Best Buy
Best Buy stores, owned and operated by Minneapolis-based Best Buy Co., Inc., is one of
the nation’s leading retailers of technology and entertainment products and services.
Through more than 940 retail stores across the United States and in Canada, their employees
connect customers with technology and entertainment products and services that make life easier
and more fun. They sell consumer electronics, home-office products, entertainment software,
appliances and related services. As a Minneapolis-based company, their operations include: Best
Buy, Five Star Appliance, Future Shop, Geek Squad, Magnolia Audio Video and Pacific Sales
Best Buy’s mission is to give our customers great experiences- whether they are shopping for
consumer electronics, home office products, entertainment software and appliances, or using
Best Buy’s vision is to make life fun and easy for consumers.
To give customers a great experience in every aspect of shopping including value, customer
Make life fun and easy for consumers while offering the best product possible and growing as a
Best Buy was started by Richard Schulze and business partner and was originally called
the Sound of Music. The first store was opened in 1966 in St. Paul, Minnesota.
The next year the second and third Sound of Music stores were opened near the University of
Minnesota and in downtown Minneapolis. In 1973, a Sound of Music facility opens in Edina,
Music begins to expand into the suburbs and had nine stores by the end of 1978. In 1979, Sound
of Music expands into video products; first suppliers of video and laser disc equipment include
Panasonic, Magnavox, Sony and Sharp. Stores add photography and home office products, with
video equipment and TV’s expanding to all stores in 1981. Sound of Music’s board of directors
approves a new corporate name in 1983: Best Buy Co., Inc. Best Buy opens its first superstore in
Burnsville, Minnesota, featuring expanded selling space, a wide assortment of discounted brand-
name goods, central service, and warehouse distribution. Stores also began selling appliances
and VCRs. In 1988 Best Buy stores begin selling PCs. Best Buy became the nation’s top retailer
of PCs to home users in 1995. In 1997 Best Buy became the first national retailer to sell DVD
hardware and software. Three years later Best Buy entered the online retailing business by
launching Bestbuy.com. Soon later Best Buy opened its first Canadian Best Buy store in
Toronto. That same year, 2002, Best Buy and the Geek Squad join forces. In 2003, Best Buy
opened its first global sourcing office in Shanghai, China. Later that year, Fortune magazine
ranks Best Buy #4 on its list of most admired U.S. companies in the specialty retailers industry
and Forbes magazine names Best Buy as one of America’s most philanthropic corporations. To
top it off, the next year, 2004, Forbes magazine names Best Buy “Company of the Year.”
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Organizational Culture :
Best Buys organizational culture is much like an energized family which is kept this way
by learning. This is done by in the store training so employees can be kept up with the latest
trends and innovations that are listed on Best Buy’s personal intranet site. Best Buy does not
want their employee’s to feel like they are just another person in the company but as an
employee within the industry. Best Buy would like to think that employee’s find their jobs to be
Best Buy’s corporate vision is to “Make Life Fun and Easy”. Best Buy also has four guides
which is linked to their vision statement and is to be used to guide the actions of the employee’s:
Symbol:
Best Buy has become the leader in electronic retail in the United States reaching every
goal that has been set before it. In the spring of 2003 Best Buy opened their new corporate
campus, which represented the milestones that Best Buy has achieved over the past 40 years.
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The Competitive Profile Matrix represents Best Buy’s competitors and how well they
compete in various areas within the industry. Best Buy’s rating is the highest, 3.48, among its
competitors and is due to its strengths in market share, financial position, sales, and merchandise
variety. Best Buy’s closest competitor was found to be Office Depot who succeeded where Best
Buy had weaknesses. Office Depot’s strategic strengths were ecommerce and global expansion
in which they both received ratings of 4. Office Depot has excelled by pursuing markets in 21
international markets, by providing diversified language settings on there web site and providing
stores in 14 of those markets. The Competitive Profile Matrix also showed that Circuit City was
our least threatening competitor by declining market share and sales which exemplifies why they
EFE Matrix:
Opportunities
Threats
Opportunities
Threats
The EFE is a useful analytical tool to use when attempting to analyze whether a company
is strong or weak externally in comparison to its competitors. The expected 19% increase in
online sales is a major opportunity that must be capitalized on in order for Best Buy to excel over
its competitors. The potential success of the ‘customer centricity’ approach is also an opportunity
for a growth in customer satisfaction. Price wars are the major threat to Best Buy’s profit
margins, as well as the lower cost structures of many of Best Buy’s competitors. The total score
for the EFE analysis was 2.56 This is a mediocre score although it is closer to 4 than to 1. This
result suggests that Best Buy could certainly improve on taking advantage of the opportunities
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that are presented to them and also deal with the threats they face in a better fashion. It shows
that the opportunities outweigh the threats, and that taking better advantage of the opportunities
International Boundaries
Developing Positive Culture
Quota Restrictions
Taxes
Organizational Structure ($50,000,000)
Bulk Discounts
Economies of Scale $200,000,000
Total Value Added $105,000,000
IFE Matrix:
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Strengths
1. Innovative
2. Fortune 100 company
3. Largest electronic retailer in U.S.
4. Customer-centric
5. Community involvement
6. Customer loyalty program
7. Commitment to growth
8. Global
9. Geek Squad-24 hour response
10. Locations visible and easily accessed
Weaknesses
1. Internal ad agency
2. Customer service
3. Time Management
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Strengths
Weaknesses
After evaluating Best Buy’s internal factors, we found that one of their major strengths is
their commitment to growth and innovation. Their desire to succeed has led them to be the
largest electronics specialty store in the United States. Not only are Best Buy stores everywhere,
they offer a variety of products such as appliances, entertainment software, home office
equipment, and consumer electronics. Their stores are all over the United States and Canada and
they have opened a flagship store in Shanghai to try to penetrate the market in China.
However, with the company being so large, careful attention has not always been given to
the consumers needs in the past. Some customers feel overwhelmed in an environment where
there are so many options to choose from and they may need better assistance in order to make
the right choice. With their great popularity comes a great expectation. In order to change their
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perception, Best Buy has come up with a customer-centric model to implement in eventually all
of their stores. By developing more customer-segmented stores, Best Buy can provide their
solutions, products and services to meet the distinct needs of certain customers. Best Buy also
wanted to gain a competitive advantage over competitors such as Staples and Circuit City. In this
fast paced industry it is important to stay ahead of the game instead of playing catch up with your
competitors. Customer demand in this industry is also constantly increasing. Consumers always
want newer, better and possibly smaller products, so it is imperative that Best Buy is able to meet
their needs or demands. They are trying to bring technology and consumers together in a retail
For the past 20 years Best Buy has had an internal ad agency. While they have done a
tremendous job, we feel that this may be a disadvantage to the company. An outside agency
would be able to offer a fresh perspective and may be able to reach a broader market. Best Buy
also needs help with enhancing its appeal to women. Most women who frequent the store are
mothers who are looking for technology to improve their children’s lives: not their own.
SWOT Matrix:
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The SWOT matrix provided information that is helpful in pairing the company’s
resources and abilities to the competitive environment in which it operates by evaluating its
internal strengths and weaknesses as well as its external opportunities and threats. Best Buy
effectively uses its strengths to gain an advantage in its market. The following are some
Strengths
1. Innovative
2. Fortune 100 Company
3. Largest electronic retailer in the
U.S.
4. Customer-centric
5. Community involvement Weaknesses
SWOT Matrix
6. Commitment to growth 1. Internal ad agency
7. Global 2. Customer Service
8. Locations are visible and
accessible
SO Strategies
Opportunities 1. Gain increased control over
WO Strategies
1. Online Sales competitors through horizontal
1. Improve current products- product
2. Internet simplified integration
development
3. Looking for outside ad agency 2. Increase market share for
4. Enhance appeal to women present products through market
penetration
WT Strategies
Hire outside ad agency to offer fresh
perspectives.
Space Matrix:
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SPACE Matrix
Financial Strength
(3.25, 3.50)
Competitive
Industry Strength
Advantage
SPACE Matrix
Financial Strength (FS) Competitive Advantage (CA)
Return on Investment
(21.7%) 5 Number of retail outlets (830) -2
Annual Revenues ($31
billion) 6 Quality of suppliers -2
Cash Flows ($327 million) 6 Best Buys new customer-centricity store models -1
Liquidity ($3.7 billion) 5 Utilization of both retail and specialty stores -2
-
Total FS 5.75 Total CA 1.75
Environmental Stability
(ES) Industry Strength (IS)
Rising gas prices mean
decreases in sales -3 Overall sales in relation to competitors 6
Increase in online sales -2 Expansion of Geek Squad to all Best Buy locations 5
Online piracy has decreased
software and music demands -3 Recent Growth and expansion 4
One stop shops such as Best
Buy will cause barriers to
entry -1 Reengineerment of Best Buys supply chain 5
-
Total ES 2.25 Total IS 5
A SPACE Matrix was designed to help determine the types of strategies that would be
the most strategically appealing to Best Buy Company. The SPACE Matrix directs companies to
use one of four types of major strategies: aggressive, conservative, defensive, or competitive. In
order to determine which type of strategy is best for a given company, the SPACE Matrix takes
into consideration factors in four major categories: financial strength, competitive advantage,
After developing several factors for each of these major categories, all of which are listed
in the above table, it was determined that Best Buy Company should choose aggressive
strategies. This was determined by reviewing the factors, which reveal that Best Buy Company is
operating a financially strong company in a strong and stable industry with a fairly large
competitive advantage.
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BCG Matrix:
BCG Matrix
HO CE
A ES
BCG Matrix
% % IG Rate
Department Sales Sales Profits Profits RMSP %
Consumer Electronics 13,265 43% 2697.77 42% 114.38% 0.09
Home Office 9,872 32% 1810.25 28% 68.33% 0.08
Entertainment Software 5,862 19% 1374.88 21% 124.72% -0.33
Appliances 1,851 6% 612.1 9% 15.50% -0.02
Total 30,850 100%
Best Buy Company sells many different products, all of which may be categorized into
one of four departments: consumer electronics, home office, entertainment software, and
appliances. The sales figures, profit margins, relative market share position, and industry growth
rates for each of these departments are displayed in the above figure. A BCG, or Boston
Consulting Group, Matrix was performed to measure the performance of each of these
departments.
After performing the BCG Matrix, the state of each department within the Best Buy
Company was then analyzed. The consumer electronics department, which resulted in the largest
percentage of Best Buys sales, was found to be doing very well. Because of its enormous relative
market share position and its positive industry growth rate, it would be considered a star.
The department that accounted for Best Buy Company’s second largest percentage of
sales, or its home office department, was also found to be doing well. With a relative market
share position of over 68%, and its positive industry growth rate, the home office department
The analysis of Best Buy Company’s third largest department, or its entertainment
software department, was slightly different from those of the top two departments. While the
entertainment software department was found to have a dominant relative market share position,
the industry growth rate in this department was negative. This simply means that Best Buy
The appliance department of Best Buy Company represented its lowest percentage of
sales. Because this department had both a low relative market share position and a negative
industry growth rate, it would be considered a dog. However, it did still have a positive profit
IE Matrix:
The IE Matrix
Low
1.0 to 1.99
1.0
All four divisions of Best Buy fall in the fourth cell which is part of the “grow and build”
region. We plan to use an intensive strategy with elements of an integrative strategy. Because the
Appliance Division is close to cells V and VII, we want to use a more conservative approach
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strategy. We plan to use market penetration by building stores with large Appliance Departments
in China. We also plan to use a product development strategy with local brand acquisitions.
Our other three divisions combine to make up 94 percent of the company’s total revenue.
Because we are so strong in these areas we plan to use an aggressive strategy by means of market
penetration, market development, and product development as outlined in the Grand Strategy
Matrix.
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Strengths
Weaknesses
For the most part, the IFE matrix for the Consumer Electronics Division resembles the
IFE Matrix for the entire company with a few exceptions. The two major strengths in this area in
comparison to the rest of the company are the customer loyalty program, and the Geek Squad
service. Customers are willing to spend a little more, especially on high priced consumer
electronics, if they are getting value in their service. Our customers can listen to advice from
knowledgeable employees and even test products before they buy. They know that if they ever
need help, our 24 hour response team will guide them to a solution.
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Strengths
Weaknesses
The IFE Matrix for the Home Office Department epitomizes Best Buy’s strengths and
weakness for the company as a whole. Key areas of interest include: highly innovative, customer
Strengths
Weaknesses
The one deviation in this IFE Matrix from the overall company’s IFE is that the Geek
Squad’s 24 hour response is a major strength in the Entertainment Software Department. Most of
the technical support is software related. Because of this, we provide better service than the rest
Strengths
Weaknesses
One of the reasons for Best Buy’s success is the increase in popularity in “the one-stop
shop.” Best Buy has capitalized on this demand by the introduction of the Appliance Division.
Being the largest electronic retailer in the U.S. can be both good and bad for Best Buy. Good
because, people know Best Buy will have what you are looking for if it is electronic related. It
can also be considered bad due to the popularity of the consumer electronics, appliances are
often overlooked. Although we are not as innovative in this area as some of our competitors such
EFE Matrix for Best Buy Company, Inc. Consumer Electronics Division
Opportunities
Threats
The major key opportunity in the Consumer Electronics Division is that digital products
are leading the industry’s growth. The only downside to this is that the price of digital
products is on the decline. Best Buy is combating this potential threat with their customer
centricity program. Rather than trying to be a cost leader, we want to provide excellent
customer service. Most consumers are willing to pay a little more on luxury goods if it’s
EFE Matrix for Best Buy Company, Inc. Home Office Division
Opportunities
Threats
The reason for the continued success of the home office division is the growing popularity in
one stop shopping centers. Peripherals that are included in the Home Office Division have a
much higher profit margin than the more expensive consumer electronics. Due to the
convenience factor, many people spend little time comparing prices on these cheaper goods.
Indirectly we are controlling price wars by making goods available in convenient locations for
customers.
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EFE Matrix for Best Buy Company, Inc. Entertainment Software Division
Opportunities
Threats
Particularly in the Entertainment Software Division, price wars are extremely crucial. With
the recent boom in MP3s, CD sales are at an all-time low and software is becoming increasingly
cheaper. Due to this threat to the Entertainment Software Division, we need new marketing
strategies. We need to go to local communities and find out the kinds of music people would like
to see in our Best Buy stores. We also want to provide bundle purchases where if a certain item
is purchased, discounted software is included. We can also have in-store displays where we
Opportunities
Threats
Although the Appliance Division is small in terms of the company’s overall size, it has
shown excellent growth in several markets. We are trying to change people’s current view of
Best Buy being an electronics only store. We hope by understanding what the consumer’s needs
are, we can make life fun and easy for them by making Best Buy a one stop shop where the value
Quadrant II Quadrant I
WEAK STRONG
COMPETITIVE COMPETITIVE
POSITION POSITION
Quadrant I
1. Market development
It also boils down to consumers, where they like to shop and where they spend their
money. It's as basic as how a store feels, how the products and aisles are laid out, and
how the workers there treat you. In today's connected world, where entertainment and
technology products intersect, Best Buy leads the competition with their excellent
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customer service. We want to make sure our customers know that we care about them
2. Market penetration
By offering our products on-line with BestBuy.com, we are able to enter markets with
little or no barriers to entry. We can overcome language barriers by offering the website
in a variety of languages. By entering into China we can attempt to tap into this $100
billion consumer electronics market. Similar to the way we entered the Canadian market
Best Buy acquired a majority interest in the retail chain Jiangsu Five Star Appliance Co.,
Ltd. China’s fourth-largest appliance and consumer electronics retailer. We also have a
global sourcing office in Shanghai, China. We plan to build stores in China and continue
3. Product development
Electronic equipment, personal computers and accessories, and storage products are just a
few of the areas we want to continue to develop. Ideally we will look at products already
on the market that have a reputation for high quality, acquire those products and adopt
4. Backward integration
Best Buy knows that the quality of their suppliers’ product data is critical to ensuring the
success of their Foundation Data Management (FDM) initiative in general and their
Global Data Synchronization initiative in particular. Because only product data that is
accurate, consistent and complete can support the Best Buy supply chain and meet
consumer demand, Best Buy now requires all suppliers that synchronize their data with
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Best Buy to subscribe to the UDEX Product Data Quality (PDQ) service. Experience has
shown that developing and implementing a thorough product data quality assurance
process takes most suppliers approximately six months; suppliers with larger product
QSPM
Strategy 1 Strategy 2 Strategy 3
Key Factors Weight AS TAS AS TAS _ AS TAS
Opportunities
1. Online sales expected to rise annually 19% .09 - - - - - -
2. Digital products are leading the industry’s growth .06 4 .24 3 .18 3 .18
3. One stop shopping centers are growing in popularity .04 3 .12 3 .12 3 .12
4. Potential success of ‘customer centricity’ .09 4 .36 4 .36 3 .27
5. Environment conscious customers .05 3 .15 3 .15 3 .15
6. Industry-wide increase on ROE .05 3 .15 4 .20 3 .15
7. Companies reputation .10 4 .40 4 .40 4 .40
Threats _ _ _________________________________
1. Gas prices have risen by 75% over 4 years .08 1 .08 2 .16 1 .08
2. Leading competitors have lower cost structures .06 2 .12 2 .12 2 .12
3. Variety of competition nationally, regionally and locally .10 1 .10 2 .20 1 .10
4. Dollar value down 15% compared to GBP over the year .10 1 .10 1 .10 2 .20
5. Price wars .06 1 .10 1 .10 1 .10
6. Decrease in disposable U.S dollars .08 1 .08 - - 1 .08
7. Attorney general’s price fixing enquiry .04 - - - - - -
1.0
Strengths __ ______________________________________
1. Innovative .10 3 .30 4 .40 3 .30
2. Fortune 100 company .06 - - - - -
3. Largest electronic retailer in U.S. .09 3 .27 4 .36 4 .36
4. Customer-centric .08 3 .24 3 .24 3 .24
5. Community involvement .04 - - - - - -
6. Customer loyalty program .05 3 .15 3 .15 3 .15
7. Commitment to growth .11 4 .44 4 .44 4 .44
8. Global .12 - - 4 .28 - -
9. Geek squad-24 hour response .07 - - - - - -
10. Locations visible and easily accessed .06 3 .18 3 .18 3 .18
Weaknesses _ _ _
1. Internal Ad Agency .05 1 .05 1 .05 1 .05
2. Customer Service .09 - - - - - -
3. Timing Issues .08 1 .08 1 .08 1 .08
1.0 3.71 4.27 3.75
The three strategies that Best Buy has decided to evaluate in the QSPM are Market
Penetration, focusing on expanding our domestic market in the United States; Market
focusing our efforts on buying domestic competitors. Each of the strategies has its benefits and
downfalls.
We seek to expand our stores into existing markets in order to attain a greater overall
market share within the industry. Since our stores typically draw customers from their local
area, we run the risk of drawing customers away from current Best Buy stores, causing
comparable store sales and performance and customer traffic at the existing stores to decline.
Our future growth is partially dependent on the ability for us to build or lease new stores. We
face many issues in this stage of growth such as location choices, local zoning issues,
environmental regulations, and other regulations applicable to the types of stores that we desire
to construct that may impact our store openings. We also expect to expand into new domestic
markets. The risks that come associated with this strategy include difficulty in attracting
customers due to lack of customer familiarity with our brand, our lack of familiarity with local
customer preferences, and seasonal differences in the market. In addition, entry into new markets
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may bring us into competition with new competitors or with existing competitors with a large,
Best Buy’s international segment was developed in fiscal year 2002 in connection with
the companies acquisition of the Canada based Future Shop. We hope to grow this segment with
our strategy of introducing new stores into China in the near future. Although we predict the
opening of the new international stores to be a great success, there are many factors that need to
be taken into consideration when deciding whether or not to pursue this strategy. The
international regulatory and legal environment exposes us to complex compliance and litigation
risks that could affect our operation and financial results. One of the risks that we face includes
jurisdictions. Another consideration is the impact of the changes in tax laws from one country to
another. A large issue that needs to be considered is the differences in labor and employment
laws. Labor laws in China greatly differ from the laws that Best Buy is used to conducting
business under. There are also many significant uncertainties of operating globally, including the
Our third strategy we are evaluating is the option of horizontal integration by continuing
to purchase domestic competitors. This will benefit Best Buy by eliminating some of the
competition resulting in customers redirecting their business to Best Buy. We predict that these
acquisitions will positively affect our overall financial performance in the market. Though this is
a positive growth strategy, the acquisitions may bring about many downfalls such as the result in
difficulties in assimilating acquired companies which may result in the diversion of our capital
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and our management’s attention from other business issues and opportunities. It is always a
possibility that we may not be able to successfully integrate companies that are acquired,
including their financial systems, distribution, operations and general procedures. If we fail to
Long-Term Objectives:
Over the next three years we will build 10 stores in China. We will build three the first year,
three the second and four the fourth. By expanding slowly, we will be able to monitor
customer purchasing behavior. This will help us better target our customers. Our priority is to
keep the customer centricity program a number one focus in the opening of our new stores.
Our system processes across all areas will be consistent in every store in China. Our goal is
that this reliability on managed routines will translate into maximum efficiency and repeat
business.
With recent improved processes and increased emphasis on customer value, Best Buy can
once again pursue an aggressive strategy. Our goal is to increase our current 20 percent
Through the expansion of stores with Magnolia displays we can cater to the high-end
customers. We currently have 20 Magnolia Audio Video stores separate from the Best Buy
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location. We plan to increase this number to 35 over the next 5 years. We also plan to
increase our current number of in-store displays from 180 stores to 500 in the next 5 years.
Another key niche market we plan to expand in is the Geek Squad stores that specialize in
technical support service. Currently there are 12 in the U.S. We plan to increase this number
Fewer items with more technologically savvy sales support and solution-oriented offerings
will translate into repeat business. This theme is currently in place in about 40 percent of our
stores. We want to eventually integrate the customer-centricity program into all of our stores
globally.
After the purchase of Canadian discount and warehouse store Future Shop in 2001, Best Buy
already had the infrastructure in place to enter a foreign market. In four years Best Buy went
from 0 percent to 10 percent. We can confidently expand aggressively and expect to gain
Best Buy currently has five private labels which include Insignia, Dynex, Init, Geek Squad,
and Rocketfish. One thing all five of these brands have in common is that they are all high-
end brands. In the minds of the customer the value is worth the extra cost. We want to
continue with this trend and continue to market any acquired brands.
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Past Strategies:
In the past, Best Buy has used a dual branding strategy to help attract more customers
with a choice of store. This strategy has helped them target different customers while giving
them more flexibility to learn and adapt by using two approaches. The key to this strategy is to
make sure that the two organizational cultures are similar enough that they can work together.
Dual branding has helped retain the Future Shop brand and it has also utilized existing
There has been a shift from a product-centric to a customer-centric model within the
Affluent professionals seeking the best technology experience, younger males wanting cutting
edge technology and entertainment, fathers looking for technology to improve their lifestyle,
mothers who seek technology to enrich their children’s lives, and small-business people using
technology to improve their bottom lines. These segments represent considerable new growth or
Best Buy strives to be an effective enterprise through thorough preparation. They spend
more on employee training than any other retailer. Associates are receiving detailed customer-
centric training in order to prepare them for any problems or questions that might occur. There is
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also decentralization of decision making to allow employees closest to the customer to make
informed decisions
Best Buy has made it a point to be known for offering a variety of entertainment choices.
They have partnered with Netfilx by co-branding a DVD rental service which only furthers their
position as a full service movie destination. In addition to Netflix, they have partnered with XM
satellite radio.
After carefully analyzing the three alternatives developed in the Quantitative Strategic Planning
Matrix (QSPM), we feel that there is one strategy that is better than all the rest. We feel that the
best strategy for Best Buy is to improve sales and profit by expanding its international segment
into China. By doing this Best Buy would become the first American electronics retailer to move
into China. China’s electronics market, which is expected to exceed $300 billion usd in 2006, is
nearly twice the size of the US electronics market, only expected to grow to about $150 billion
usd in 2006. Because of the size of the Chinese electronics market, and because the electronics
market in China is growing at a rate of approximately eight percent yearly, we feel that now is
the time for the largest electronics retailer in the US to penetrate the Chinese market. Below are
As you can see by the above chart, it is very expensive to lease, or purchase, commercial
real estate in the major metropolitan areas of China, which include Shanghai, Beijing, and Hong
Kong. So, it is our recommendation that Best Buy lease property over the short-term, maybe with
an option in the lease contract to purchase the leased space within a specified number of years.
Another factor that is an equally important factor in this strategy is that Best Buy should
be able to enter the Chinese market as Best Buy. After much research on Chinese copyright laws
and the current organizations in China, our team has no reason to believe that Best Buy will have
to deal with complex procedures to secure its brand in China. In addition, as you can see from
the above chart, Best Buy has a debt-to-capitalization ratio of only ten percent. This means that
only approximately ten percent of Best Buy’s operations are financed, the rest of which are paid
in full. In addition, Best Buy has over $270 million usd in available capital, which means that
Since Best Buy has never operated stores in China, it would be impossible for us to
predict the demand for our products in China. However, Best Buy’s innovative customer
centricity store model, coupled with its top-notch sales and service teams and a booming Chinese
electronics market should yield huge revenues for the company, which in turn should yield
enormous profits. We must also not forget that Best Buy currently operates three global sourcing
offices in China already, and it currently sells many Chinese brands in its stores. Because Best
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Buy already directly deals with many Chinese companies, the transition into China should only
After discussing many major advantages of this strategy, we must talk about inventory.
Our team recommends that Best Buy avoid building costly warehouses in China. Instead we
propose that Best Buy utilize a Just-In-Time inventory strategy in China. Because of the
uncertainty of success in China, and the cost of building huge warehouses in China, we feel that
that a Just-In-Time inventory system is better suited for Best Buy China’s operations. After
reviewing all of the knowledge of Best Buy as it relates to the Chinese market, our team feels
that this strategy is the most feasible, and we are optimistic that it will yield tremendous profits
We have included a high level overview of the costs of this strategy below.
Cost of Implementation
Year 1(3 Year 2 (3 Year 3 (4
Cost Activity Total Cost
stores) stores) stores)
Leasing Costs $9 million $18 million $30 million $57 million
Costs of $12 million $12 million $16 million $40 million
Decorating and
Initial Inventory
Estimated 33% 33% 33% 33%
Corporate taxes
Estimated payroll $10 million $20 million $33 million $63 million
As you can see, our strategy proposes the opening ten new Best Buy stores in China over the
course of the next three years. The total strategy implementation is expected to incur sunk costs
of approximately $160 million usd over the next three years. We would also like to note that the
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corporate tax in China is less than that of the US. Detailed income statements will be included
later in this proposal, but these are the most important costs associated with the implementation
of this strategy.
As it turns out, Best Buy opened its first branded store in Shanghai in January of 2007.
However, as it is relatively new we could find no exact figures describing the actual revenues
that Best Buy’s first store in China is generating. In addition, Best Buy chose to purchase retail
space in an existing building for a price that was over $30 million usd. This was different from
our proposed strategy, which suggests that Best Buy leases commercial real estate instead of
purchasing it. It is also of interest to note that Best Buy recently purchased Jiangsu Five Star
Appliance Co., Ltd, which happens to be China’s fourth largest appliance and consumer
electronics company. Best Buy gained 131 stores and a substantial market share in the Chinese
electronics software industry as a result of the acquisition. However, our strategy is primarily
driven to push the market penetration and expansion of Best Buy branded stores in China. But, I
think it is quite interesting that we selected this strategy before knowing that Best Buy had
already moved into China. Because of this, it is evident that all of our company analysis paid off,
and it is clear that the strategy pertaining to Chinese market penetration is clearly the best long-
The implementation of this strategy should be fairly simple. We have already determined
that Best Buy will be able to enter the Chinese market with its own brand. Because Best Buy
already maintains global sourcing offices in China, Best Buy China already has key Chinese
contacts. The implementation of this strategy will begin with the leasing of buildings in key areas
of China’s metropolitan cities. Designers hired by Best Buy will then design and convert the
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layout of the buildings according to Best Buy standards. The buildings will then be stocked with
inventory and opened for business. We feel that Best Buy China should open ten new stores over
the next three years. Our strategy calls for Best Buy China to open three stores in year one, three
stores in year two, and four stores in year three. A detailed timetable for this strategy has been
The following are forecasted highlights of the financial measures we hope this strategy
$110.48
Total available capital $15 million $50 million million
As you can see, we have high expectations for Best Buy China. We expect this new
strategy to yield revenues of $540 million usd, including profits of $151 million usd, by the end
of year three. As noted earlier, we have included detailed income statements for each year. These
incomes statements appear on the next five pages, followed by a detailed timetable describing
Shareholder's Equity
Additional paid-in capital 25 27 31
Retained earnings 38 125 277
Total shareholder's equity 63 152 308
Total Liabilities and Shareholders' Equity 464 649 763
$(30,000,000 $(20,000,000
Increase in Receivables ) $(6,000,000) )
$(54,000,000
Increase in Merchandise inventories ) $(4,000,000) $ (5,000,000)
$(12,000,000
Increase in Other current assets ) $(3,000,000) $ (5,000,000)
$187,000,00 $(26,000,000
Increase in Accounts payable 0 $ 26,000,000 )
Increase in Unredeemed gift card $(37,000,000
liabilities $ 60,000,000 $ 13,000,000 )
Increase in Accrued compensation $ 23,000,000 $ 9,000,000 $ (3,000,000)
$(10,000,000
Increase in Accrued liabilities $ 40,000,000 $ 14,000,000 )
Increase in Accrued income taxes $ 22,000,000 $ 21,000,000 $ 31,000,000
Investing Activities
$(73,000,000
Short-term investments ) $ 11,000,000 $ (8,000,000)
$(52,000,000 $(30,000,000 $(16,000,000
Net Fixed Assets ) ) )
Financing Activities
Increase in notes payable $ 25,000,000 $ 4,000,000 $ (3,000,000)
$(25,000,000 $(37,000,000 $(25,000,000
Paid in Capital ) ) )
$152,520,00 $111,368,00
0 0 $ 35,000,000
$152,520,00 $263,888,00
Cash at beginning of year $ - 0 0
$152,520,00 $263,888,00 $298,888,00
Cash at end of year 0 0 0
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Detailed Timetable:
2007 20 08 2009
ID T a s k N a m e S ta r tF in isDh u r a tio n
J ul A ug S e p O c t N ov D ec Jan F e b M ar A pr M ay J un J ul A ug S e p O c t N ov D ec J an F e b M a r A pr M ayJ un J ul A ug S ep O c t N ov
The following objectives are those that we aim to implement before the years end. All of the
objectives are aimed towards expansion of Best Buy Asia and will be reviewed at the end of the
time period.
1. Monitor and control forecasted results with actual results to ensure accuracy and
continuous improvement.
2. Ensure that every customer will experience the same satisfaction no matter which store
they go to.
3. Examine annual objectives of Best Buy to keep the company on track.
4. Take corrective actions to ensure performance of the projected plans.
on the information that is needed. Monitoring forecasted results should be done quarterly
where the other three can be reviewed on annual bases with customer surveys being the
best strategy for reviewing store satisfactions. Warning signals that should be watched for
would be lagging forecast results within the industry as well as poor revenues when
Contingency Plan:
After careful analysis of our primary long-term strategy, which includes market penetration and
growth in the Chinese electronics market, we have developed a rather simple contingency plan.
We call our contingency plan the “3 S’s of the Chinese market strategy.”
Sell
The first S in the contingency plan represents “sell.” If for unforeseen reasons Best Buy is not
able to effectively penetrate and grow within the Chinese market, we simply sell as many of our
assets, for as much as we can get for them. Although we may take losses in the short-run for
exiting the Chinese market, it will not affect our business as an entire entity.
Salvage
The second S in the contingency plan represents “salvage.” After we sell our assets from Best
Buy China, we try to salvage as much as we can. This includes both our brand name and our
money.
Safety
The third S in the contingency plan represents “safety.” If unfortunate circumstances lead us to
abandon our operations in China, sell our assets, and salvage what we can from Best Buy China,
we will retreat to the safety of the American market and refocus our efforts on the American
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electronics market. We are the industry leader in America, and no matter what the results of our
Chinese strategy, we will continually try to maintain this position in the U.S.