Nicole DeSantis, Shannon McAdams, Hayley Newlin-Wagner, Hea-Lin (Julie) Oh

Agenda1. Company Background

2. Issue/Problem

3. SWOT Analysis

4. Porter’s Five Forces

5. Recommendations

Company Background● Began as “Sound of Music”, a hi-fi audio store

● Found successful business model in selling discounted items

● Ventured into super stores

● Emphasized commitment to discounted, value products

History Timeline

Sound of Music opens

1966

1981

Tornado sale leads to formation of new

discounted business model

Concept I, first Best Buy

Superstore opens

1983

1985

Raise $8 million in IPO and $33.6

million in second PO

Highland (competitor) lowers prices, Best

Buy margins fall

1987

1989

Concept II, “grab-and-go” store format

Concept III, broaden and promote wider range of products

1995

2000

Launch of BestBuy.com

Geek Squad expanded, customer centricity emphasized, buy stakes in China

2006

2012

Plans to downsize, closing stores

internationally, Brian Dunn resigns as CEO

Issue/Problem ● How to survive with competitors such as Wal-Mart and

Amazon (discounters and online retailers)

● International expansion problems (tactics failing, closing international stores)

● Weak leadership (CEO resigned, firm founder/largest shareholder looking to explore other options for his 20.1% stake in the company)

INTERNAL ANALYSISSTRENGTHS

❖ Leader in innovation and developing fresh business strategies

❖ Acquisitions including Geek Squad, Magnolia, Music Land, and Future Stores, Napster, and Speakeasy.

❖ Top retailer for consumer electronics

WEAKNESSES❖ Net income/Profit declining❖ Struggling internationally - closed stores in

China, Turkey, and the UK❖ Lost 55% of market capitalization❖ Losing market share to discounters and

online retailers ❖ Disorganization among management

(Wells)

EXTERNAL ANALYSISOPPORTUNITIES

❖ Expand online presence ❖ Mobile phone applications/more

convenient interaction with consumer❖ Create desirable service/product in

mobile phone industry❖ Grow business with cellphones

THREATS ❖ Amazon, Walmart and other

Discounters❖ Geek Squad imitators: Firedog(SM),

Walmart Home Installation, Sam’s Club Business Centers, Zip Express, and Staples EasyTech services

❖ Customers use Best Buy as a showroom and information center-later purchase items on Amazon

(Wells)

Porter’s Five Forces

Competitive Rivalry

High

Threat of new entrants-Low● Need to operate on a large scale to compete● Market for brick-and-mortar electronic stores is declining● Best Buy is struggling to maintain profit, discouraging

Bargaining Power of Suppliers-LOW

● Products are considered “commodities” and can be purchased elsewhere

● Best Buy accounts for high volume purchases that are important to suppliers

Bargaining Power of Buyers-MODERATE

● Considerable negotiating leverage ● Best Buy is market leader in

electronics sales, valuable relationship for sellers

● Demand is weak; not many stores specialize in just electronics.

Threat of Substitute Products/Services- HIGH

● Substitutes are readily available, cheaper, easy to obtain ● End users have low switching costs/are comfortable using substitutes

(Wells)

Recommendations

● Reduce in-store inventory for less popular products (DVD players, CDs, appliances)

● Reduce costs of storing inventory and potentially increase profits

● Close stores to cut operating costs ($888,579 per closed store)

1Downsize

(“Best Buy”)

Recommendations

● Compete with Amazon/Walmart by matching their lowest prices

● Reduce the threat of substituting goods and decrease competitive rivalry

● Provide in-store shoppers with the benefits of online discount retailers

○ In store shopping- score of 69% for most reliable and 77% for safest

2 Price Match

(Friedman)

Recommendations

● Invest capital in virtual reality product research and development

● Draw in new customers and retain current customers

● Provide a unique entertainment experience to eventually replace declining entertainment sales (TVs, DVDs, etc.)

● Source of competition against online retailers

● Capitalize on the first mover advantage, credible as a market leader

3 Invest in Virtual Reality Products

(Lang)

Questions?

Appendix A: Best Buy Financials and Operating Performance

(Wells)

Appendix B:

(“Best Buy”)

Measured in millions of dollars

Works Cited