Thesis on "Best Buy"

Thesis 7 pages (1762 words) Sources: 5 Style: MLA

[EXCERPT] . . . .

Best Buy SWOT Analysis

Best Buy is one of the world's largest and most diversified retailers of home office products, consumer electronics, and entertainment software with $45B Annual Revenue as of the close of their latest fiscal year on February 28, 2009. Best Buy is a publicly-traded company on the New York Stock Exchange (NYSE) and trades under the symbol BBY. The company competes in the Retail, Appliances and Electrical industry as defined by SIC Code 5731 and NAIC code 443112. Table 1, Best Buy Income Statement Analysis provides insights into their financial structure and five-year employment history. Today the company employs approximately 155,000 employees in 49 states, in addition to Puerto Rico, the District of Columbia and selected Canadian provinces. The Canadian provinces Best Buy competes in include Alberta, British Columbia, Manitoba, Ontario, Quebec, Nova Scotia, and Saskatchewan. Just as Wal-Mart has successfully expanded into China, so has best Buy with approximately 159 stores co-branded with the Five Star retailing chain, co-branded throughout several of China's most populous and prosperous provinces. Best Buy has also worked closely with the Chinese government to create a flagship store in Shanghai as well. Best Buy has also struggled to move into Europe, just as its competitor Wal-mart has, as evidenced by the mass merchandiser's challenges in Germany for example (Gibson, Billings, 15). Best Buy also has one of the most significant online selling and service channels over the Internet of any of its competitors (Bernstein, Song, Zheng, 671). The use of advanced e-commerce strategies included guided selling, sales and product configuration, drop shipping and in-store pickup from Web ordering are all indicative of the company's strength in e-commerce. Best Buy executives credit their extensive use of analytics and measurement for the success of their online e-commerce strategies (Todd, 35). Despite the growth of their online channels and the success they have had managing cross-sell and up-sell through guided selling and product configuration (Bernstein, Song, Zheng, 671) the company continues to report their revenues by domestic and international, not yet breaking out their online segment as a separate line item in their financial statements.

Assessing Best Buy's Financial and Operational Performance

Despite a global economic recession, Best Buy continues to generate in-store sales increases as of the close of their fiscal year in the 2% per store range, largely attributable to their use of in-store and cross-shopping analytics (Todd, 35). What is most impressive about best Buy's revenue growth is their ability to add approximately 137 new stores to the Future Shop chain, Five Star chain in China, Pacific Sales subsidiary, Best Buy Mobile stores, and Best Buy flagship stores including the higher-end Magnolia specialty electronics retailing all during 2008. The addition of these stores, when analyzed from the company's filings with the Securities and Exchange Commission (SEC) and also through their financial statements, show that the majority of the 2% per store range increase in sales can be attributed to these new store openings (Gruenwedel, 3). Also during this time period Best Buy chose to offer voluntary reduction in force programs that included up to a year of severance pay, of which 500 employees in corporate headquarters accepted the offer (Gruenwedel, 3). During 2008 the company also finalized the acquisition of Five Star in China and Taiwan, pacific Sales, a west-coast retailer of higher-end consumer electronics and kitchen appliances and Speakeasy. The success of these acquisitions illustrated that merger and acquisition process workflows have now become a core competency of best Buy, as they attempt to redefine themselves in an increasingly competitive retail arena (Kohnen, 69). The ability to capitalize on these processes has been highly complimentary to the investments Best Buy has made in customer service via their Geek Squad services organization, one that has been seen by many in the industry as innovative and defining the next generation of services offered to retail customers (Stopper, 35, 36). Best Buy has earned an excellent reputation for their Geek Squad service and continues to invest heavily in the areas of guided selling, in-store pick-up of online orders, and the development of entirely new approaches to launching electronics products line (Bernstein, Song, Zheng, 671).

In summary, Best Buy continues to be successful in an increasingly turbulent economic environment. With 923 Best Buy stores in the United States (Gruenwedel, 3) each averaging nearly 39,000 square feet; the company has approximately 36.6 million square fee of retail space chain-wide. Best Buy's investment in purchasing Pacific Sales' 19 stores in 2008 are netting out approximately $18M per store, per year. Please see Table 1: Best Buy Income Statement Analysis and Table 2: Best Buy Financial Ratio Analysis in the Appendix for additional analysis.

Best Buy Strengths, Weaknesses, Opportunities and Threats Analysis

The following is an assessment of the strengths, weaknesses, opportunities and threats of Best Buy as of May, 2009. Additional support for this analysis can be found in the Appendix of this document, including Table 1: Best Buy Income Analysis and Table 2: Best Buy Financial Ratio Analysis.

The strengths of Best Buy are seen in their exceptionally strong financial performance given the at times bleak and uncertain global economic environment. Table 1, Best Buy Income Statement Analysis shows the last five years of revenue and cost growth. From 2005 to 2009, Best Buy averaged a 10.76% Compound Annual Growth Rate (CAGR) in net Revenue while there was widespread consolidation throughout the retailing industry and high tech products supply chain as well. Second, Best Buy has demonstrated the ability to successfully manage merger and acquisition activity across cultural and socio-political barriers, as evidenced by the success of the Five Star acquisition in China and Taiwan. The decision to centralize a Best Buy flagship store in Shanghai is a politically astute one as the local Chinese Communist party in that city is the most politically and economically powerful one in the entire country (Chakravarthy, Lorange, et.al.). By being cooperative with this local Communist Party in Shanghai, Best Buy in effect opened up the other higher-income regions of China for themselves. Additional strengths include the success of their Internet strategies including cross-selling and up-selling specific products online and managing the new product introduction process for key manufacturer partners including Toshiba and HP on Web-based product introductions, and the introduction of next-generation flat-screen televisions from LG Electronics and Samsung. In addition to all of these strengths, Best Buy has successfully created their domestic U.S. brand as one of the most recognized and respected in consumer electronics retailing in the U.S. (Stopper, 36).

The weaknesses Best Buy contends with include a continual shrinking of their key suppliers as consolidation plays an increasingly active role in trimming the number and variety of electronics retailers. Second, Best Buy is facing more challenges in terms of managing their supply chain globally due to the higher costs of logistics and delays in getting shipments cleared through customers in the U.S. due to enhanced Homeland Security and compliance requirements. Third, the company has also been distracted with lawsuits based on its loyalty programs.

Best Buy's many opportunities can be seen in their success launching new stores, as is evidenced by their track record in 2008. The company is one of the few larger retailers who have successfully been able to create a new store launch process that quickly on-boards newly acquired retail chains, as evidenced by Pacific Sales and Five Star in China and Taiwan. Due to its market-maker status within the industry, Best Buy is also one that is often considered a key partner for the launch of the latest generation convergence devices including cell phones, PDAs and laptop computers. All of these opportunities in turn contribute to increased traffic throughout newly opened stores.

The threats to Best Buy include labor costs and the threat of unionization globally, the high levels of competition both online and in their stores, and the rapidly increasing consumer pricing and inflation throughout global economies. Each of these factors is contributing to a higher level of operating expenses as shown in Table 1: Best Buy Income Statement Analysis. The greatest competitive threat is from Wal-Mart and their pricing on LCD televisions and low-cost consumer electronics, as the Wal-Mart supply chain can deliver significantly greater levels of cost efficiencies. For Best Buy to be able to compete with Wal-Mart and others, it will have to continually invest in making their supply chain as efficient and customer-centric as possible.

Table 1: Best Buy SWOT Analysis

Strengths:

Exceptionally strong financial performance given the financial condition of the global economy (see Appendices for financial ratio analysis and income statement analysis)

International growth effectively planned and executed through acquisitions

Internet expertise including guided selling, cross-selling, up-selling and product configuration

Strong coordination with manufacturer partners for Web-only product introductions

Established and highly differentiated market presence in the U.S. retailing marketplace

Weaknesses:

Overly dependent on few suppliers

Supply chain is quickly consolidating due to global economic recession

Legal costs and continued litigation are distractions of global performance

Opportunities:

New store launch process is well-defined and… READ MORE

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