1. Case Study presentation
Group 1
Nadia Benzer
Munib Khalid
Laura Darling
Aida Akhmetova
Jacqueline Hia
Best Buy in Crisis
Case Study presentation
Group 2
Meriç Hızal
Erman Hakan Göncü
Batuhan Giray
Enes Akdağ
Eren Öztürk
Kaan Batu Çayıroğlu
Leman Geysu Narin

2. Best Buy 2012 World’s largest consumer electronics
Revenues of $50.7 Billion
Growth of 0.9%
Net income of -$1.2 Billion
Lost 55% mkt capitalization in 5 years
Struggling international division

3. Competition Amazon Wal-Mart Total sales $48 Billion
Sales growth more than 50%
Introduced “price check” app on mobile
Wal-Mart
Steep discounts on popular items
Contracted with Dell to provide Home installation

4. Internal Issues CEO resignation in April 2012
Issue of “personal conduct”
May 2012 Chairman resigns
Chairman is also the founder with 20.1% stake

5. Early Years Sound of Music store in 1966
Dick Schulze & a business partner
Tornado hit Best Buy outlet in 1981
Focus shifted from service to discounted brands
Company named Best Buy in 1983
Commitment to discounted, value products

6. Concept I: 1983-1988 Superstore strategy
Assortment of discounted brand name merchandise
Central service
Warehouse distribution
Low prices
Superstore expansion financing through IPOs
Highland lower prices (selling 10% above cost)

7. Concept I Consumer research Customers wanted:
Poor image of superstores
Shopping as stressful experience
Pressurized by salespeople
Customers wanted:
Enjoyable shopping experience
No pressure selling environment

8. Concept II: 1989-1994 “Grab and Go” store format Format a success
Inventory put on display
Salaried product specialists
Department centers for customer help
Format a success
By 1994, 151 Stores & $3 Billion Revenue
Highland, a competitor, went bankrupt

9. Concept III (1995-2002) Wider range of products
Added DVD hardware, HD TV’s
Number 1 consumer electronics retailer (1998)
New growth opportunities
bestbuy.com launched in 2000
Number of acquisitions

10. Concept IV (2002-2009) Customer centricity Win-in-the-home
More from current stores
Loyalty card initiative
Sales growth of 8.4%
Win-in-the-home
Geek squad
Win-in-entertainment
Launched Magnolia & divested Musicland

11. Business Models (1983-2009) Sales $240 Million
Concept I
Sales $240 Million
Op. Profit $15.3 Million
Concept II
Sales $3 Billion
Op. Profit $77 Million
Concept III
Sales $19.6 Billion
Op. Profit $937 Million
Concept IV
Sales $45 Billion
Op. Profit $2 Billion

12. Product Expansions 2006,Acquisition of Pacific Sales Kitchen
Opening of Mobile stores with partnership of Carphone Warehouse
20% market share in consumer electronics
2% market share in cellphones.
2009
In total, 38 stand-alone locations for cellphone sales in the USA.

13. Product Expansions
2007,
Apple introduced iPhone, and got 14% share of the smartphone market.
Best Buy who was first US national retailer to sell iPhone, however with profit margins of around 17%
Emerge of new competitors.

14. Product Expansions Partnerships with Apple and Dell
Small Businesses as key factor
SKUs for them
In fiscal 2008, acquisition of Speakeasy
In 2009, Napster Inc became part of Best Buy Co for $54 million.

15. Internationalization
In China,
Five Star’s great share was obtained by Best Buy in May of 2006
Five flagship stores were opened in China
In Canada,
Increasing number of stores with Best Buy name
In UK,
Carphone Warehouse and Geek Squad (2007)

16. Financial Performance
With help of customer centricity program, its financial performance improved significantly
Harsh competition with Wal-Mart and Lowe!
Sales increased to $35.9 billion and operating profits to $2.0 billion
2008,
18% decline in quarterly profits
Sales increased 14%

17. 2010-2012 In 2010, they made some changes:
Substantial reductions in opening new stores
Making cuts in their associates
Assistant store manager headcount reduction
1000 jobs were eliminated
Rumors started, this situation reminded of Circuit City’s downfall.

18. Growing
Best Buy introduced new categories: electric scooters & pool tables.
They aim to increase high margin private label sales as well.
Sales in fiscal 2010: rising to $49.7 billion (10%) and operating profits to $2.29 billion

19. Online Retail Online retailers competition increased Amazon
Amazon vs Best Buy
Amazon
What’s new?
Price check application
No sales tax
Best Buy in danger of “showrooming & info center”

20. 2010-2012 2010, $42 million loss in international business 2011,
Closed flagship stores in China
They closed outlets in Turkey and UK
2012
In 2012, the sales rose %1 , operating profits fell 54%. Net income fell as well.
As a result, they cut $800 million in costs and closed 50 box stores.

21. Top Consumer Electronic Retailers’ Market Shares and Changes in 2010/11(ExhIBIT 1)

22. Best Buy Financial & Operating Performance(Exhibit 3)
2009
2010
2011
2012
Sales ($ million)
$45,015
$49,694
$50,272
$50,705
Operating Profit ($ million)
$2,014
$2,287
$2,336
$1,085
Gross Profit (% sales)
26.2 %
26.4 %
27.2 %
24.8 %
Selling, General, & Admin (% sales)
20.0 %
19.9 %
20.5 %
20.2 %
Operating Profits (% sales)
4.5 %
4.6 %
2.1 %
Net Income ($ millions)
$1,003
$1,317
$1,277
-$1,231
Number of Best Buy stores
3,942
4,027
4,089
4,308
Number of Associates (‘000)
155
180
167