Best Buy Business Case
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Best Buy Business Case
October 2015
BUSI-690
Liberty University
Best Buy Business Case
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1 Executive Summary
Best Buy Co, Inc is a multinational consumer electronics corporation listed on
the New York Stock Exchange as BBY. After having survived the changes in the
consumer electronics market and bested competitors like the now defunct Circuit City,
Best Buy struggles to maintain electronics retail market share in an environment with
low-cost competitors (Wal-Mart) and alternative business models (Amazon) that Best
Buy is unlikely to successfully replicate. This study has been performed to understand the
current condition and capabilities of Best Buy and to propose alternative means of
competing in this difficult market.
Analysis and pro-forma projections of Best Buy’s performance was complicated
by a 2013 balance sheet charge taken on international that led to a reported net earnings
of $-259 million dollars. This analysis skewed results in the basic historical financial
information analysis and an alternative approach was taken when generating Pro-forma
financial estimates in Section 11 of this document. These values for the do-nothing-
different case (determined using logarithmic regression) showed a net present value
(NPV) of the DND case is $4,683 (M). Using an alternative strategy of service and
branding focuses, revenue and net income increased, generating a NPV of $4,757 (M); all
NPVs were calculated using a 3% discount rate. While this is only a 1.77% increase it is
considered low-risk.
Peak ROE is observed in FY2018, with an estimate of 34.1 for the DND case and
34.7 for the alternate strategy, indicating more efficient transformation of capital into
profit. Alternate balance sheet metrics such as return on capital employed (ROCE) and
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yield/earnings per share. Stock price would see a modest increase as well resulting in a
modest increase in market capitalization
This recommended strategy builds on the current strengths of Best Buy, its service
staff and physical presence, and leverages those to use service as a differentiator. Paired
with a new product branding strategy, Best Buy’s business model will be one in which
customers seeking good value with solid support will find significant value.
2 Existing Mission, Strategy, and Objectives
Although there is no explicit mission statement on the corporate website, Best
Buy’s self-perception and assumed mission is evident in the statement that, “ The
company offers expert service at an unbeatable price more than 1.5 billion times a year to
the consumers, small business owners, and educators who visit our stores…”
(Anonymous, 2015). This is accomplished through a combination of retail outlet, online,
and mobile application driven sales strategies. The primary focus of the business is on
sales and service for consumer electronics and solutions.
The overall strategy is one of combining superior customer service with
accessibility. According to the company website more than 70% of the US population is
within 15 minutes of a Best Buy location. Best Buy looks to leverage this physical
presence along with an expert workforce (Geek Squad); this is a lesson learned through
the demise of competitor Circuit City (Rothaermel, 2011), where a the mass lay-off of
senior sales force members resulted in a significant “brain drain”; it should be noted that
many of these staff were subsequently hired by Best Buy! This focus on service is
necessary in an industry where the competition includes such price-driven firms as Wal-
Mart and Amazon.com. The strategy is a mix of blended cost and service based offerings;
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Best-Buy will always maintain higher costs than competitor Wal-Mart the low price
expert, and Amazon which does not have to include retail real-estate and sales person pay
into its cost structure.
On its corporate website Best Buy maintains clear links to its policies on ethics,
the environment, diversity, political involvement, and responsibility of its suppliers to
uphold corporate ethical guidelines.
3 Alternative Mission Statement
Mission statements should be a statement of the unique (and valuable) positioning
of the firm. This section will better define the mission of Best Buy, thereby helping to
focus its strategic efforts.
Best Buy’s current lack of an explicit mission statement is a strategic weakness; a
clearly stated and communicated purpose was not identified while conducting research
for this review. The lack of a concise mission statement has left employees and
consumers with no obvious direction for the company, which in turn has caused the chain
to struggle. The firm has also failed to grow at the rate of stockholder’s standards, which
makes the firm less valuable to them.
Best Buy will have a new defined mission statement that is clear to the
employees, stockholders and consumers. Forty percent of Best Buys consumers are
college students. To entice this segment, the new mission statement will include a rapid
service in stores that includes intensive training of how employees should interact with
customers.
Customers: The firm’s target customers in the past have been middle-class men
and women aged 16-35 including many college students. The new mission statement will
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cause the target customers to become loyal to the Best Buy brand through knowledge of
the products and their customer service. The firm will offer competitive pricing that offer
prices that will attract and sustain consumers in all classes.
Products: Best Buy sells many products; however, their top selling products are
televisions, computers, and cell phones. The joint operation of Geek Squad with Best Buy
is a unique revenue stream for the firm. An added Geek Squad – Task Force will offer
unique services, such as tech support solutions on more of the firms products, which will
be a huge strength for the firm.
Markets: Over 80 percent of Best Buy’s sales are in the US ; Best Buy has
struggled in global markets, which is mainly because certain cultures do not like Big Box
stores (Groth, 2011). Best Buy global sales represent 25 percent of total revenues within
Europe, China, Canada and Mexico. The firm should seek to enhance this international
footprint. The new mission statement will think about the issue in cultural terms. Best
Buy will adhere to the culture and value of the host countries and offer personal
relationships with their global consumers. Best Buy will standardize its core offerings and
packaging to achieve a position that will be effective across cultures and create a global
brand, while communications, advertising, and additional/auxiliary products that care and
reflect the countries culture and norms.
Technology: As a hardware, solutions, and services company Best Buy will
attempt to distinguish itself as the go-to source for technology and solutions that work.
The Geek Squad offers a 24- hour help task force online. Although the 24 hour task force
solves technical challenges, there is a hefty fee for the service. A new personalized
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offering (Geek Squad: Task Force) will be made in store; however, it will be branded as
“the best place to get technical support,” which will be a valuable asset to the consumer.
Growth/Survival: The firm will be committed to growth and financial soundness
of the company by taking an aggressive stance to attract and retain their current
customers. The firm will also have the expectancy to gain market share by mixing
competitive pricing and service. The new mission statement will include International
Growth. The Geek Squad: Task Force will not only help sales and services grow domestic
but the growth global as well. Best Buy is committed to steady growth with the new
product that is introduced.
Philosophy: The accountability of the firm causes socially responsible by giving
back to its community by efforts to be good corporate citizens and positively impact our
world by partnering with the communities we serve.
Aspirations of the company should have a culture within the company, which
makes the employees performs to the highest level on the job, and makes it easy for the
employees to connect with customers.
The new mission statement will include diversity in employment, the firm is
committed to hire the most talented and diverse employees.
The ethical practices of Best Buy are committed to adhering and respecting the
culture and norms of other countries and treating the employees and stakeholders with
dignity and respect.
Self-concept: Best Buy has seen customer service effectiveness perception lag
behind ideal levels, partly because they offer too many products to provide high-level
service to all brands they offer. However, the major competitive advantage that Best Buy
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has in the new mission statement is their customer service. No other brand will go the
extra miles for its customers like Best Buy. The firm is committed to customer service,
the most important thing for the organization is to keep customer happy and loyal.
Public Image: Best Buy has been analyzed by some analysts that have warned
investor that the firm does not have clear direction or branding. According to Downes
(2012), the firm is losing market share because the company has attempted quick trends
but missed longer-term trends that are more productive over time. The analyst also
suggests that the firm is going out of business gradually, although the last two years of
financial data contradict this assessmemt. The new mission statement will include Best
Buy’s commitment to steady growth with the new product that is introduced in their
mission statement. The firm will standardize its products, packaging, and communication
to achieve a positioning that would be effective over time.
Concern for Employees: In the past, Best Buy has been one of the worst retailers
for employee satisfaction; this is partly because of the long hours and little pay (Glass
door reviews). However, when Circuit City laid off all of their experienced sales and
support people; Best Buy hired the laid off workers and gained a service advantage. The
company will continue to have an advantage over their competition by having a culture
that allows employee freedom and responsibly to increase talent density, which will come
with a pay increase. The firm believes that flexibility of employee creative ideas is more
important than efficiency.
Consolidated Mission Statement: In a fast paced world where time is at a
premium, Best Buy provides people with the tools and solutions they need to get back to
school/work/fun! Our employees are the most approachable, most knowledgeable, and
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most effective sales tool the company has. Whether it is solving a software problem,
repairing a hardware issue, or recommending a new tool, Best Buy has the solutions
customers need at a price they can afford.
4 Existing Business Model Analysis
Best Buy has found a niche in the technology and consumer electronics industry
by virtue of its dedicated physical presence; this niche is focused on customer service and
the ability to provide a qualifies technician to address technical issues on a level not
available through low-cost retailers (Wal-Mart) and that that isn’t possible for an online
service (Amazon). This model is exemplified by its “Geek Squad” offering; a set of . This
unique stream of revenues offers service plans when consumers purchase televisions,
computers or game stations. Many companies such as Target and Walmart have jumped
on the band wagon to attempt similar offerings but have fallen short. By differentiating
itself from the competition, Best Buy has created value for their organization. “Geek
Squad”, is a huge strength at Best Buy. From the beginning of 2002, Best Buy has
become a valuable asset to consumers and a well-known brand with instant recognizable
logos. Best Buy’s strategy to sell cell phones and iPads was a good idea. This allowed
each store to manage their space better increasing their revenue per square foot, a key
performance measure in the industry. (Forbes, 2012).
Consumers offer various feedbacks through social channels and Best Buy was
able to strategize a trend in service. Training for employees to respond to consumer’s
questions and needs and investment in experienced sales staff was an insightful choice
that has led to a competitive advantage over the competition. Despite this service
strength, cost pressure from low-cost and online retailers have continued to impact Best
Best Buy Business Case
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Buy, which has a more burdensome cost structure given its physical locations and more
experience sales and support staff. While revenues increased over 6% in 2012 and
domestic revenue has increased 3.9%, competition and the online competition indicate a
coming downward trend in the market. This suggests that a modified strategy should be
attempted to differentiate itself from its competitors.
5 Strengths, Weakness, Opportunities, and Threats Analysis
A Strength, Weakness, Opportunities and Threats (SWOT) analyzes a company’s
value and strategy. It is an evaluation of an organization to see where they compete in the
industry. It gives an investor an up-to-date state financial status of a company. A SWOT
analysis will also assist management in changing strategy. Best Buys’ shares are up by .
02% but have dropped 2% over the past three years and market analysts on Marketwatch
predict Best Busy will drop even more over the next 5 years, (Marketwatch, 2015).
Best Buy’s revenue is over $40B a year with a gross income of $9.05B.
Reviewing Best Buy’s strengths and weakness one can see that their internal strengths are
differentiation, global presence and a good level of available services. From 2005 to 2009
Best Buy’s net income rose in net income. That large increase fell over the past several
years slightly due to competition and technology changes. Consumer preferences change
continuously and Best Buy is able to keep up with the short product life cycles to meet
the demands. Best Buy needs to optimize their floor space and gain insight into trends in
the industry.
External Opportunities would be to increase a global presence and acquire digital
streaming platforms to compete with Netflix and Red Box. The internet gives instructions
on how to clear a virus off computers and now YouTube is available for step by step
instructions. This information is a threat to Best Buy since it is readily available to
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consumers. Although Best Buy began a change in their strategic plan in 2012,
competition and price comparison has led to shrinking profits.
Best Buy’s SWOT
Strengths
•
Brand Valuation throughout the United States
•
Brand image
•
Smartphones and other small electronics; Tablets.
•
Geek Squad; Core competency in Technical Services
•
Customer loyalty
•
Marketing Strategies; Direct ship
•
Distribution/Networking
Weakness
•
Competition: Needs to move into the International Market/Focus on one product stream
•
Low Product diversification
•
Consumer electronics are down; Declining profits
•
Warranty programs need improving
•
Shift from physical to digital media
•
Inventory turnover low; poor management
Opportunities
•
Higher saturation of exclusive brands
•
International growth
•
Expand into Lifestyle segment
•
Attack consumers through online media
•
Quick changes in mobile or cell phone technology
•
Reduce real estate; mobile stores
Threats
•
Competition; Amazon/Walmart; consumer substitutions
•
Price Matching
•
Consumers use Best Buy as a showroom then purchase at competitors for less
•
Manufacturer direct to consumer sales; Apple
•
Rising labor costs
Best Buy is weak in cost of effectiveness, core competencies and profitability but
strong in growth potential and consistent with market trends. Best buy is strong with
enhanced customer experience and knowledgeable employees.
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The international market has potential except it is risky due to cultural barriers,
entries in the market place other global competitors who understand the industry better
overseas. Marketing and advertising is expensive and consumers in the United States are
already aware of Best Buy’s capabilities. As it stands Netflix and the internet are beating
Best Buy in profit shares in regards to movies and gaming.
6 BCG Matrix
Best Buy is an international firm with a retail presence in North America (Canada,
the United Sates, and America) however the majority of its revenue is derived from sales
and support activities within the U.S. A BCG analysis was conducted on the international
and United States sales; this analysis is summarized visually in the Exhibit 5.
Revenue and profits both net and as a percentage of revenue are greater for the
U.S, portion of the business. Given the cost-competition present within the United Sates
and losses within the last few fiscal years (2013), Best Buy should pursue a strategy that
bolsters its domestic position. Efforts to build international efforts in both volume
(revenue) and efficiency (profit) should be not be ignored, however primary resources
must be allocated to ensuring the core business and profitability driver are maintained.
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7 Competition Index and Analysis
Best-Buy faces strong competition in the consumer electronics retail industry. While
these competitors are significantly larger, Best Buy is the sole retail firm in this list
dedicated to consumer electronics sales and support. This suggests that a differentiation
strategy is more likely to be successful as Best Buy may lack the capacity to compete
through economies of scale that Wal-Mart and Amazon might.
Direct Competitor Comparison
BBY AAPL WMT AMZN Industry
Market Cap:
12.98B
125,000
0.01
40.33B
0.23
2.19B
0.04
841.00
M
2.59
14.55
1.33
0.32
631.75
B
92,600
0.33
224.34
B
0.4
77.88B
0.3
50.74B
8.65
12.81
0.82
2.81
211.18B
2,200,00
0
0
485.62B
0.25
35.27B
0.05
15.49B
4.79
13.75
3.21
0.43
254.28B
154,100
0.2
95.81B
0.31
5.73B
0.01
-
188.00
M
-0.41
N/A
9.38
2.6
4.38B
18.00K
0.3
9.39B
0.27
820.00
M
0.03
N/A
2.59
14.59
0.85
0.47
Employees:
Qtrly Rev Growth
(yoy):
Revenue (ttm):
Gross Margin (ttm):
EBITDA (ttm):
Operating Margin
(ttm):
Net Income (ttm):
EPS (ttm):
P/E (ttm):
PEG (5 yr expected):
P/S (ttm):
*AAPL= Apple Inc.
*WMT= Walmart Stores Inc.
* AMZN= Amazon Inc.
* Industry= Electronic stores
8 Historical Financial Statements
Historical financial statements for the Best Buy can be found in Exhibit 6 of this
document. Data has been copied from SEC filings from 2015 to generate these tables.
Historical data was used to generate Pro-Forma projections using a linear regression of
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the last three years and are included (green highlights) in this section. The structure of
these pro-forma financials may be slightly skewed however, as a year of net loss in 2013
followed by two years of reasonable profits distort the regression and result in a curve
with a steeper slope than is truly likely.
9 Ratios and Financial Condition Analysis
Best Buy has a vast amount of resources and capabilities. Employees are experts
in their field and there is a main store for selling products. Although Best Buy has a large
online database of inventory and stock available there needs to be an improvement in
turnover and inventory management. Best Buy has outlasted its long term competitor
Circuit City however, new threats such as Amazon and Walmart have low overhead and
consumers use Best Buy as a showroom (Wells & Danskin, 2012). Meaning they try out
products at Best Buy, then purchase the items directly from the competitors for a lower
cost. Close to 85% of all sales are focused in the United States with only 11.2% in Europe
with China, Canada and Mexico with combine sales at 25%. Some analysts believe Best
Buy should focus their strategy on international sales to raise profit shares. Other
analysis in 2013 found that Best Buy should forget about global expansion and capitalize
on the needs here in the United States. (Marketwatch, 2013).
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Best Buy has been losing market shares to Amazon, Walmart and other industry
stores over the past several years. The differentiation to develop Geek Squad was brillant.
Its a corner in the market place that other companies havent tapped as aggressively
before. Best Buy should focus on developing mobile software solutions and encourages
users to download the app on their cell phones. Best Buy is the biggest retailer in the
industry. It took over Circuit City and later Radio Shack with $51B in revenue. The key
to Best Buy's future is to give the consumer a reason to purchase their items in the store
vice buying from Amazon online. By focusing on their strengths of education, training
and instore experience Best Buy may be able to convince consumers to buy inside the
store instead of try out products and buy elsewhere. Best Buy's future depends on how
well they capitalize on their strengths and follow the trends.
Best buy continues to be scrutinized by analysts with Forbes telling investors to
beware. It is suggested that Best Buy stick to the quick trends and meet the needs of the
consumers and stay away from long term trends and the product line (Marketwatch,
2015). Their Return on Equity (ROE), Return on Assets (ROA) and Return on Net Assets
(RONA) below show that Best Buy is a steady business and profitable but changes need
Best Buy Business Case
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to be made over the next several years to stay competitive as there has been a slight dip in
profits.
10 Alternative Strategies
The suggested alternative strategy for Best Buy is one of differentiation, which
can be accomplished by creating a unique service that Amazon, Wal-Mart, e-bay or any
other low-cost competitor can not generate. The sales and support service expertise and
product knowledge will offer a unique service and value for the Best buy’s customers.
The firm’s experiences and credentials will allow the firm to market this expertise as par
of its brand. The expertise will provide loyalty from consumers since the firm focuses
specifically on the needs of a select group of customers.
The firm giving emphasis to convenience will set Best Buy apart from the
competition. Although some of the competition may have a smaller business, having a
one stop for all your retail needs will be a plus for the firm. Best Buy will be committed
to lessening the time it takes for customers to get in and out; Buy Buy’s convenient store
front shops makes it easier for customers to find us.
In the retail business price focus and cost leadership is an important strategy
because price matching is a treat to the firm. Best Buy should have a low-cost structure
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compared to rivals to create the strategy. This strategy is essential for the firm because of
its competitors focusing on the same targeted segment. If the firm maintains a very low-
cost operation this will enable the firm to offer low prices to the most budget-conscious
consumer.
11 Pro-Forma Financial Statements
Pro-Forma statements for the Best-Buy Co for years 2015, 2016, and 2016 have
been performed and included below. Straight-line projections using the Microsoft Excel
FORECAST() function based on the 2013 through 2015 results produced unreasonable
values for profit and revenue based on the inclusion of a down year, therefore Microsoft
Excel was used to generate a logarithmic regression for do-nothing-different case
revenue, net income, and stockholders equity values (in millions). Due to the
complication in forming projects estimates were not generated for other balance/income
statement metrics. These as projected data are shown in the figures below and equations
used for the do-nothing-different values are included in the figures.
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The alternative strategy of increased focus on services are anticipated to provide a return
on revenue 1.5% greater than the logarithmic estimate, while the net income return is
2.0% greater given the higher margins available through non-commodity tech-support
services. The data, with net present value calculated using a 3% discount rate, are
included in the table below.
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Under these assumptions there are modest gains in net income, shareholder
equity. Because the proposed strategic changes have little impact on the balance sheet,
increases in income drive from the old strategy to the new drive increases in return on
equity (ROE). Peak ROE is observed in FY2018, with an estimate of 34.1 for the DND
case and 34.7 for the alternate strategy, indicating more efficient transformation of capital
into profit. Alternate balance sheet metrics such as return on capital employed (ROCE)
and yield/earnings per share. Stock price would see a modest increase as well resulting in
a modest increase in market capitalization.
12 Net Present Value Analysis
Net present value (NPV) analysis using a base year of 2014 and discount rate of
three percent was performed on the DND and alternate strategies as shown in the table
above. In this case cash flow associated with the alternate strategy is greater than the
alternative approach; this suggests that increases in services, with their greater net
income/revenue ratio will boost profitability. It is assumed that additional hiring and
service offerings represent a low-cash investment, as service offerings will be self-
funding. While some marketing costs will be incurred getting the message out about these
new offerings, the greater efficiency of the services offset these costs. In summary, the
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NPV of the DND case is $4,683 (M) and the NPV of the alternative strategy is $4,757
(M). While this represents a net increase of only 1.77% this should be considered a
relatively low-risk investment because there is little cash outlay required.
13 Recommended Strategy
This assessment of the Best Buy case deals consumer decisions on product
purchasing; specifically what might make a customer choose Best Buy as their source for
increasingly commoditized electronic goods when there are likely lower cost options
available. To this end, it is proposed that Best Buy continue to stress customer service and
it technical expertise in electronics sales. Both of these factors will help to differentiate
Best Buy from larger, lower-cost options with little capital investment. This brand of
enhanced customer interaction and service will become the centerpiece of the Best Buy
strategy moving forward.
The electronics market has had an explosion of offerings in recent years, which
has caused Best Buy management to consider new packaging for products. A business
may change its packaging as part of its proactive strategy with the aim of increasing sales
such of Best Buy, while other businesses aim at cutting costs. Changing the packaging
produces various effects on costs, brand, sales, and retail store placement. Most
significantly for Best Buy, a rebranding of products properly executed would pair a
physical component/presence to its service oriented strategy. It’s important for business to
review the multiple results that may occur and their effect on the business bottom line
before making any change on its products packaging.
In this case, retail shelf’s have many other competing products. Multiple
companies have sprung up and as such, Best Buy, should position itself strategically so as
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not to lose its market share to other companies. Repackaging its products such as
changing the shape of the phones, size, and other features makes it stand out for
customers. Customers are able to spot the products quickly and more easily as the
packaging features act as target marketing message. The graphics of the packaging also
evoke feelings in customers and convey messages based on features used. The customers
can therefore identify themselves with the brands.
However, there are risks involved. Though rebranding is intended to maintain and
attract more customers, it may not have the impact as projected. Customers may not like
or accept a certain branding option and they therefore opt to try other brands that is
attractive to them. A company may have done an assessment on consumer behavior but
once the real product reaches the retail shelves, the real approach is known. The launch of
repackaging should be implemented in phases so as to learn gradually through
consumer’s reaction (J Innes; F Mitchell 2008).
In order to prevent huge loses, it would therefore be prudent for Best Buy to first
understand customer’s reaction on ground by introducing branded T.Vs, phones, and
computers gradually before launching it aggressively and in full force by 2020. This
should be considered a strategy secondary to the service oriented focused discussed at the
beginning of this section.
14 Proposed Business Model
In order to better satisfy the customers, Best Buy must cater to all its customer
segments. Currently the firm’s niche market is college students. This market will be best
served by incorporating Geek Squad: Task Force. The firm’s incorporation of the Geek
Squad: Task Force will serve the market niche well and improve the customer’s
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experience. This is mainly because of internet commerce and its nemesis, Amazon.com.
The Genius Bar has proven a very lucrative revenue stream for Apple and an expansion
of Geek Squad into that concept should perform similarly for Best Buy. Geek Squad:
Task Force should also have an online presence to provide service to web customers.
It is important for Best Buy to maintain relatability with the customer base.
Considering the target market comprises a college students, employees should be of a
similar caliber or generation. This will help improve the customer’s employee relations as
the two will work on similar grounds during the selling and buying process. It is noted
that, on such grounds, better business is conducted and the client is more likely to come
back at a later date.
Price matching with online items and increasing store inventory can entice
customers to come into the store. The firm’s increased inventory will ensure customers
can buy online and come into the store to pick the item up immediately; this should be
done but using a distributed inventory system rather than a centralized warehouse system.
Good data collection should allow predictive analysis to predict buying patterns as well.
Ensuring that products are available will reduce stock out costs in stores and increase
revenue. The incorporation of online with the store purchase will ensure that customers
have varied services that the competitors cannot offer. Indeed, this is one of the greatest
strengths that will ensure the growth of Best Buy in the market under the Geek Squad:
Task Force strategy. Compared to other competitive firms such as Amazon.com, Best Buy
offers its products in physical locations as well as online sites, thus, increasing coverage.
The purpose of a rebranding effort will be to create more market awareness about
the new strategy through aggressive marketing activities. The marketing activities shall
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focus on social media such as Facebook, which is widely used by young people. Also,
promotion campaigns shall be undertaken in major markets to ensure that customers
understand and apply the new business model whenever they transact business with Best
Buy. This will improve the revenues of Best Buy which is purely dependent on the
customer’s knowledge of the purchasing processes.
In producing self-branded items, Best Buy must focus on low-cost value creation
by locating a better market of producers than my competitors. A better producer market
means that the market will be offering better prices on goods, which will increase profit
margin even with the rebranding.
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15 References
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Corporate WebSite: https://corporate.bestbuy.com/about-best-buy/
BBY Annual Income Statement - Best Buy Co. Inc. Annual Financials. (2015, October
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x.html
Best Buy Co., Inc. - Best Buy Reports Second Quarter Results. (2015, August).
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Downes, L. (2012, January). Why Best Buy is going out of Business,
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Forget about overseas, Best Buy's grand mission is right here in the U.S. - Behind the
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Griffiths, A. (2003). Digital television strategies: Business challenges and opportunities.
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Groth, A. (2011, November). Build an Online Store. Business Insider, ().Retrieved from
http://www.businessinsider.com/best-buy-europe-2011-11
Hartung, A. (2015, March). Forbes Welcome. Retrieved from
http://www.forbes.com/sites/adamhartung/2015/03/05/dont-fight-trends-so-dont-
invest-in-best-buy
J Innes; F Mitchell (2008) “Activity based cost management : a case study of
development and implementation” London : Chartered Institute of Management
Accountants,
Loeb, W. (, November). Why Best Buy will probably beat the competition, Exceed
Expectations. Forbes, ().Retrieve from
http://www.forbes.com/sites/walterloeb/2014/11/24/a-prediction-best-buy-will-
beat-the-competition-and-exceed-expectations/
Best Buy Business Case
25
Rothaermel, F. T. (2011). Strategic Management: Concepts & Cases. New York, NY:
McGraw-Hill Irwin.
Safko, L., & Brake, D. (2009). The social media bible: Tactics, tools, and strategies for
business success. Hoboken, N.J.: John Wiley & Sons.
Wells, J., & Danskin, G. (2012). Best Buy in Crisis: Harvard Business School Case (pp.
713-403). (Revised March 2014).
Best Buy Business Case
26
16 Exhibits
Exhibits 1-5 and 7 were generated using an Microsoft Excel template produced by David
& David (2014).
Exhibit 1 SWOT Analysis
Best Buy Business Case
27
Exhibit 2: SWOT Bivariate Analysis
Best Buy Business Case
28
Exhibit 3: External Factor Evaluation (EFE) and Internal Factor Evaluation (IFE)
Matrices [CITATION www14 \l 1033 ]
Best Buy Business Case
29
Exhibit 4: Competitive Profile Matrix [CITATION www14 \l 1033 ]
Exhibit 5: BCG Matrix [CITATION www14 \l 1033 ]
pecans
terrace
SHEETS
2/1/2014
1/31/2015
1/31/2016
1/31/2017 1/31/2018
In
Millions,
unless
otherwise
Do
Nothing
Do
Nothing
Do
Nothing
specified
Yr
d
Yr 2
Yr3
CURRENT
ASSETS
Cash
and
cash
equivalents
$2,678
$2,432
$2,185
$1,938
$1,691
Short-term
investments
$223
$1,456
$2,692
$3,932
$5,169
Receivables,
net
$1,308
$1,280
C1252.
$1,224
$1,196
Merchandise
inventories
$5,376
$5,174
$4,971
$4,768 $4,566
Other
current
assets
$900
$703
$505 $307 $110
Current
assets
held
for
sale
$0
$684
$1,370 $2,058 $2,744
Total
current
assets
$10,485
$11,729
$12,976 $14,227 $15,475
Property
and
Equipment
Land
and
buildings
$758
$611 $464 $316
$168
Leasehold
improvements
$2,182
$2,201 $2,220 $2,239
$2,258
Fixtures
and
equipment
$4,515
$4,729
$4,944 $55159
$5373
Property
under
capital
lease
$120
$119
$118 $127
$116
Property
and
equipment,
gross
$7,575
$7,660
$7,745 $7,831 $7,916
Less
accumulated
depreciation
$4,977
$5,365
$5,754 $6,144
$6,533
Net
property
and
equipment
$2,598
$2,295
$1,991
$1,687
$1,383
Goodwill
$425
$425
$425
$425 $425
Intangibles,
Net
$101
$57
$13
($31) ($75)
Other
Assets
$404
$583
$762
$942
S16422
Non-current
assets
held
for
sale
$0
$167
$334
$502
$670
Total
Assets
$14,013
$15,256
$16,502 $17,752
$18,999
CURRENT
LIABILITIES
Accounts
payable
$5,122
$5,030
$4,938
$4,845 $4,753
Unredeemed
gift
card
liabilities
$406
$411 $416
$421 $426
Deferred
revenue
$399
$326
$253 $179
$106
Accrued
compensation
and
related
expenses
$444
$372 $300 $227
$155
Accrued
liabilities
$873
$782 $691 $599
$508
Accrued
income
taxes
$147
$230
$313 $397 $480
Current
portion
of
long-term
debt
$45 $41
$37 $33 $29
Current
liabilities
held
for
sale
$0
$585
$15172
$1,760
$2,346
Total
current
liabilities
7,436
7,777
$8,119
$8,462
$8,804
Long-Term
Liabilities
$976
$881 $786 $690
$595
Long-Term
Debt
$1,612
$1,580
$1,548 $1,516 $1,484
Contingencies
and
Commitments
(Note
12)
ii
Long-Term
Liabilities
held
for sale
$18]
Best
Buy
Co.,
Inc.
Shareholdersae™
Equity
Preferred
stock,
$1.00
par
value:
Authorized
4
0
0
$0
$0 $0
Common
stock,
$0.10
par
value:
Authorized
4
35 35
$35
$35 $35
Additional
paid-in
capital
300
437
$574
$712
$850
Retained
earnings
3159
4141
$5,126 $6,113
$7,098
[Accumulated
other
comprehensive
income
492
382
$272
$161
$51
Total
Best
Buy
Co.,
Inc.
shareholders'
equity
3986
4995
$6,007
$7,021 $8,033
Noncontrolling
interests
3
5
$7
$9
$11
Total
equity
3989
5000
$6,014
$7,030
$8,044
Total
Liabilities
and
Equity
14013
15256
$16,502
$17,752
$18,999
Best Buy Business Case
31
Exhibit 6: Best Buy Financial Statements
CONSOLIDATED
STATEMENTS
a
12
Months
Do-nothing
|Do-nothing |Do-nothing
OF
EARNINGS
(USD
$)
Ended Yr1
Vr2 VES
Ended
In
Millions,
except
Per
Share
data,
unless
otherwise
2/2/2013
2/1/2014
1/31/2015
1/31/2016
1/31/2017
|
1/31/2018
specified
Revenue
$38,252
$40,611
$40,339
$41,824]
$42,873]
$43,919
Cost
of
goods
sold
$29,228
$31,212
$31,292
$32,644|
$33,682]
$34,717
Restructuring
charges
a€”
cost
of
goods
sold
$1
$0
$0
($1)
($1)
($2)
Gross
profit
$9,023
$9,399
$9,047
$9,180 $9,192 $9,204
Selling,
general
and
administrative
expenses
$7,905
$8,106
$7,592
$7,554 $7,397 $7,240
Restructuring
charges
$414
$149
$5
($220) ($426) ($631)
Goodwill
impairments
$614 $0
$0
($410)
($719)|
($1,027)
Operating
income
{1 [2
$90
$1,144]
$1,450]]
$2,257 $2,940 $3,622
Other
income
(expense)
Gain
on
sale
of
investments
$0
$20
$13
$24 $31
$37
Investment
income
and
other
$13
$19
$14
$16 $17 $17
Interest
expense
($99)
($100)
($90)
($87)
($83)
($78)
Earnings
from
continuing
operations before
income
tax
expense
$4
$1,083
$1,387
$2,210
$2,905
$3,598
Income
tax
expense
$263
$388
$141
$142
$80
$19
Net
earnings
(loss)
from
continuing
operations
($259)
$695
$1,246 $2,068 $2,824
$3,579
Loss
from
discontinued
operations
(Note
2),
net
of
tax
benefit
of $0,
$31
and
$30
($161)
($172)
($11)
$36
$111 $186
Net
earnings
(loss)
including
noncontrolling
interests
($420)
$523
$1,235 $2,103
$2;935
$3,765
Net
(earnings)
loss
from
discontinued
operations
attributable to
noncontrolling
interests
($21)
$9
($2)
$14
$24
$33
Net
earnings
(loss)
attributable
to
Best
Buy
Co.,
Inc.
shareholders ($441)
$532
$1,233
$2,118 $2,959 $3,799
Basic
earnings
(loss)
per
share
attributable to
Best
Buy
Co.,
Inc.
shareholders
Continuing
operations
[3
($4)}]
$2 $4
$6
$8
$10
Discontinued
operations
($4)
($0)
($0)
$0
$0
$1
Basic
earnings
(loss)
per
share
($1)
$2 $4
$6
$9
$11
Diluted
earnings
(loss)
per
share
attributable to
Best
Buy
Co.,
Inc.
shareholders
Continuing
operations
[3
($4)]]
$2 $4 $6 $8
$10
Rinsse
Dosa
sess
Zoot
7
Ta
Best Buy Business Case
32
Best Buy Business Case
33
CONSOLIDATED
STATEMENTS
11
Months
Months
[ee
gs
ne
ao
OF
CASH
FLOWS
(USD
$)
Ended
Ended
rae
Yr
oie
Yr
ne
Yr
"
See
ae
2/2/2013
|2/1/2014
1/31/2015
|1/31/2016]1/31/2017|1/31/2018
OPERATING
ACTIVITIES
Nete
tones
le)
neweing
($420)|
$523)
$1,235} $2,103]
$2,935]
$3,765
noncontrolling
interests
Adjustments
to
reconcile
net
earnings
(loss)
to
total
cash
provided
by
operating
activities
Depreciation
$794
$701
$656 $579 $509 $440
Ane)
of
definite-lived
$38 $15
$0
($20) ($39) ($59)
intangible
assets
Restructuring
charges
$449 $259
$23
($183) ($397) ($611)
Goodwill
impairments
$822
$0
$0
($549)
($962)|
($1,375)
(Gain)
Loss
on
sale
of
business
$0
$143
($1)
$46
$46
$45
Stock-based
compensation
$107
$90 $87
$75 $65 $55
Deferred
income
taxes ($19) ($28)
($297) ($393) ($533) ($672)
Other,
net
$41 $62
$8 $4
($13) ($29)
Changes
in
operating
assets
and
liabilities:
Receivables
-551
$7
-19
$345 $613
$879
Merchandise
inventories
($912)
$597
($141)
$620
$1,008
$1,394
Other
assets
($65) ($70)
$29 $59
$106 $153
Accounts
payable
$1,735
($986)
$434
($908)]
($1,563)|
($2,215)
Other
liabilities
($339)
($273) ($164)
($83)
$5
$92
Income
taxes
($226)
$54
$85
$282 $439 $595
Total
cash provided by
$1,454]
$1,094]
$1,935]
$1,976] $2,218]
$2,459
operating
activities
INVESTING
ACTIVITIES
Additions
to
property
and
equipment,
net
of
e14.
$13
and
($705)
($547) ($561)
($460) ($388)
($316)
$29
non-cash
capital
expenditures
Purchases
of
investments
-13]
($230)
-2,8041
($3,811)]
($5,214)]
($6,613)
Sales of
investments
$69
$50
$1,580 $2,079 $2,839
$3,597
Acquistacn
of
businesses,
net
of
($31)
$0 $0
$21
$36
$52
cash
acquired
Proceeds
from
sale
of
business,
net
of
cash
transferred
$25
$206
$39
$104
$111
$118
Change
in
restricted
assets
$101
$5
$29
($27) ($63) ($99)
Other,
net
$16
($1)
$5
($4)
($10) ($15)
TOs
Us
Thy
vests
($538)|
($517)|
($1,712)} ($2,098)| ($2,688)|
($3,277)
activities
Best Buy Business Case
34
Best Buy Business Case
35
Revenue
(in
millions)
Revenue
(in
millions)
$100,000 $100,000
$80,000 $80,000
$60,000 $60,000
$40,000
Comey
$20,000
'
$20,000
Rie)
Rie)
yO}
PO
2015
pO)
yw,
2013
PlOes
ylenhs}
yL0s
Ke)
m™Best
Buy
™Amazon
===Best
Buy
‘Amazon
Net
Income
(in
millions)
Net
Income
(in
millions)
v0.
Bas
PL
2015 P20)
2017
c
a
PL
2015 P20)
m
Best
Buy
™Amazon
===
Best
Buy
Era)
Assets
(in
millions)
Assets
(in
millions)
$60,000 $60,000
$50,000 $50,000
$40,000
$40,000
$30,000 $30,000
$20,000
$20,000
Ss
in
$10,000 $10,000
Rie)
Rie)
yO}
PO
pO) yO}
PO
2015
pO)
m
Best
Buy
™Amazon
===
Best
Buy
Amazon
Liabilities
(in
millions)
Liabilities
(in
millions)
$9,000 $9,000
Cexele0)
$8,000
——
$7,000 $7,000
$6,000 $6,000
$5,000 $5,000
$4,000
=
$4,000
$3,000 $3,000
$2,000 $2,000
$1,000 $1,000
Rie) Rie)
lO)
2014
PLO
PLO}
2017
2013
PLO
2015
Plo
s}
ylys
m™Best
Buy
™
Amazon
===
Best
Buy
Amazon
Best Buy Business Case
36
Exhibit 7: Financial Charts
Best Buy Business Case
37
Best Buy Business Case
38
