 (see Exhibit 4), which is primarily due to the acquisition of Napster and Best Buy Europe. The trend in available cash has been a mirror image of long-term debt. Available cash increased from 2005 to 2008 and then was substan- tially lower in 2009 for the same reason.

While the change in available cash and long-term debt are not desirable, the bright side is that this situ- ation is due to the acquisition of assets, which has led to a significant increase in revenue for the company. Ultimately, the decreased availability of cash would seem to be temporary due to the circumstances. The more troubling concern is the decline in net income and operating margins, which Best Buy needs to find a way to turn around. If the problems with net income and operating margins are fixed, the trends in cash and long-term debt will also begin to turn around.

At first blush, the increase in accounts receiv- able and inventory is not necessarily alarming since revenues are increasing during this same time period (see Exhibit 5). However, closer inspection reveals a 1 percent increase in inventory from 2008 to 2009 and a 12.5 percent increase in revenue accompanied by a 240 percent increase in accounts receivable. This creates a potential risk for losses due to bad debts.

Marketing Best Buy’s marketing objectives are fourfold: (a) to market various products based on the customer cen- tricity operating model, (b) to address the needs of customer lifestyle groups, (c) to be at the forefront of technological advances, and (d) to meet customer needs with end-to-end solutions.

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C-4 Best Buy Co. Inc.: Sustainable Customer Centricity Model?

Exhibit 1 Quarterly Sales

Fiscal Year 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

2005 $5,479 $6,080 $6,647 $9,227

2006 $6,118 $6,702 $7,335 $10,693

2007 $6,959 $7,603 $8,473 $12,899

2008 $7,927 $8,750 $9,928 $13,418

2009 $8,990 $9,801 $11,500 $14,724

2010 $10,095

Exhibit 2 Quarterly Net Income

Fiscal Year 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

2005 $114 $150 $148 $572

2006 $170 $188 $138 $644

2007 $234 $230 $150 $763

2008 $192 $250 $228 $737

2009 $179 $202 $52 $570

2010 $153

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Exhibit 3 Operating Margin

Exhibit 4 Long-Term Debt and Cash

Fiscal Year 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

2005 3.36% 3.98% 3.51% 8.49%

2006 3.91% 3.89% 2.58% 8.97%

2007 4.84% 4.34% 2.31% 8.81%

2008 3.36% 4.58% 3.54% 8.52%

2009 3.08% 3.46% 2.38% 7.63%

2010 3.45%

Fiscal Year 2005 2006 2007 2008 2009

Long-Term Debt (LTD) $528 $178 $590 $627 $1,126

Cash $354 $748 $1,205 $1,438 $498

LTD/Equity 0.12 0.03 0.10 0.14 0.24

LTD/Total Assets 0.05 0.02 0.04 0.05 0.07

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C-6 Best Buy Co. Inc.: Sustainable Customer Centricity Model?

Best Buy prides itself on customer centricity that caters to specific customer needs and behaviors. Over the years, the retailer has created a portfolio of products and services that complement one another and have added to the success of the business. These products include seven distinct brands domestically, as well as other brands and stores internationally:

Best Buy—offers a wide variety of consumer elec- tronics, home office products, entertainment soft- ware, appliances, and related services.

Best Buy Mobile—stand-alone stores offer a wide selection of mobile phones, accessories, and related services in small-format stores.

Geek Squad—provides residential and commer- cial product repair, support, and installation ser- vices both in-store and on-site.

Magnolia Audio Video—offers high-end audio and video products and related services.

Napster—an online provider of digital music.

Pacific Sales—offers high-end home improvement products primarily including appliances, con- sumer electronics, and related services.

Speakeasy—provides broadband, voice, data, and information technology services to small businesses.

Starting in 2005, Best Buy initiated a strategic transition to a customer-centric operating model,

which was completed in 2007. Prior to 2005, the company focused on customer groups such as afflu- ent professional males, young entertainment enthusi- asts, upscale suburban mothers, and technologically advanced families.6 After the transition, it focused more on customer lifestyle groups such as affluent suburban families, trend-setting urban dwellers, and the closely knit families of Middle America.7 To tar- get these various segments, Best Buy acquired firms with aligned strategies, which could be used as a competitive advantage against its strongest competi- tion, such as Circuit City and Walmart. The acquisi- tions of Pacific Sales, Speakeasy, and Napster, along with the development of Best Buy Mobile, created more product offerings, which led to more profits.

To market all these different types of prod- ucts and services is a difficult task. That is why Best Buy’s employees have more training than that of their competitors. This knowledge service is a value-added competitive advantage. Since the sales employees no longer operate on a commission-based pay structure, consumers can obtain knowledge from sales people without being subjected to high- pressure sales techniques. This is generally seen to enhance customer shopping satisfaction.

Operations Best Buy’s operating objectives include increas- ing revenues by growing its customer base, gain- ing more market share internationally, successfully

Exhibit 5 Accounts Receivable and Inventory

Fiscal Year 2005 2006 2007 2008 2009

Inventory $2,851 $3,338 $4,028 $4,708 $4,753

Accounts Receivable $375 $449 $548 $549 $1,868

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implementing marketing and sales strategies in Europe, and having multiple brands for different customer lifestyles through mergers and acquisitions (M&A).

Domestic Best Buy store operations are organized into eight territories, with each territory divided into districts. A retail field officer oversees store perfor- mance through district managers, who meet with store employees on a regular basis to discuss operations strategies such as loyalty programs, sales promotion, and new product introductions.8 Along with domestic operations, Best Buy has an international operation segment, originally established in connection with the acquisition of Canada-based Future Shop.9

In 2009, Best buy opened 285 new stores in addition to the European acquisition of 2,414 Best Buy Europe stores, relocated 34 stores, and closed 67 stores.

Human Resources The objectives of Best Buy’s human resources depart- ment are to select employees that give consumers the best knowledge of products and services, which portrays the company’s vision and strategy on an everyday basis, and to educate employees on the ins and outs of new products and services.

Best Buy employees are required to be ethical and knowledgeable. This principle starts within the top-management structure and filters down from the retail field officer through district managers, and through store managers to the employees on the floor. Every employee must have the company’s vision embedded in his or her service and attitude.

Despite Best Buy’s efforts to train an ethical and knowledgeable employee force, there have been some allegations and controversy over Best Buy employ- ees, which has given the company a bad black eye in the public mind. One lawsuit claimed that Best Buy employees had misrepresented the manufactur- er’s warranty in order to sell its own product ser- vice and replacement plan. It accused Best Buy of “entering into a corporate-wide scheme to institute high-pressure sales techniques involving the extended warranties” and “using artificial barriers to discour- age consumers who purchased the ‘complete extended warranties’ from making legitimate claims.”10

In a more recent case (March 2009), the U.S. District Court granted Class Action certification to allow plaintiffs to sue Best Buy for violating its “Price Match” policy. According to the ruling, the plaintiffs allege that Best Buy employees would aggressively deny consumers the ability to apply the company’s

“price match guarantee.”11 The suit also alleges that Best Buy has an undisclosed “Anti-Price Matching Policy,” where it tells its employees not to allow price matches and gives financial bonuses to employees who do this.

Competition

Brick-and-Mortar Competitors Walmart Stores Inc., the world’s largest retailer with revenues over US$405 billion, has operations world- wide and offers a diverse product mix with a focus on being a low-cost provider. In recent years, Walmart has increased its focus on grabbing market share in the consumer electronics industry. In the wake of Circuit City’s liquidation,12 it is stepping up efforts by striking deals with Nintendo and Apple that will allow each company to have their own in-store displays. Walmart has also considered using smart- phones and laptop computers to drive growth.13 It is refreshing 3,500 of its electronics departments and will begin to offer a wider and higher range of electronic products. These efforts will help Walmart appeal to the customer segment looking for high quality at the lowest possible price.14

GameStop Corp. is the leading video game retailer with sales of almost US$9 billion as of January 2009, in a forecasted US$22 billion industry. It operates over 6,000 stores throughout the United States, Canada, Australia, and Europe, as a retailer of both new and used video game products including hard- ware, software, and gaming accessories.15

The advantage GameStop has over Best Buy is the number of locations: 6,207 GameStop locations compared to 1,023 Best Buy locations. However, Best Buy seems to have what it takes to overcome this advantage—deep pockets. With significantly higher net income, Best Buy can afford to take a hit to their margins and undercut GameStop prices.16

RadioShack Corp. is a retailer of consumer electronic goods and services including flat panel televisions, telephones, computers, and consumer electronic accessories. Although the company grosses revenues of over US$4 billion from 4,453 locations, RadioShack has consistently lost market share to Best Buy. Consumers have a preference for RadioShack for audio and video components, yet prefer Best Buy for their big box purchases.17

Second-tier competitors are rapidly increasing. Wholesale shopping units are becoming more popu- lar, and companies such as Costco and BJ’s have, over the past few years, increased their piece of the

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consumer electronics pie. After Circuit City’s bank- ruptcy, mid-level electronics retailers like HH Gregg and Ultimate Electronics are scrambling to grab Circuit City’s lost market share. Ultimate Electronics, owned by Mark Wattles, who was a major inves- tor in Circuit City, has a leg up on its competitors. Wattles was on Circuit City’s board of executives and had firsthand access to profitable Circuit City stores. Ultimate Electronics has plans to expand its operations by at least 20 stores in the near future.

Online Competitors Amazon.com, Inc. has, since 1994, grown into the United States’ largest online retailer with revenues of over US$19 billion in 2008 by providing just about any product imaginable through its popular Web site. Begun as an online bookstore, Amazon soon ventured into various consumer electronic product categories including computers, televisions, soft- ware, video games and much more.18

Amazon.com gains an advantage over its super- center competitors as it is able to maintain a lower cost structure compared to brick-and-mortar com- panies such as Best Buy. It is able to push those sav- ings through to their product pricing and selection/ diversification. With an increasing trend in the con- sumer electronics industry to shop online, Amazon. com is positioned perfectly to maintain strong market growth and potentially steal some market share away from Best Buy.

Netflix, Inc. is an online video rental service, offering selections of DVDs and Blu-ray discs. Since its establishment in 1997, it has grown into a US$1.4 billion company. With over 100,000 titles in its col- lection, it ships for free to approximately 10 mil- lion subscribers. It has also begun offering streaming downloads through its Web site, which eliminates the need to wait for a DVD to arrive.

Netflix is quickly changing the DVD market, which has dramatically impacted brick-and-mortar stores such as Blockbuster and Hollywood Video and retailers who offer DVDs for sale. In a respon- sive move, Best Buy has partnered with CinemaNow to enter the digital movie distribution market and counter Netflix and other video rental providers.19

Core Competencies

Customer Centricity Model Most players in the consumer electronics industry focus on delivering products at the lowest cost (Walmart— brick-and-mortar, Amazon—Web-based). Best Buy,

however, has taken a different approach by provid- ing customers with highly trained sales associates who are available to educate customers regarding product features. This allows customers to make informed buying decisions on big-ticket items. In addition, with the Geek Squad, Best Buy is able to offer and provide installation services, product repair, and ongoing support. In short, it can provide an end-to-end solution for its customers.

Best Buy has used their customer centricity model, which is built around a significant database of customer information, to construct a diversified portfolio of product offerings. This allows the com- pany to offer different products in different stores in a manner that matches customer needs. This in turn helps keep costs lower by shipping the correct inven- tory to the correct locations. Since Best Buy’s costs are increased by the high level of training needed for sales associates and service professionals, it has been important that the company remain vigilant in keeping costs down wherever they can without sacrificing customer experience.

The tremendous breadth of products and ser- vices Best Buy is able to provide allows customers to purchase all components for a particular need within the Best Buy family. For example, if a cus- tomer wants to set up a first-rate audio-visual room at home, he or she can go to the Magnolia Home Theater store-within-a-store at any Best Buy loca- tion and use the knowledge of the Magnolia or Best Buy associate in the television and audio areas to determine which television and surround sound the- ater system best fits his or her needs. The customer can then employ a Geek Squad employee to install and set up the television and home theater system. None of Best Buy’s competitors offer this extensive level of service.

Successful Acquisitions Through its series of acquisitions, Best Buy has gained valuable experience in the process of inte- grating companies under the Best Buy family. The ability to effectively determine where to expand has been and will be key to the company’s ability to differentiate itself in the marketplace. Additionally, Best Buy has also been successfully integrating employees from acquired companies. Due to the importance of high-level employees to company strategy and success, retaining this knowledge base is invaluable. Best Buy now has a significant global presence, which is important because of the maturing domestic market. This global presence has

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provided the company with insights into worldwide trends in the consumer electronics industry and afforded access to newly developing markets. Best Buy uses this insight to test products in different markets in its constant effort to meet and anticipate customer needs.

Retaining Talent Analyzing Circuit City’s demise, many experts have concluded one of the major reasons for the compa- ny’s downfall is that Circuit City let go of their most senior and well-trained sales staff in order to cut costs. Best Buy, on the other hand, has a reputation for retaining their talent and is widely recognized for its superior service. Highly trained sales profession- als have become a unique resource in the consumer electronics industry, where technology is changing at an unprecedented rate, and can be a significant source of competitive advantage.

Challenges Ahead

Economic Downturn Electronics retailers like Best Buy sell products that can be described as “discretionary items, rather than necessities.”20 During economic recessions, however, consumers have less disposable income. While there has been recent optimism about a possible economic turnaround, if the economy continues to stumble, this presents a real threat to sellers of discretionary products.

In order to increase sales revenues, many retail- ers, including Best Buy, offer customers low-interest financing through their private-label credit cards. These promotions have been tremendously success- ful for Best Buy. From 2007 to 2009, these private- label credit card purchases accounted for 16 percent to 18 percent of Best Buy’s domestic revenue. Due to the current credit crisis, however, the Federal Reserve has issued new regulations that could restrict companies from offering deferred inter- est financing to customers. If Best Buy and other retailers are unable to extend these credit lines, it could have a tremendous negative impact on future revenues.21

Pricing and Debt Management The current economic conditions, technological advances, and increased competition have put a tre- mendous amount of pricing pressure on many con- sumer electronics products. This is a concern for all companies in this industry. The fact that Best Buy

does not compete strictly on price structure alone makes this an even bigger concern. Given the higher costs that Best Buy incurs training employees, any pricing pressure that decreases margins puts stress on Best Buy’s financial strength. In addition, the recent acquisition of Napster and the 50 percent stake in Best Buy Europe have significantly increased Best Buy’s debt and reduced available cash. Even in prosperous times, debt management is a key factor in any company’s success, and it becomes even more of a concern during economic downturn.

Products and Service As technology improves, product life cycles, as well as prices, decrease and as a result, margins decrease. Under Best Buy’s service model, shorter product life cycles increase training costs. Employees are forced to learn new products with higher frequency. This is not only costly but also increases the likeli- hood that employees will make mistakes, thereby tarnishing Best Buy’s service record and potentially damaging one of its most important, if not the most important, differentiators. In addition, more resources must be directed at research of new prod- ucts to make sure Best Buy continues to offer the products consumers desire.

One social threat to the retail industry is the growing popularity of the online marketplace. Internet shoppers can browse sites searching for the best deals on specific products. This technology has allowed consumers to become more educated about their purchases, while creating increased downward price pressure. Ambitious consumers can play the role of a Best Buy associate themselves by doing product comparisons and information gathering without a trip to the store. This emerging trend cre- ates a direct threat to companies like Best Buy, which has 1,023 stores in its domestic market alone. One way Best Buy has tried to continue the demand for brick-and-mortar locations and counter the threat of Internet-based competition is by providing value- added services in stores. Customer service, repairs, and interactive product displays are just a few exam- ples of these services.22

Leadership The two former chief executive officers (CEOs) of Best Buy, Richard Shultze and Brad Anderson, were extremely successful at making the correct strategic moves at the appropriate times. With Brad Anderson stepping aside in June 2009, Brian Dunn replaced him as the new CEO. Although Dunn has

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worked for the company for 24 years and held the key positions of COO and president during his tenure, the position of CEO brings him to a whole new level and presents new challenges, especially dur- ing the current economic downturn. He is charged with leading Best Buy into the world of increased connectivity. This requires a revamping of products and store setups to serve customers in realizing their connectivity needs. This is a daunting task for an experienced CEO, let alone a new CEO who has never held the position.

Walmart Best Buy saw its largest rival, Circuit City, go down for good. A new archrival, Walmart, however, is expanding into consumer electronics and stepping up competition in a price war it hopes to win. Best Buy needs to face the competition not by lowering prices, but by coming up with something really different. It has to determine the correct path to improve its ability to differentiate itself from competitors, which is increasingly difficult given an adverse eco- nomic climate and the company’s financial stress. How Best Buy can maintain innovative products, top-notch employees, and superior customer service while facing increased competition and operational costs is an open question.

NOTES

1. Best Buy Co., Inc., 2009, February 28, Form 10-K. Securities and Exchange

Commission.

2. Ibid.

3. Ibid.

4. G. Keller, 2009, May 18, “Threat Grows by Ipod and Laptop,” The Columbus

Dispatch, 2009, http://www.dispatch.com/live/content/business/

stories/2009/05/18/greener_gadgets.ART_ART_05-18-09_A9_TMDSJR8.html,

July 10

5. L. Magid, 2008, May 2, “Consumer Electronics: The Future Looks Bright,”

CBSNews.com, 2009, http://www.cbsnews.com/stories/2008/05/02/scitech/

pcanswer/main4067008.shtml, July 10

6. Best Buy Co., Inc., 2009, Form 10-K.

7. Ibid.

8. Ibid.

9. Ibid.

10. Manhattan Institute for Policy Research, “They’re Making a Federal Case Out of

It…in State Court,” Civil Justice Report 3, 2001, http://www.manhattan-institute

.org/html/cjr_3_part2.htm, September.

11. “Best Buy Bombshell,” HD Guru, 2009, http://hdguru.com/best-buy-bombshell/

400/, March 21

12. Circuit City Stores, Inc. was an American retailer in brand-name consumer

electronics, personal computers, entertainment software, and (until 2000)

large appliances. The company opened its first store in 1949 and liquidated

its final American retail stores in 2009 following a bankruptcy filing and

subsequent failure to find a buyer. At the time of liquidation, Circuit City was

the second-largest U.S. electronics retailer, after Best Buy.

13. Z. Bissonnette, “Wal-Mart Looks to Expand Electronics Business,” Bloggingstocks.

com, 2009, http://www.bloggingstocks.com/2009/05/18/wal-mart-looks-to-

expand-electronics-business/, May 18

14. N. Maestri, “Wal-Mart Steps Up Consumer Electronics Push,” Reuters, 2009,

http://www.reuters.com/article/technologyNews/idUSTRE54I4TR20090519,

May 19

15. Capital IQ, “GameStop Corp. Corporate Tearsheet,” Capital IQ, 2009, https://

www.capitaliq.com/

16. E. Sherman, “GameStop Faces Pain from Best Buy, Downloading,” BNET

Technology, 2009, http://industry.bnet.com/technology/10002329/gamestop-

faces-pain-from-best-buy-downloading/, June 24

17. T. Van Riper, “RadioShack Gets Slammed,” Forbes.com, 2006, http://www.forbes.

com/2006/02/17/radioshack-edmondson-retail_cx_tr_0217radioshack.html,

February 17

18. Capital IQ, “Amazon.com Corporate Tearsheet,” Capital IQ, 2009, https://www.

capitaliq.com/

19. T. Kee, “Netflix Beware: Best Buy Adds Digital Downloads with CinemaNow

Deal,” paidContent.org, 2009, http://paidcontent.org/article/419-best-buy-

adds-digital-movie-downloads-with-cinemanow-deal/, June 5

20. Best Buy Co., Inc., 2009, Form 10-K.

21. Ibid.

22. Ibid.

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