Best Buy Case Analysis

GNG - Goodwyn N Goodwyn

Best Buy Case Analysis

BUS 4970-14

February 28, 2019

Team 4 Members:

Peter Eugenio

Jocelyn Gallo

Puiyi Fanny Lo

Narek Navasart

Aaron Rodriguez

Maksim Rozkov

SWOT Analysis

Strengths

• Geek Squad: Highly trained professionals in computer repair and installation services.
• Diversified product line
• Increase in store traffic due to testing VR and Apple Watch
• In store experiences

Best Buy has some advantages in which they can expand. To begin, in 1983 Best Buy was named one of the largest companies in the electronic industry nationally and internationally.  Best Buy quickly developed brand name recognition. Under Joly’s leadership, Best Buy renewed its commitment to environmental sustainability and corporate social responsibility allowing Best Buy to have an extensive customer database.  The expanded customer database helps to identify specific customer needs and behaviors.

Also, Best Buy provides different variety of products and services.  Examples of different products offered are different brands of computers, cellphones, camera, GPS, video games, televisions, and home appliances. This allows customers the ability to physically test the products before they purchase them.

Furthermore, Best Buy has well-trained specialists that can answer customers questions quickly to some specific product category. For example, “Jill” was an “Upscale Suburban” mom who appreciates personal-shopping assistants who can help her find the right products for her family quickly. Geek Squad specialists in Best Buy provide technical support for customers. Best Buy has not only physical stores, but also an online presence.  It is so customer-friendly that customers can shop online and have it delivered to the home or pick up at the store on the same day. In addition, Best Buy provides a price match program that can keep customer loyalty. Working with vendor partners is also a significant strength for Best Buy. Best Buy establish relationships with leading technology companies such as Canon, Google, Microsoft, Nikon and Sony that customers can actually try the products before they make the decisions.

Weaknesses

• Prices aren’t competitive with online retailers
• Weak online presence
• Trying to cover all needs of consumers i.e. : a high-end customer-service experience to rival the Apple Store, an infinite online warehouse that can compete on price with the likes of Amazon, a retail chain for the personal-tech powerhouses,and a friendly retail partner for garage inventors

Although Best Buy is an established brand they have been late to adapting new technologies to their company. This has caused them to be a showroom of sorts for products sold on Amazon since they have a strong physical presence to consumers. Best Buy also has too many competitors since they are trying to cover all aspects of the digital market. They try to compete with Apple with high-end customer service and tech support, online warehouses to compete with Amazon and be a friendly retail partner for garage inventors. This spreads the company’s focus too thin since they are trying to master so many sectors of the tech industry.

Best buy has a few weaknesses.  The first and biggest weakness is that it is still primarily a brick and mortar store.  Based on the article, Best Buy’s online platform only reported a small income of 10% of their total sales. This means that their brick and mortar are important in terms of generating revenue.  Operating a brick and more store means higher operating costs. One example of this are the training of staff. CEO Joly wanted to create a unique multichannel customer experience. Doing this requires a higher magnitude of educating their staff while also motivating them.  Other examples of operating costs are rent, utilities, and shipping products to their numerous stores

Their lack of presence online has caused them to be an unwilling showroom for Amazon products.  This has caused them to be a showroom of sorts for products sold on Amazon since they have a strong physical presence to consumers.  Customers will come into their stores, try out the product but instead buy it online because they can find it at a lower price. Best Buy has to look at many different ways to attract customers to visit their stores.

Best Buy also has too many competitors since they are trying to cover all of the digital market. They try to compete with Apple with high-end customer service and tech support, online warehouses to compete with Amazon and be a friendly retail partner for garage inventors. This spreads the company’s focus too thin since they are trying to master so many sectors of the tech industry and doesn’t allow them to maximize the earning potential.

Opportunities

• Increase in curiosity of VR and other new technologies
• Partner with electronic manufacturers

With e-commerce on the rise, Best Buy should expand expand their market through online sales.  Best Buy has the capabilities of competing against companies such as Amazon, Target, Wal-Mart, and Apple.  They can improve their online shopping experience and offer free same day shipping to repeating customers.

Additionally, the rise of the consumer-electronics retail industry provides many opportunities.  Best Buy can partner with more top electronic manufacturers. By partnering with these companies, Best Buy can sell the latest products offered by them.  One particular product that is owned by many people throughout the world are cell phones. Since tech companies are always creating new products at a fast rate.  Best buy can offer these new products and sell outdated products at lower costs.

Due to the rise of e-commerce, many brick and mortar shops such as Circuit City have shut down and therefore can maximize their market share through their brick and mortar shops.  They should also continue their personal service such as “The Geek Squad” within their brick and mortar shops and capitalize attaining customers through this service. They should also continue their service of installing their products at customer homes.  

Threats

• Used as a showroom for online competitors eg. Amazon
• Online Innovation
• Rapid social trends that are not as easy to be replaced in-stores
• Wal-Mart with “pay-as-you-go” and low-cost technology
• Retailers with a more convenient shopping experience

Although Best Buy was a top player in the electronic industry when it first started, it soon faced many threats including the September 2001 attack that caused many stores to shut down that where located inside of public malls. Also, during this same time, competitors such as Wal-Mart and Target began to step up their competition in the CD segment decreasing sells for Best Buy.  In 2011, Best Buy had to close down even more storefront locations due to the fact that online retailing started to get larger and more popular. Based on the Best Buy case, “A product will, in its boom days, attract a very different clientele than in the later, less-exclusive phases of its shelf life” meaning that it may be more difficult for companies such as Best Buy to keep up with these trends that are quickly changing. Wal-Mart also found an opportunity to expand in it’s electronic area by coming up with the “pay-as-you-go” which allows cellphone users to not be tied with phone companies such as Verizon. It integrated the idea of smartphones with low-cost prepaid plans with no contracts.  Wal-Mart, CostCo, and Target are two retailers who also offer a variety of products that can be found at Best Buy for a lower price and is more convenient for buyers who are also there purchasing clothing, home appliances, etc.

Financial Analysis

Best Buy from (2010 to 2014) had big swings in regards to financial data. It did very well in 2010 (1,277,000,000) net income, but had a negative net income for the 2 subsequent years 2011 and 2012 with (-1,057,000,000) and (-443,000,000) respectively and finally in 2014 it did well again with a net income of (1,233,000,000). Also there is a trend of lower property,plant and equipment starting at 2010 at 3.8 billion all the way down to 2.3 billion in 2014 indicating the company got rid of a lot of assets during this time. Sales also took a big dive from $50,272,000,000 in 2010 to $40,339,000,000 in 2014 indicating the company was making 10 billion less revenue compared to just a few year ago which can be attributed to the success of Amazon.  

Fast forwarding to 2018 and observing Best Buy’s current and last year’s Income Statements it is clear that the company had a higher revenue in 2018 ($42,151,000,000) compared to 2017 ($39,528,000,000) but ended up with a lower net income in 2018 ($1,000,000,000) compared to 2017 ($1,228,000,000) which was due to the increase in Operating and Selling/Admin Expenses as well as Taxes. Best Buy earnings per share also took a dive in 2018 to $3.26 from $3.81 in 2017 indicating lower profitability in 2018. Best Buy also had a lower Current Ratio (1.3) in 2018 vs (1.5) in 2017 indicating a weaker ability to pay back short term debt. Inventory Ratios in 2018 and 2017 were very similar at (6.19) in 2018 vs  (6.16) in 2017 indicating that Inventory is generally replenished around 6 times a year and the company does well when it comes to selling its inventory. Best Buy also has a much higher Receivable Turnover in 2018 (40.18) vs (29.25) 2017 indicating the company had gotten better at collecting credit payments from its customers. Net Profit Margin had decreased from 3.1165% in 2017 to 2.3724% in 2018 indicating that Best Buy had become less profitable in 2018 also Operating Margin indicated a similar trend with 4.7 in 2017 compared to 4.37 in 2018 as well as the Gross Margin (23.4) in 2018 vs (23.95) in 2017.