Electronics Retailer: Company Profile: Best Buy

Shopping has become a part of everyday life for many Americans. Large retail outlets line major roads of American towns and cities, enticing consumers with attention grabbing advertisements for products that vary from everyday necessities, to flashy toys that promise hours of entertainment. While many stores carry these entertainment products, like TV’s, computers, gaming systems, and mp3 players, there is one company that stands above the rest as the “dominant technology and entertainment retailer” (taitsubler.com) in the United States – Best Buy.

With a gross income of over $50 Billion in fiscal year 2011, and a net income of $1.227 billion, Best Buy Co., Inc holds one of the largest market shares in the consumer electronics industry, as they should. Best Buy, founded in 1966, is electronics merchant, whose stores are chock full of expensive electrical toys and tools. Stores are split into departments, each department specializing in a type of technology. Each store has a Home Theater, Computer/Tablet, MP3/iPod, Gaming, Digital Imaging, Car Electronics, Music/Movies, Appliances, and Mobile (cell phone) department, in which products and their accessories are on display.

Best Buy, striving to be a one stop shop for customers, also provides services to go along with their products. Through partnerships with companies such as Comcast, Dish Network, Time Warner, and Clear Wireless, customers can leave the store with connections to the internet, cable or dish TV, and phone services. Through the acquisition of Geek Squad in 2002, Best Buy is also able to offer repair and installation services on many of its wares, such as TV’s, computers, and appliances. In fact, Best Buy now brands all of its warranties and installation services with the Geek Squad name, and encourages customers to make use of their in-store service counters, where they can talk face to face with a Geek Squad agent about the issues that they are experiencing with their technology.

Geek Squad is not the only brand to be owned by Best Buy. Product brands such as Dynex, Insignia, and Rocketfish are all owned by Best Buy. These brands are mainly manufacturers of product accessories such as wireless mice (for computers), speakers, cables and cases, but both Dynex and Insignia are manufacturers of larger products, like TV’s. Having “house brands” is beneficial for the company because they lead to higher margins on those products, and Best Buy has greater control over product inventory levels and greater flexibility in the creation of new products to fit with market trends. For example, Best Buy was able to respond to the release of the IPad by creating several IPad accessories, such as cases and stands, through its brand Rocketfish. Not only did consumers benefit by having a greater assortment of accessories to choose from, but also from the lower prices that arose due to competition in the accessories market.

Other brands associated with Best Buy are Magnolia, a branch of the Home Theater department, in which higher end TV’s and speakers are sold, for those customers that desire above average performance from their TV’s and speaker set-ups, and Napster, which, up until earlier this year, was an attempt by Best Buy to enter the music streaming and download market. (Napster was recently sold to Rhapsody for an undisclosed amount.)

In November of 2001, Best Buy purchased another brand as well – Future Shop. Future Shop was an electronics dealer within Canada, and upon being purchased by Best Buy Co., Inc, was renamed Best Buy Canada Ltd. It functions as a largely separate entity of Best Buy Co., Inc, yet has a strong presence within the nation, grossing more than $5 Billion dollars in revenue.

Best Buy Canada is not Best Buy’s only international project; it has also launched stores in China, Turkey, and the United Kingdom. Unfortunately, it has not been met with success in those regions. Best Buy recently closed all nine of its stores in China, but does have plans to pursue the consumer electronics market there with the opening of 50 new stores branded as “Five Star Electronics.” Best Buy, however, has pulled entirely out of the Turkey and U.K. Markets, closing down the two stores in the Middle Eastern country, and its eleven locations around Britain, with no announced plans to re-enter those markets.

Best Buy has had increasing difficulty with domestic expansion as well, facing stiff competition from other retailers, such as Wal-Mart and Target, who have recently put forth efforts to expand their electronics selections at increasingly competitive prices, and also from online retailers such as Amazon.com and Newegg.com, who are able to offer large selections exceedingly lower prices due to their low overhead. Best Buy stores have been called “Amazon’s showcase” by consumers who use the blue and yellow retailer as a place to see and learn about products up close before ordering them from another company online.

Ex Best Buy CEO, Brian Dunn, however, has an optimistic view of his company’s strategy for competing with these other companies. Bestbuy.com is Best Buy’s answer to online competitors, and has been called “extremely successful” by Dunn. It also has an advantage over Amazon and Newegg; the products ordered from Bestbuy.com can be picked up in store, which eliminates the cost of shipping. 40% of online orders are picked up in store, according to the article Best Buy Gets Squeezed which signifies that consumers do enjoy having this option available to them. Furthermore, items ordered online can be returned to brick and mortar locations, which consumers find convenient and reassuring. “In the future, physical stores alone will not be enough. Digital alone will not be enough. How they come together is what really matters,” says Dunn (Best Buy Struggles with Global Ambitions).

Brian Dunn’s confidence, however, is not shared by investors. Stocks, traded under the symbol BBY, have dropped from a high of $43.21 dollars per to a low of $21.79 in under a year, and though stock prices are recovering slightly, they are currently hovering around $28, a mere 65% of what they once were. Profits per share have also declined, according to Best Buy Gets Squeezed, with profit dropping from 47 cents a share to 60 cents.

In response, the company has cut down on the number of seasonal hires brought on board for the year, cut its employee discount (Best Buy currently has 180,000 employees, which is why this was considered to make a large impact in the bottom line), and plans on reducing its retail square footage by 10%, which will reduce operating costs. Despite this, end year profit expectations have been cut, company growth has continued to flat-line.

The economy has been to blame for the company, and the industry’s current woes. American’s have been spending more cautiously, lately, and with electronics considered more of a luxury than a necessity, consumers have been spending less in that area over the past few years. Furthermore, there have been few “must have” innovations in the electronics industry since the invention of HD and Plasma TV’s. 3D Television was expected to be the new HD by the industry, however was met with skepticism and lack of interest by consumers due to its lack of content and requirement of wearing bulky and expensive glasses while watching it.

There is some hope, however, for Tablet and on-the-go computing growth; and Best Buy has responded by creating extensive tablet displays within its stores, and providing extra training for employees in the Computer Departments. Mobile technology an area that Best Buy is looking to expand market share in. Best Buy Mobile departments and stand-alone retail stores carry cell-phones, and offer on the go internet services (called mobile broadband). Sales in this department are extremely lucrative because wireless companies such as AT&T and Verizon provide pure compensation for each contract signed by Best Buy Mobile customers.

Best Buy Mobile customers are also likely to be repeat customers. Their cell-phones are typically available for upgrade every two years, and Best Buy sends its customers upgrade reminder text messages, inviting them to come and check out the latest and greatest technology around their upgrade time.

Text-message is not the only way Best Buy seeks to interact with its customers. It holds a strong online presence, communicating with customers through social channels such as Facebook, Twitter, and its customer service forums ( http://forums.bestbuy.com/ ). This kind of constant, casual customer interaction helps the company to stay in the minds of consumers, and excite them about the newest technological innovations. This excitement is what drives customers into the stores, and builds sales, which are necessary to turn the current state of business around.

Though Best Buy is currently going through a time of challenge, it remains the largest electronics retailer in North America, and is poised to grow significantly. With the American economy slowly going into recovery, and a holiday season that is looking increasingly positive for retailers, and technology ever changing, and becoming a greater part of the populations’ everyday lives, Brian Dunn remains optimistic. “I think we are in the front end of an explosion around technology and people s appetite for it. We see explosive growth [ahead].”