By: Karen Pelletier, Geneice Bassue, James Lowe, Lee Dubois

History Overview Best Buy in Brief Rankings Affiliations Current Mission / Vision Strategies Issues Revised Mission and Vision SWOT Analysis and Matrix External and Internal Audit IE, BCG, SPACE, CPM, QSPM, EPS/EBIT, and GSM Financial ratios Net Worth Analysis Suggested Strategies, Advantages and Disadvantages Questions

Overview

1966: Richard M. Schulze and a partner establish Sound of Music, Inc., a home and car stereo store in St. Paul, Minnesota.

1971: Schulze buys out his partner and begins to expand.

1982: After expanding offerings to include appliances and VCRs, revenues reach $9.3 million.

1983: Company changes its name to Best Buy and began opening superstores.

1985: Company went public.

1984-1987: because of the booming demand of VCR’s Best Buy expanded from 8 to 24 stores as a result sales increased from $29 million to $240 million.

1987: Best Buy gains a listing on the New York Stock Exchange; revenues reach $239 million from 24 stores.

1989: Company introduces its Concept II stores, which have a warehouse format and no commissioned sales help.

1993: Revenues soar past the $1 billion mark, reaching $1.6 billion.

1994: Larger Concept III stores, with hands-on information displays, were introduced.

History

1995: Best Buy opened 47 more stores.

1997: the company earning plunged due to the large PC inventory on hand.

1998-1999: The Concept IV format debuts, featuring more high-tech products, merchandise grouped in such departments as home theater, cash registers throughout the store, and "high touch" areas for digital products where more employee interactionis needed.

1999: Revenues surpass $10 billion.

2000: Best Buy relaunches an expanded bestbuy.com web site; Seattle-based Magnolia Hi-Fi, Inc., operator of 13 high-end consumer electronics stores on the West Coast, is acquired for $88 million and they began marketing personal computersfrom Micron Electronics via kiosks in its stores.

2001: Best Buy acquires Musicland Stores Corporation, operator of 1,300 music stores, for $685.3 million in cash and assumed debt; also purchases Future Shop Ltd., the largest consumer electronics retailer in Canada, for $368 million.

History

2002: Best Buy opened 8 stores in the Toronto market. Richard Schulze turned over CEO duties to Bradley Anderson. Also Best Buy purchased Geek Squad.

2003: Some $500 million in special charges, mainly related to the money-losing Musicland operations, cut profits for the fiscal year to $99 million; Best Buy divests Musicland; Magnolia Hi-Fi is renamed Magnolia Audio Video; Best Buy pays its first dividend.

2004: Best Buy announced a new customer-focused store concept known as “Customers-Centric”

History

Stock Symbol: BBY

Best Buy is the number 1 electronics specialty retailer in the United States. They hold thehighest market share in this industry.

Best Buy owns three major/semi-major store chains:

Best Buy/Best Buy CanadaFocuses on giving best-value high-tech electronics, appliances, and media toits customers (except in Canada, no appliances)

Magnolia Audio & VideoTrendy store on the west coast which deals in high-end electronics from brands such as Bose.

FutureShopAlso a trendy type of store with commissioned sales staff, selling high-endproducts. They deal in appliances, computers, television, video, etc. They have114 stores, all in Canada.

Best Buy employs a customer-centricity model:Focuses on the customer. They identify the more profitable customer segments, focus on the needs of those customers, and try to get their employees/managersto think like owners/operators of each store. This involves employee re-trainingin order to better serve customers.

BB in Brief

Stock Performance

“Company of the Year” by Forbes Magazine in 2004“Specialty Retailer of the Decade” by Discount News

in 2001Ranked in the Top 10 of “Americas Most Generous

Corporations” by Forbes MagazineRanked #3 out of 10 in Companies that delivered

Most for Investors in 1999Ranked #2 out of 50 in the Leading Corporation by

Profit Growth in 1998Ranked #2 out of 50 in the Companies with the

Greatest Return to Investors in 1998Ranked #2 out of 10 for the Leading U.S Computer

Retailers by Product Sales in 1997

Rankings

Affiliations

Best Buy mission is to bring technologyand consumers together in a retail

environment that focuses on educating consumers on the features and

benefits of technology and entertainment products.

Company Mission (05')

Best Buy's vision is to make life fun and easy for consumers.

Company Vision (05')

Testing and launching 67 stores incorporating the “customer centricity” model

Expanding the Geek Squad service to all Best Buy locations in North America providing 24-hour responses to technological inquiring Increasing Canadian store profits by attracting consumers with the dual-branding strategy Reengineering its supply chain Reducing cost by outsourcing information technology Reducing its executive team

2005 Strategies

Steady increase in gas prices of 20% in 2004 has resulted in less disposable income for consumers.

Music Piracy has damaged the music industry.

The specialty retail industry has witnessed the advent of lower electronic prices at largerretail stores and discounters such as Best Buy.

Lots of competition and a high need for differentiation.

E-commerce sales figures for retailers are rising and might potentially surpass conventional retail sales.

Lots of price competitiveness in the industries they serve.

Issues

Best Buy’s mission is to bring technology and consumers together in a retail environment.

We strive to meet and exceed out customers expectations and preserve our public image

as the leading low-cost specialty retailer. We are dedicated to providing the best quality electronics and home office equipment in the

North American retail industry. As aleading technology provider we strive to

incorporate the best, most reliable technology into our everyday operation to ensure efficiency and maximize revenues. Best Buy as a whole feels that success is not only dependent on

our growth and profitability, but also the well being of our employees and the satisfaction of our

customers.

Revised Mission

At Best Buy, our vision is to become the leading electronics specialty

retailer that focuses on customers and their needs.

Revised Vision

SWOT Analysis

SWOT Matrix Strategies

(W2, W4, O2)

Opportunities:

Large demand for the “latest and greatest” gadgets.

Potential for international expansion.

Increasing use of the web.

Increasing demand for notebook computers & flat screen TVs.

Decreasing prices for electronics (DVD Players, video game systems, etc) which gives customers more purchasing power.

External Audit

Threats:

Consumers are spending less because of increasing gas prices.

Music piracy has a major impact on stores which sell CDs.

Large amount of direct and indirect competitors, given all the industriesBest Buy serves.

One stop shopping at supercenters may phase out specialty retailers.

Strong price competitiveness in electronics industry.

Increasing/complex regulations in major global markets that can increase cost of doing business.

External Audit

Best Buy's EFE

Strengths:

Largest specialty electronics retailer in the U.S.

Offers large variety of products and services.

Financially strong.

Customer-centric strategy model.

Lower prices for electronics compared to smaller retailers.

Ability to appeal to different types of customers using different store brand images.

Internal Audit

Weaknesses:

Past problems with expansion.

Fewer stores compared to competitors like CircuitCity and CompUSA.

Appliance sales and revenues are low compared to other departments.

Weak presence in international markets.

Unclear vision and mission.

Internal Audit

Best Buy's IFE

Best Buy’s IE Matrix

Best Buy

Current Ratio1.39Quick Ratio .81 Debt to Equity 6% Gross Profit Margin 24 %Return on Assets 10%Earnings per Share 2.90Long Term Debt to Equity 5%Return on Equity 12% Profit Margin 4%

Financial Ratio Analysis

Circuit City

Current Ratio1.52Quick Ratio 0.54 Debt to Equity 4.57 %Gross Profit Margin 20.65 %Return on Assets -8.29 %Earnings per Share -1.95Long Term Debt to Equity 3.80%Return on Equity -14.5 %Profit Margin -2.74%

Wal Mart

Current Ratio0.9Quick Ratio 0.23Debt to Equity 4.8% Gross Profit Margin 23% Return on Assets 9.3%Earnings per Share 2.56Long Term Debt to Equity 4.1%Return on Equity 20%Profit Margin 4%

Stockholders equity + goodwill = 4,449 + 513 = $4,962Net income X 5 = 984 X 5 = $4,920Share Price = price/EPS (Net Income) = 53.04/ 3.02 (984) = $17,279# shares X share price = 328 (53.04) = $17,397_________________________________________________________

Method Average: $11,140

Net Worth Analysis

BCG Matrix

SPACE Matrix

SPACE Matrix

Competitive Profile Matrix

Physical Expansion of Stores

Best Buy should expand on their physical presence in both the U.S., Canada, and Internationally. Many of their major competitors have a lot more stores, especially in North America, and with supercenters like Wal-Mart moving in, Best Buy will need todo something to hold the current market share they’ve got.

They should also expand their branches of Magnolia AV and FutureShop stores to betterserve that niche they have. Many might consider grouping these stores all into Best Buyor Best Buy Canada, but these stores might serve a slightly different customer base thanBest Buy and also, they have different products.

Expand Magnolia A/V eastward. Expand FutureShop more in Canada and potentially into the U.S. Expand Best Buy in the U.S. first to cover underserved markets, and also in Canada

to get a better base. Don’t take an aggressive approach – start slow, evaluate, open a few stores,

see how it works out.

Approximated Cost: $70,000,000

This is an example of Market Development

Recommended Strategy # 1

Expansion of Service Offerings

Installation Warrantees Delivery Maintenance Technical Support/Service

Many of their other competitors in the appliance and electronics industries, such as Sears and Lowes are already doing these types of things for their customers.

If Best Buy wants to retain their market share in the electronics industry and/or grow their low market share in the appliance industry, they could take advantage of this.

This is an example of related diversification.

Approximated Costs: $50,000,000

Recommended Strategy # 2

Start a media content download service on their website

More and more people are using the web nowadays to download and listen/watch media (music, videos, movies, etc).

Best Buy is a leading retailer in the music and movie industry.

Best Buy could start (or team up with a service such as Rhapsody) to offer a subscription-based download service where users can download albums from the latest artists or the latest DVD movies.

Companies and services such as Rhapsody, NetFlix, and iTunes have found this to be a great way to make money. Given the rapid growth of the web, and the use of it, this could give BestBuy a chance to make money from customers they might never have seen in their stores.

Approximated costs: About $5,000,000

This is an example of related diversification.

Recommended Strategy # 3

QSPM

Advantages and Disadvantages

Costly endeavor – must raise a lot of money. Potential that competitors and supercenters have already taken over in many markets. Increasing regulations place a burden on companies that want to expand internationally Potential to gain a much bigger customer base / steal customers from competitors. Expanding service offerings may or may not increase sales of appliances and electronics – that’s what the stores will depend on as there will be no charge for these services. Expanding more on one type of store could mean the potential to lose even more money than what will be made.

The Good / The Bad

Financing & EPS / EBIT

As one can see, debt financing seems like a great route to take here, with the highest EPS out of any other method.

Also, one strategy that can have a big effect on cash is the buyback or repurchase of Common stock. When this stock is eliminated, the value per share can rise.

Yearly performance evaluations for each store/department.

Measure things simply using sales, revenue, and profits for each store.

If each store is performing as well as the other existing stores, leave it as-is.

If some stores are lacking, use a growth metric (store must see an increase in revenuesAnd/or profits by a certain percentage each year).

Watch the popularity of the downloading service – do the revenues outweigh the costs?

Watch appliance/major electronics sales from year to year – are sales rising becauseBest Buy is offering installation, support, and service? If not on a steady increase over a 5 – year period, they can decide what to do from there. Is customer satisfaction on the rise? Give out a customer survey with questions relating to the new services offered.

Strategy Evaluation

Grand Strategy Matrix

Questions, Concerns, Comments or Complaints from anyone at this time?

Please, No Questions!

The End