1

Turnaround Best Buy

Consulting Team:Aditya ThakurRashi SanghviDhruv Soman

Syed Rehan Zafar

By Cranium Crushers

2

Best Buy at a Glance

Stores 1,447 (305 mobile)

Employees 167,000

Revenue $50B (5% from Online stores)

ROE (28%) (18% in 2011)

D/E 34%

Gross Profit Margin 23.4%

Net Profit Margin (2.4%)

Inventory Days 55

A/R Days 16

A/P Days 51

Cash to Cash Cycle 20

CapitalIQ

3

Unfavorable Situation for BigBox BusinessesInternal External

Sales growth is declining Economic situation: Reduced Consumer spending across industries

Management – A new Turnaround CEO has been hired by the company

Consumer behavior – Shifting towards online & mobile

Big-box stores are being shutdown Perception about big box brands turning negative

President for Online Business hired to revamp Best Buy’s Internet strategy

People are pessimistic after the collapse of CircuitCity

Founder and majority shareholder Best Buy, Schulz, offered to buy the company at a price higher than the market valueSales per store are declining – Lower footfallsNon-Competitive pricing

4

Continued Underperformance will lead to Bankruptcy

Infancy Stage Stagnation

Early Stage Underperforming

Midstage Significant Performance Impairment

Late Stage Crisis

Expected Performance

Company Perception

Same Store Sales

Management Team

Cash & Cash Equivalents

Shareholder Value

Deep Yogurt!

5

Strategic & Operational challenges hindering sales growth

• Strategic:– Weak positioning– Value proposition not compelling enough– Price disadvantage– Negative customer perception– No clear vision– From ‘Brick & Mortar’ to ‘Brick & Click’ – changing business model

• Operational:– High overheads– Poorly designed online store interface– Too many products– Cluttered service model– Unstable leadership/management

6

Stabilize, Analyze & Strengthen

• New Store Formats:- Best Buy Express- Best Buy Studio- Online Store

• Change in Focus:- Competing on Price- Product Mix- In-store experience- Service- Loyalty

7

Turnaround Implementation

Reduce Big Box Outlets:1. Best Buy “Studio” stores in major cities – Store

in Store model2. Using Market analysis, consolidate stores

based on customer behavior - Online purchases

3. Significant reduction in overheads

8

Turnaround Implementation

Best Buy Express: • Small stores in high traffic locations• Product Mix: Small & fast moving goods• Acts as Geek Squad (Service center) branch

Online Store:• Exploit Amazon’s lack of focus in electronics• Redesign User Interface• Develop competencies in faster delivery for loyalty

program members

9

Turnaround Implementation

Price Matching:• Price comparison part of core sales process in stores• Matched to direct competitors -Amazon• Consistent in all store formats• Price checking kiosksProduct Mix:• Trim product categories and lines• ‘Featured Products’ section for high margin products

10

Turnaround Implementation

Loyalty Program• Annual fee• Covers services for all products• Focus on Geek Squad• Offer a flat fee off services• Notional discount on matched prices initially • Free shipping of products

11

Why it will work?

“Experience, Convenience & Price”Revenues:• Capitalize on the “Showrooming” nature of customers - Store Experience• Mobile store offers convenience for servicing• Membership program serves to locking in customers • Competitive pricing will boost sales • Additional revenue from partners in studio model

Costs:• Consolidation of stores: Reduction in rent expenses• Reduction in employees• Lower Overheads

12

Financial Estimates

2012 2013 2014 2015 2016

Revenue $50,705 $51,681 $50,131 $49,630 $49,630

Revenue Growth 2% 2% -3% -1% 0%

Gross Profit (75%) $12,592 $12,834 $12,533 $12,407 $12,407

SG&A $(10,242) $(10,439) $(8,522) $(7,444) $(7,444)

Operating Income $2,350 $2,395 $4,010 $4,963 $4,963

Operating Profit Margin 4.6% 4.6% 8.0% 10.0% 10.0%

Interest Expense $(134) $(134) $(198) $(165) $(132)

Restructuing Costs $(58) $(250) $(400) $(400) $(400)

Net Profit $(1,231) $1,193 $2,239 $2,880 $2,902

Net Profit Margin -2% 2% 4% 6% 6%