Case Study

Best Buy Co., Inc., 2014

www.bby.com , BBY

Headquartered in Richfield, Minnesota, Best Buy Co., Inc. is the world’s largest consumer electronics retailer with 1,400 stores that carry phone products, computers, televisions, appliances, cameras, and much more. In addition to its product line, Best Buy also offers service contracts, extended warranty, and product repair. Best Buy Co., Inc. is the parent company of Best Buy, Five Star, Future Shop, Pacific Sales, Geek Squad, CinemaNow, Magnolia Audio, and The Phone House stores. With 165,000 full-time employees, Best Buy is struggling to reinvent itself amid fierce competition from Apple and Amazon. A huge problem for Best Buy is that people shop there to get educated and then buy online at cheaper prices.

The brick-and-mortar business model is in severe trouble, especially for retailers that do not sell perishable goods (such as Best Buy and RadioShack). With the popularity and cost effectiveness of online shopping, coupled with a lack of sales taxes and not having the expense of operating large stores, online retailers have a huge competitive advantage. Best Buy stores serve as showrooms for online retailers. Best Buy has expensive long-term leases on its buildings and those leases must be honored, unless the firm goes into bankruptcy, which some analysts say is inevitable, especially without a clear strategic plan going forward. Best Buy’s fiscal 2013 ended on February 1, 2013.

Copyright by Fred David Books LLC. (Written by Forest R. David)

History

Founded in Saint Paul, Minnesota, in 1966, Best Buy (then named Sound of Music) was started by Richard Schulze and Gary Smoliak. After acquiring two small stores in 1967, the Sound of Music went public in 1969, and enacted an employee stock option plan. By 1970, the Sound of Music hit $1 million in annual revenues.

The name Best Buy first originated in 1981 after a tornado hit a store in Roseville, Minnesota, resulting in a major sale dubbed as “Best Buy,” which subsequently became an annual event, and in 1983 Sound of Music officially changed its name to Best Buy Co., Inc. After the name change, Best Buy increased average store selling space and began offering a wider range of products, many of them at discounted prices.

During the 1990s, Best Buy continued to grow, hitting the $1 billion mark in annual revenues. Best Buy launched bestbuy.com in 2000 and acquired the Canada-based electronics chain Future Shop in 2001. Future Shop still operates under its original name and still operates independently from Best Buy. Best Buy acquired Geek Squad, the 24-hour computer support taskforce in 2002 and opened its first Canadian Best Buy store in Ontario in the same year.

In 2006, Best Buy’s common stock closed at an all-time high of $59.50 and in 2008 the chain opened its 1,000th physical store in the Mall of America, one of the largest malls in the world, located in Bloomington, Minnesota. Best Buy continued international expansion in 2008 by opening stores in Puerto Rico, Mexico, and Shanghai, China. In 2009, the company opened stores in Turkey and the United Kingdom. Best Buy planned to expand heavily into the United Kingdom (UK) when the company hired Brian Dunn as its CEO. Dunn had started at Best Buy 25 years previously as a salesperson and was widely liked by all rank-and-file workers at the time of the appointment because they viewed Dunn as “one of their own.” Sluggish growth of sales in the United Kingdom led to Best Buy closing 11 Best Buy Europe stores in 2011.

Best Buy CEO Brian Dunn resigned in 2012. Less than a month later, founder and chairman Schulze was forced to resign, partly because he did not reveal that CEO Dunn, who is married, had an inappropriate relationship with a 29-year old subordinate female employee, which is violation of the company’s Code of Ethics. Dunn allegedly misused company funds in conjunction with the relationship. Schulze was replaced by Hatim Tyabi in mid-2012. George Mikan III became Best Buy’s CEO in late 2012. Schulze, age 71, offered about $10 billion or $25 per share to buy Best Buy and take the company private. He already owns 20 percent of the company’s stock. Shareholders and analysts are skeptical of Schulze’s offer. In August 2012, Hubert Joly was hired as CEO, but the company’s stock was down another 10 percent in response to the announcement.

Vision and Mission

Best Buy does not have a written vision statement. The company’s mission statement is as follows:

· Our formula is simple: we’re a growth company focused on better solving the unmet needs of our customers—and we rely on our employees to solve those puzzles. Thanks for stopping.

Organizational Structure

Best Buy currently uses a divisional-by-geographic region organizational structure. As noted in Exhibit 1 , the company has a chief administrative officer rather than a chief operating officer for the divisional heads to report.

Segments

Best Buy operates under two distinct business segments: domestic and international. The domestic segment includes all states, districts and territories of the USA, including Puerto Rico. The international segment includes all of Canada, China, Mexico, and Europe. Best Buy reports domestic revenues of $33.3 and $37.6 billion in fiscal 2013 and 2012, respectively, and international revenues of $11.7 and $11.9 billion in 2013 and 2012, respectively. For 2013, approximately 26 percent of total revenue was from domestic operations.

Despite Best Buy claiming and presenting data based on geographic region, it is possible that Best Buy is in fact a strategic business unit (SBU) structure with the two geographic regions serving as the two distinct SBUs. However, the executive titles provided in Exhibit 1 suggest a purely divisional-by-geographic structure rather than an SBU.

Domestic

There were 1,056 U.S. Best Buy stores at fiscal year-end 2013, and 409 U.S. Best Buy Mobile Stand-Alone stores. During fiscal 2013, Best Buy closed 47 U.S. Best Buy stores while opening 105 U.S. Best Buy mobile stand-alone stores.

Within the domestic segment, Best Buy further breaks down the SBU by products and services and assigns employees to distinct leadership teams for each respective product and service. Teams are empowered to determine the most effective ways to market products and services through Best Buy’s channels, retail stores and online, and call centers. Further, Best Buy breaks down its domestic SBU into six different revenue categories: consumer electronics, computing and mobile phones, entertainment, appliances, services, and other.

Consumer electronics includes items such as TVs, e-Readers, navigation products, cameras, mp3 players, musical instruments, home theater systems, and much more. Computing and mobile phone segment includes items such as: notebook and desktop computers, tablets, monitors, phones, phone subscription plans, storage devices, printers, and random office supplies. Entertainment segment includes video gaming hardware and software, DVDs, CDs, and computer software. Best Buy’s appliances category includes both large and small household appliances. The service category includes: service contracts, extended warranties, product repair, installation of home theater systems, and much more. Exhibit 2 reveals the percentage of revenue in each domestic product arena. Note all the negative numbers.

Exhibit 2 reveals that consumer electronics has been in a steady decline for each of the last two years. Much of the decline can be attributed to soft market for TVs and the overall declining prices of TVs. The overall TV market is much weaker than the most recent 5.4 percent decline indicates because this number would have been much worse if not for the high customer interest in e-Readers.

At fiscal year-end 2013 (March 1, 2013), there were 872 Carphone Warehouse stores and 1,517 Phone House stores in Europe, while in Canada there were 140 Future Shop stores, 72 Best Buy stores, and 49 Best Buy Mobile stores. In China there were 211 Five Star stores, and in Mexico there were 14 Best Buy stores. Computing and mobile phones experienced a 6-percent increase in same-store sales from fiscal 2011, primarily from tablets and mobile phones.

Chairman Chief Executive Officer Vice-president, Controller, and Chief Accounting Officer Executive Vice-president and Chief Marketing Officer Vice-president Finance and Treasurer Senior Vice-president and Chief Design Officer Executive Vice-president and Chief Human Resource Management Officer Executive Vice-president Enterprise and Chief Administrative Officer Executive Vice-president and General Counsel Senior Vice -president; Chief Financial Officer, U.S. Strategic Business Unit Executive Vice-president Enterprise; President, Asia Executive Vice-presdient; President, Best Buy United States T Executive Vice-president; President, Best Buy International President and Chief Operations Officer, Best Buy Canada General Manager, Napster, Inc. Chief Operations Officer, Best Buy Europe Senior Vice-president Enterprise Connected World Strategies

EXHIBIT 2 Best Buy’s Revenue by Product

	Revenue Mix by Product (%)	Same-Store Sales (%)
	Fiscal Year End	Fiscal Year End
	February 2011	March 2012	March 2013	February 2011	March 2012	March 2013
Consumer electronics	37	36	18	(6.3)	(5.4)	(7.0)
Computing and mobile phones	37	40	61	3.6	6.0	(0.3)
Entertainment	14	12	4	(13.3)	(16.3)	(13.4)
Appliances	5	5	10	7.0	10.6	2.9
Services	6	6	7	0.5	(0.6)	(1.3)
Other	1	1	(-)		—	—
Total	100	100		(3.0)	(1.6)	(2.5)

Source: Company documents.

The entertainment segment continues to experience significant same-store declines as a result primarily of the decline in the video gaming industry and decline in sales of music and movies because many more people are downloading music offline and watching movies through outlets such as Red Box, Netflix, and Time Warner Cable’s movies on demand.

Best Buy attributes the increase in appliances to promotional sales, but the slowly improving housing market in some parts of the country could explain this increase.

International

The United Kingdom and Ireland only have Carphone Warehouse stores, whereas mainland Europe only has the Phone House Stores. Canada is home to Future Shop, Best Buy, and Best Buy Mobile stand-alone stores. China is the exclusive home to only Five Star stores. In fiscal 2013, Best Buy introduced its Best Buy Express concept in Mexico. Best Buy Europe opened 122 new stores in fiscal 2013 while closing 126 other stores. Outside the USA and Europe, Best Buy opened 40 new stores and closed 21 in 2013.

Internal Issues

Statement of Ethics and Governance

Best Buy has a detailed Code of Ethics on its website, addressing the culture at Best Buy, outlining ethical behavior expected of all constituents of Best Buy, and detailing how to report violations of ethical behavior. In the wake of the embarrassing resignation of Dunn and Schulze’s dismissal, the current Code of Ethics provided on Best Buy’s website (several months after the dismissals) begins with a letter from former Dunn addressing the code and thanking all employees and constituents of Best Buy for their ethical behavior.

In 2010, two years before the ethical fiasco with Dunn and Schulze, research company Management CV Inc., disclosed several questionable issues, which as of 2012 are still an ongoing problem according to Management CV Inc. For example, Best Buy paid Schulze $1 million in 2011 to rent two stores he owned with one of these leases running through 2018. Schulze’s daughter, the founder of Best Buy Children’s Foundation, currently works as both the chairwoman and CEO of this foundation with a base salary of $242,000 and bonuses of approximately $120,000 annually. Her husband also has worked with Best Buy. A contract with Phoenix Fixtures, Schulze brother’s business, has led to spending more than $70 million in fixtures for stores from 2008 to 2012. In addition, Best Buy has paid close to $4 million for chartered aircraft owned by Schulze Trust. The questionable ethics is not limited to the Schulze family either because there have been many contracts between Best Buy and businesses that have connections with Best Buy board members.

EXHIBIT 3 A Breakdown of Best Buy Stores

	Total Stores at Year End
	March 2010	February 2011	March 2012	March 2013
Best Buy	1,069	1,099	1,103	1,099
Best Buy Mobile stand alone	74	177	305	177
Pacific Sales	35	35	34	35
Magnolia Audio Video	6	6	5	6
Geek Squad	6	—	—	—
Total Domestic Segment Stores	1,190	1,317	1,447	1,317

Source: Company documents.

Properties

Exhibit 3 below reveals a three-year trend for domestic stores in each of Best Buy’s various segments. Many customers do not even know Best Buy’s traditional stores offer mobile devices and service plans.

At fiscal year-end 2013, Best Buy had 1,503 domestic stores, up from 1,447 the prior year—and had 2,876 international stores, up from 2,861 the prior year. Exhibit 4 reveals the top-five markets based on store count in the domestic segment, and Exhibit 5 reveals the total number of stores in the international segment.

Suppliers

Best Buy’s largest supplier is Apple, followed by Samsung, Hewlett-Packard, Sony, and LG Electronics, which together represent 45 percent of total merchandise purchased. Best Buy could possibly be subject to significant revenue reductions if any one of these top five suppliers were unable to or chose not to continue to provide products to Best Buy. Best Buy does not have long-term contracts with suppliers, but the company does not foresee any problems in the future with suppliers not being able to meet the demands of Best Buy. Without long-term contracts, Best Buy is more flexible regarding which suppliers to do business with, but the fact is a supplier such as Apple is also a competitor and could potentially crush Best Buy if desired.

EXHIBIT 4 Number of Best Buy Stores in the Five Top U.S. States (Fiscal 2012)

State	Best Buy Stores	Best Buy Mobile Stand-alone Stores	Pacific Sales Stores	Magnolia Audio Video Stores
California	126	29	31	3
Texas	110	25	—	—
Florida	67	30	—	—
Illinois	58	14	—	—
New York	55	13	—	—

Source: Company documents.

EXHIBIT 5 Number of Best Buy Stores Outside the USA

	Total Stores at Year End
	March 2010	February 2011	March 2012	March 2013
Best Buy Europe	2,371	2,357	2,393	2,357
Canada
Future Shop	144	146	149	146
Best Buy	64	71	77	71
Best Buy Mobile stand-alone	4	10	30	10
China (Five Star Only)	158	166	204	166
Mexico (Best Buy Only)	5	6	8	6
Total	2,746	2,876	2,861	2,756

Source: Company documents.

Finance

EXHIBIT 6 Best Buy’s Income Statements

	11 Months Ended	12 Months Ended
Fiscal Years Ended	February 2, 2013	January 28, 2012	March 3, 2012	February 26, 2011
	(unaudited recast)
Revenue	$ 45,085	$ 46,064	$ 50,705	$ 49,747
Cost of goods sold	34,435	34,693	38,113	37,197
Restructuring charges—cost of goods sold	1	19	19	9
Gross profit	10,649	11,352	12,573	12,541
Selling, general and administrative expenses	9,502	9,339	10,242	10,029
Restructuring charges	450	34	39	138
Goodwill impairments	822	1,207	1,207	—
Operating income (loss)	(125)	772	1,085	2,374
Other income (expense)
Gain on sale of investments	18	55	55	—
Investment income and other	33	37	37	43
Interest expense	(112)	(121)	(134)	(86)
Earnings (loss) from continuing operations before income tax expense and equity in income (loss) of affiliates	(186)	743	1,043	2,331
Income tax expense	231	622	709	779
Equity in income (loss) of affiliates	(4)	(3)	(4)	2
Net earnings (loss) from continuing operations	(421)	118	330	1,554
Gain (loss) from discontinued operations (Note 4), net of tax of $(2), $83, $89 and $65	1	(295)	(308)	(188)
Net earnings (loss) including noncontrolling interests	(420)	(177)	22	1,366
Net earnings from continuing operations attributable to noncontrolling interests	(22)	(1,378)	(1,387)	(127)
Net loss from discontinued operations attributable to noncontrolling interests	1	130	134	38
Net earnings (loss) attributable to Best Buy Co., Inc. shareholders	$ (441)	$ (1,425)	$ (1,231)	$ 1,277
Basic earnings (loss) per share attributable to Best Buy Co., Inc. shareholders
Continuing operations	$ (1.31)	$ (3.38)	$ (2.89)	$ 3.51
Discontinued operations	0.01	(0.45)	(0.47)	(0.37)
Basic earnings (loss) per share	$ (1.30)	$ (3.83)	$ (3.36)	$ 3.14
Weighted-average common shares outstanding (in millions)
Basic	338.6	372.5	366.3	406.1
Diluted	338.6	372.5	366.3	416.5

Source: 2013 Form 10K, p. 60.

All amounts in millions of U.S. dollars except per share amounts.

EPS, earnings per share.

EXHIBIT 7 Best Buy’s Balance Sheets

	February 2, 2013	March 3, 2012
Assets
Current Assets
Cash and cash equivalents	$ 1,826	$ 1,199
Receivables	2,704	2,288
Merchandise inventories	6,571	5,731
Other current assets	946	1,079
Total current assets	12,047	10,297
Property and Equipment
Land and buildings	756	775
Leasehold improvements	2,386	2,367
Fixtures and equipment	5,120	4,981
Property under capital lease	113	129
	8,375	8,252
Less accumulated depreciation	5,105	4,781
Net property and equipment	3,270	3,471
Goodwill	528	1,335
Tradenames, Net	131	130
Customer Relationships, Net	203	229
Equity and Other Investments	86	140
Other Assets	522	403
Total Assets	$ 16,787	$ 16,005
Liabilities and Equity
Current Liabilities
Accounts payable	$ 6,951	$ 5,364
Unredeemed gift card liabilities	428	456
Accrued compensation and related expenses	520	539
Accrued liabilities	1,639	1,685
Accrued income taxes	129	288
Short-term debt	596	480
Current portion of long-term debt	547	43
Total current liabilities	10,810	8,855
Long-Term Liabilities	1,109	1,099
Long-Term Debt	1,153	1,685
Contingencies and Commitments
Equity
Best Buy Co., Inc. Shareholders’ Equity
Preferred stock, $1.00 par value: Authorized—400,000 shares; Issued and outstanding—none	—	—
Common stock, $0.10 par value: Authorized—1.0 billion shares; Issued and outstanding—338,276,000 and 341,400,000 shares, respectively	34	34
Additional paid-in capital	54	—
Retained earnings	2,861	3,621
Accumulated other comprehensive income	112	90
Total Best Buy Co., Inc. shareholders’ equity	3,061	3,745
Noncontrolling interests	654	621
Total equity	3,715	4,366
Total Liabilities and Equity	$ 16,787	$ 16,005

Source: 2013 Form 10K, p. 61.

All amounts in millions of U.S. dollars except per share amounts.

EXHIBIT 8 Best Buy Operating Statistics

	2013	2012	2011
Comparable stores sales gain (decline)	(2.9%)	(1.7%)	(1.8%)
Operating income (loss) rate	(0.3%)	2.1%	4.8%

Source: Company documents.

Current Performance

Exhibit 8 reveals recent operating statistics for Best Buy. Note the fiscal 2013 comparable store sales decline of 2.9 percent.

Competition

Stores such as Walmart, the world’s largest retailer, and Costco are expanding their selection of TVs, notebook computers, cameras, mp3 players, and other electronic devices at prices typically lower than traditional merchants in the industry such as Best Buy. Online shopping at Amazon.com , overstock.com , eBay, and other online merchants creates a rough ocean for firms such as Best Buy to navigate.

Many retailers are entering overseas markets especially in Asia. For example, Office Depot generates close to 30 percent of their sales overseas, whereas Best Buy generates 27 percent and Staples generates 22 percent of sales. Amazon.com generated 44 percent of 2012 sales from outside the USA. Many brick-and-mortar retailers are adding services such as in-home installation as a way to differentiate themselves from online merchants and Walmart. Also, many retailers are focusing on sustainability as a means of differentiating their business as many of the products and services are the same. Best Buy was recently named one of the greenest companies in the USA. Many retailers are expanding their marketing of gift cards. Research reveals that many customers who enter the store with a gift card often spend more than the card amount. In addition, after several years of a gift card full amount not being used, companies are allowed to assume the card’s unused credit as assets on their financial statements.

Exhibit 9 gives a quick synopsis of Best Buy and two of its many rival companies. Note that Amazon has one-third the number of Best Buy employees yet generates roughly the same revenue. Amazon’s revenue-to-employee ratio reveals how they dominate in terms of cost efficiencies, price, and convenience. Best Buy’s market capitalization is a fraction of both Walmart and Amazon’s. RadioShack is a huge competitor to Best Buy and both companies are arguably on the brink of financial disaster.

Amazon

Amazon.com , an online retailer, operates worldwide focusing on price, convenience, selection, and timely delivery. Founded in 1994 as an online bookseller, Amazon has expanded its product line over the last decade and formed agreements with other retailers to sell their products under the Amazon.com name. Amazon is also the manufacturer and seller of the Kindle e-reader that allows customers to instantly order many books for $9.99. In 2011, Amazon experienced a 56-percent increase in electronic sales following an electronic merchandise growth rate of 66 percent in 2010.

EXHIBIT 9 A Synopsis of Best Buy and Two Rival Firms

	Best Buy	Walmart	Amazon
Number of Employees	165,000	2.2M	56,200
Net Income ($)	(441M)	16.08B	560M
Revenue ($)	45.1B	455.7B	51.4B
Revenue/Employee ($)	273K	207K	914K
EPS Ratio ($)	-1.31	4.64	1.21
Market Capitalization	9.29B	244.7B	97.0B

Historically, Amazon reinvested most of profits, and even took on extra debt, to further expand the Amazon footprint. In recent years Amazon has begun to pay down debt and even hoard cash. For example, at year-end 2009, Amazon had $3.2 billion in cash on their balance sheet, and by year-end 2011, the company had $5.3 billion. Amazon reports $0 long-term debt over the three-year period of 2009 to 2011. Retained earnings have increased from $172 million in 2009 to a staggering $1.9 billion by year-end 2011.

One potential area of concern for Amazon is the large amount of goodwill on their balance sheet. As of 2011, Amazon had $1.9 billion in goodwill up from $1.2 billion in 2009. Some of Amazon’s recent purchases include Zappos.com , an online shoe store, and Quidsi, the parent company of diapers.com and soap.com . Amazon also acquired LoveFilm a European-based company similar to Netflix. As Amazon continues to purchase firms to further diversify its business, it needs to be mindful of potentially paying too much as indicated by the nearly $2 billion in goodwill on its balance sheet.

Amazon is pursuing forward integration by quietly installing large metal cabinets, called Amazon Lockers, in hundreds of grocery, 7-Eleven, and drugstores that accept the packages for customers for later pickup. This strategy especially dispels the concern of urban apartment dwellers, who fear they will miss an Amazon delivery or have their item stolen. This strategy also combats a growing problem of thieves following UPS and FedEx trucks and stealing packages at doorsteps. Amazon has lockers in the USA and United Kingdom. This strategy entails Amazon emailing customers a code to open the locker holding their merchandise. Curtailing failed deliveries is essential for Amazon because otherwise consumers might actually make their purchase in a Best Buy brick-and-mortar store. Amazon pays a small fee each month to store owners where it has lockers.

RadioShack Corp.

Although struggling to survive, RadioShack, like Best Buy, is a huge consumer electronics goods and services retailer with about 4,475 stores in the USA, Mexico, Puerto Rico, and the U.S. Virgin Islands. RadioShack’s operations include Target Mobile, dealer outlets, RadioShack de Mexico, and RadioShack.com . RadioShack operates 1,496 Target Mobile centers and has a network of 1,091 RadioShack dealer outlets, including 33 located outside of North America. The company recently discontinued its kiosks segment.

RadioShack’s stock price has continuously dropped of late to about $3.00 per share in October 2013 as company revenues and profits have plummeted. The company suspended its dividend payment in 2012. People want RadioShack (and Best Buy’s) products, but they simply make their purchase at Amazon, eBay, Target, Costco Wholesale, or Walmart.

RadioShack is another electronics brick-and-mortar retailer on a fast decline in the face of online shopping. The company has more than $500 million in cash and equivalents, and its next debt repayment of $375 million is due in August 2013. By suspending its dividend, the company will save $50 million per year to help cover its interest expenses, which only totals $31 million within the next year. Beyond interest and debt, and like Best Buy, RadioShack is contractually obligated to pay its leases and product and marketing agreements, which within the next year total $195 million and $316 million, respectively. Also like Best Buy, RadioShack’s credit has recently been downgraded to junk status. It still has $390 million available of a $450 million revolving credit facility through early 2016 to help it survive. The company’s CEO, Jim Gooch, says RadioShack “will focus on cellphones and tying together its brick-and-mortar stores with its website.” Analysts say that is way too vague of a strategic plan and is way too little too late for the company to survive.

Walmart

Walmart, founded in 1945 in Bentonville, Arkansas, has more than 2.2 million full-time employees and operates retail stores, restaurants, supermarkets, supercenters, warehouse clubs, apparel stores, and much more. If there is any product someone wants, Walmart likely offers the product at an attractive price point. The company emphasizes low prices and provides flat screen TVs, phones, mp3 players, cameras, notebook computers, and many other electronics at prices typically lower than Best Buy. In addition to electronics, Walmart is so diversified, especially with its grocery business, that it is able to withstand downturns in the economy better than most retailers. Currently, Walmart operates more than 10,000 retail stores under 69 different brand names in 27 different countries.

External Issues

Internet Shopping

With tax-free benefits still present for online sales, coupled with convenience, lower prices, and more variety, online sales are increasing at a much rate faster than traditional retail sales. Online sales could reach 15 percent of total retail sales by 2015. These numbers still leave the majority of retail sales to brick-and-mortar establishments.

Currently there is no state sales tax on many Internet purchases in the USA. This savings can provide consumers who buy and sell products online from a central location up to a 10-percent price advantage over rival firms who have brick-and-mortar locations in the respective state of the transaction. However, there is growing sentiment among U.S. politicians to even this playing field, and it is expected that states could receive a $23 billion windfall from taxed sales on the Internet. Many states financially need the money badly. Taxing Internet sales would make it more likely consumers would patronize local stores rather than buying off the Internet. This would be especially true for firms such as Best Buy who sell many higher ticket priced items. For example, a $500 notebook computer purchased in state and local township with 8 percent combined sales taxes would cost a consumer an extra $40 in tax, so removing this potential $40 savings from online sales should benefit stores such as Best Buy.

Even if the tax-free environment on most Internet transactions is removed, firms such Best Buy still face an uphill battle with online merchants. Amazon.com for example offers free shipping on many orders more than $25 and in addition offers the same product from many different merchants allowing customers to price check easily and conveniently. In addition, customers can view product reviews and comments from users of the products as part of their research. Furthering the online threat for brick-and-mortar establishments such as Best Buy is the increased use of smartphones for price checking while shopping in brick-and-mortar stores. Forrester Research reports there were 82 million smartphones in the USA in 2010 and this number is expected to increase to 159 million by 2015. Ironically, the mobile phone that Best Buy is betting so heavily on in the future is also the device that allows customers to price shop competing firms for other products while shopping in Best Buy.

Customers often will visit a store such as Best Buy to talk to experienced sales people and to view the products before purchasing elsewhere. This was one of the contributing reasons why Best Buy did not work in China. Chinese customers simply used Best Buy as an information agent and purchased elsewhere.

Social Media

A 2011 Social Media’s Impact on Customer Engagement report revealed that more than 70 percent of firms say they are no longer are able to avoid using social media in its marketing and communications with customers. Forrester Research reports that Best Buy and Amazon.com are two of the most proactive companies when using and implementing social media into their business operations. For example, Best Buy aids consumers through Twelpforece, where customers can send a tweet about consumer electronics problems to an account that is shared by 2,500 Best Buy employees. Amazon’s success with social media is based largely on its ratings and reviews from customers, providing both Amazon and potential customers meaningful information in pricing, quality, and features of the products offered. Although social media may seem as burdensome to some corporations, failure to take full advantage of this technology will likely leave corporations at a distinct disadvantage with rival firms.

Future

Regardless if Schulze or someone else acquires Best Buy or the firm continues to operate on its own, a clear, detailed strategic plan will be essential for the firm to navigate such turbulent water ahead. Walmart and Amazon especially continue to take market share from Best Buy, and many other firms too are joining in the fray. If the company is not real careful, it will go the way of its former rival Circuit City and be forced to eventually liquidate. Some analysts ponder who will declare bankruptcy first, Best Buy or RadioShack, arguing that the writing is on the wall for both firms, unless an effective strategic plan can be formulated and implemented pronto.

Assist new CEO Hubert Joly in developing a strategic plan for Best Buy.