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Best Buy

Vision and Mission

In the rapidly changing world, Best Buy’s managers, who are responsible for the company’s adaptation to new realities, have to foresee these changes and develop leading innovative services and products (Mican, 2012). To reach its full potential, the Best Buy team is “committed to helping deliver the technology solutions that provide value, enabling access to people, knowledge, ideas and fun – whether online, in-stores and via their mobile devices” (Best Buy, n.d.). Although the company mission is not officially articulated, it is perceived as making the lives of Best Buy’s customers richer in the connected world.

Goal and Objectives

The declared goal of the company is transforming for the benefit of all stakeholders (Best Buy, 2013). The Best Buy’s management established the following objective: to increase operating income and Return On Investment Capital (ROIC) to the average of other .retailers that account to 5-6% and 13-15% correspondingly (Best Buy, 2012).

Current Business Strategies 

Currently, Best Buy pursues the following key strategies (Form 10-K, 2012; Best Buy, 2012):

  • Increasing the market share;
  • International growth through mergers and acquisitions;
  • Increasing efficiency through focusing on online growth, cost reduction, escalating multi-channel, rejuvenating the customers’ experience, and improving retail execution.

Analysis of the Current Situation

Industry Profile

The U.S. consumer electronic and appliance market accounts to about $230 billion (Best Buy, 2012).The industry features maturity. The major industry’s trends are web-centricity, mobilization, and integration that manifest in channel shifting and products mix shifting (Davis, 2007; Best Buy, 2012). The biggest opportunity in the industry is getting more customers online. The prospective markets for sales are the Asian markets (PricewaterhouseCooper, 2009).

Company profile

Best Buy Co., Inc. is the global leader in consumer electronics with annual revenue about $50 billion (Form 10-K, 2012). It operates two segments: domestic and international. The domestic segment runs about 1180 stores and provides 75% of total company revenue. The international segment operates nearly 2850 stores in Canada, Europe, Mexico, and China (Form 10-K). Best Buy has a market share in the U.S. about 16%., followed by Wal-Mart with 15% (Best Buy, 2012). No other competitors control a significant share of the market. However, in online retail, it has the 11th position (Best Buy, n.d.a).

Internal Environmental Analysis

Best Buy has the following tangible and intangible resources and capabilities at its disposal. The tangible resources include (Best Buy, 2012; Best Buy, 2013):

  • Effective Supply Chain thatbecame a customer-facing unit (Cotrill, 2006); 
  • Promising multi-channel platform that includes digital channel and physical stores (Best Buy, 2012);
  • As of February 3, 2013, Net Working Capital is $1,237 million (Best Buy, 2013).

The intangible resources include (Form 10-K, 2012; Best Buy, 2012):

  • Valuable and well-known brand;
  • Domestic and international trademarks, services marks registration;
  • The great service experience;
  • The large customers’ base.

Best Buy‘s capabilities are as follows (Best Buy, 2012):

  • Delivering superior multi-channel shopping and service experience to its customers;
  • Reaching the highest key operating metrics in the industry.

The resources and capabilities as the sources of the value creation define the Best Buy’s core competence: an ability to deliver high quality customer experience offers at low prices (Form 10-K, 2012).

External Analysis

The external analysis discovers the following external factors that have the impact on Best Buy’s performance:

Political. In general, political factors provide the relative stability for Best Buy business development. However, a political decision of China, the major producer of global rare earth minerals, to stockpile the minerals can have a negative impact through raising products cost (Bloomberg, 2011).  

Economic. The significant challenges for the industry include a highly competitive environment due to the global business expansion, lowering consumer spending, increased savings rates, and deflation that impact sales and margin levels (PricewaterhouseCooper, 2009).

Socio- cultural. It relates tochanges in social patterns concerning a nature of the goods, which are considered expensive one-off purchases that can be delayed (PricewaterhouseCooper, 2009).

Technological. Driving online sales, escalating multi-channel and developing cross-channel based on the advanced IT solutions make Best Buy more responsive to consumers’ demands and more competitive in the markets, domestically, and internationally (Fischer, 2012).

Environmental. A regulatory compliance pressure continues to grow. The legislation concerning some hazardous materials used in electronics and recycling can affect products costs.

To conclude, the factors that are likely to impact the development of Best Buy’s competitive advantages are increasing rivalry in the market, the growth of online sales, and decreasing consumers’ spending.

SWOT Analysis

Strengths:

  • Strong market positions (Best Buy, 2012; Best Buy, 2013);
  • Valuable and well-known brand; 
  • A strong lead in multi-channel;
  • Focusing on the financial performance;
  • Effective supply chain management (Cotrill, 2006).

Weaknesses:

  • Seasonality of business (Form 10-K, 2012);
  • A great sensitiveness to the economic conditions and environments due to selling non-essential goods;
  • Financial uncertainty related to generating less cash flow (Best Buy, 2012);
  • Relatively low market share in online sales (Best Buy, 2012).

Opportunities:

  • Improving customers experience and retail execution (Best Buy , 2012);
  • The intensive online growth (Best Buy, 2012; Best Buy; Mican, 2012);
  • Expanding business to new markets (PricewaterhouseCooper, n.d.);
  • Cost reduction through supply chain efficiencies (Best Buy, 2012);
  • Developing cross-channel that provides the advantages of all sales channels integration (Fischer, 2012).

Threats:

  • Strong competition in emerging markets;
  • Lowering consumers spending;
  • Dependence on few major suppliers (Form 10-K, 2012);
  • Changes in the industry trends concerning shifting of channels and products mix.

Financial Analysis

The company demonstrated the revenue growth of 0.2% for 2013 financial year (Best Buy, 2012). Adjusted free cash flow for the year reached $965 million through reducing inventories and focusing on working capital. Net working capital is $1, 237 million; current ratio – 1, 12; debt ratio – 64% (Best Buy, 2012). The Domestic business segment showed 0, 9% growth of comparable sales that allowed compensating a downward trend of the International segment. The company is under significant financial pressure due to less cash flow generation resulted from declining comparable sales and operating margins. Overall Return on Invested Capital (ROIC) is unsatisfactory (about 11%) (Best Buy, 2012).

Conclusion

In the modern fast changing world, managers of Best Buy are responsible for positioning their company to adjust to the changes. The general challenges Best Buy faces are globalization, intense competition, the need for rapid response, and increasing diversity. The current situation analysis gives a platform to draft a strategy recommendation to adapt the company to new needs. It indicates that Best Buy has sufficient strengths based on internal resources and capability to take opportunities and overcome threats in order to compete successfully in the retail industry, domestically and internationally. In general, the currently used strategies allow the company to maintain its competitive advantages and improve its performance.

In order to develop their competitive advantages, the company should focus on strengthening its position in the largest prospective market in China through generating more sales and increasing its market share. Besides, it is important for Best Buy to enter aggressively other Asian pacific markets, wherein the company is not yet involved. The evident growth of the Best Buy International segment over time can be a sign of successful transformation efforts.

Further, Best Buy has to adapt their marketing strategies to changes in industry trends: channel shifting, product mix shifting, and price perception. Success in its transformation cannot be achieved by a single competitive strategy. The marketing decision is based on the identification of new needs, and the mix of all marketing elements should be utilized to build strategies to meet those needs. These strategies should combine the following: focusing on the online growth, cost reduction, rejuvenating the customers’ experience, developing cross-channel, and improving retail execution.