Best Buy Case Study

ESLSCA GROUP 39D trounce Buy Co. , Inc. pic Strategic Audit August 2012 Presented to Dr. Sanya EL Galaly Table of Contents close beat Buy Co. , Inc4 Best Buys History4 1. accredited Situation5 A. Current Performance5 B. Strategic Posture5 . Mission5 2. target areas5 3. Strategies5 4. Policies6 II. Strategic Managers6 A. Board Members6 B. Top circumspection7 III. commercialize Overview7 IV. External environment8 2. Natural Environment8 2. tender Environment8 2. 1. Economic8 2. 2. Technological8 2. 3. PoliticalLegal8 2. 4. Sociocultural8 3. Task Environment9 V. Internal Environment9 1. Corporate Structure9 2. Corporate Culture9 3. Corporate Re ancestors9 3. 1. Marketing9 3. 2. Finance9 3. 3. R&D10 3. 4. Operations10 3. 5. Human Resources10 3. 6. Information Systems10 VI. Analysis of Strategic Factors10 . Situational Analysis (SWOT) (SFAS Matrix see exhibit 3)11 1. 1. Situational Analysis11 1. 1. 1. Summary of Internal Factors11 1. 1. 2. Summary of External Facto rs11 1. 1. 3. redirect examination of Mission and Objectives11 VII. Strategic Alternatives and Recommended dodge12 1. Corporate dodging12 2. 1. Growth Strategy12 2. 2. Stability Strategy13 2. 3. Retrenchment Strategy13 3. Business Strategy13 3. 1. follow Leadership Strategy13 3. 2. specialty Strategy14 4. Financial Positions14 4. 1. Best Buy Income Statement as of 2009-201214 4. 2.Best Buy Balance Sheet as of 2009-201211 4. 3. Cash F low-down Statement for period ended in 2011-201212 B. Recommended Strategy14 VIII. Implementation14 IX. Evaluation and Control14 X. List of Tables15 manifest 1 Ratio Analysis Table15 disclose 2 IFAS16 Exhibit 3 EFAS17 Exhibit 4 SFAS18 Exhibit 5 TWOS Matrix19 Exhibit 6 IFinancial Position Documents20 About Best Buy Co. , Inc. Best Buy Co. , Inc. (NYSEBBY) Headquartered IN Richfield, Minnesota, is a leading multi-channel global retailer and developer of technology convergences and attend tos. 1,100 stores in U.S (21% Market Share), also operated o ver 2,800 stores global (Canada, Mexico, China and Turkey), 170,000 employees whom are committed to helping award the technology solutions that enable easy access to people, knowledge, ideas and fun. The companys subsidiaries much(prenominal) Geek Squad, Magnolia Audio Video, and Pacific sales, and operated under both name Best Buy & Future Shop labels In CANADA People at BB are witting of their role and impact on the world, and are committed to developing and implementing business strategies that bring sustainable technology solutions to consumers and communities.For information about Best Buy, visit www. bby. com and to spy at Best Buy, visit www. bestbuy. com. Best Buys History In 1966 Best Buy incorporated with original name as extend of music, the company started as a retailer of audio components and expanded to retailing video products in the early 1980s with the introduction of the videocassette rec establish to its product line. In 1983 Best Buy name has been changed to Best Buy Co. Inc. (Best Buy). Shortly thereafter, Best Buy began operating(a) its existing stores under a superstore concept by expanding product offerings and using mass marketing techniques to promote those products.Since 1989 the company altered the function of sales staff structure (policy) dramatically to be transformed from commission rear oriented to be educators and customer assist oriented. Simply sales mission was to generate sales but now changed to answer customers move to help for decide which product fit for their needs. In 2000 the company step up to Market space by launched BestBuy. com (online retail store), which is very important for BBs customers thus expanding among them to access to store easily without physical visit. I.Current Situation A. Current performance Volatility of financial position, declining in companys income compared with last pecuniary year, increasing debts as well as operating costs ? Facing increased fears competition ? Raising in oper ational costs and increasing in debt & reducing liquidity of cash. ? Adverse economic climate and financial stress (declining in final income) B. Strategic Posture Mission ? To make technology deliver on its promises to customer ? Keeping customers centered in technological changes To make life fun and easy. To improve customers awareness of their needs. Objective ? The top objective of company were sustained growth and net (growth oriented) ? Differentiation in retail industry by present unique product & service that customer never get forwards. ? Keeping cost down without sacrificing customer experience given by Best Buy. Strategies ? becomeed in 1966 as (a low price system) and moved to be service-oriented firm (differentiation strategy) in 1989. ? Global & national growth finished acquisition and alliance with Car phone Warehouse Group, UK. do its economies scale with over 1,000 locations to obtain cost advantage from suppliers due to high quantity of orders, also increas e its Advertising budget for massive campaigns In order to cove over entry market barriers. ? Having multiple brands for different customer lifestyles through M&A merge and Acquisition. ? Providing customers with highly trained sales associates who available to make grow customers regarding product features. ? Construct a diversified portfolio of product offerings by building a significant customer data-base (Customer centricity model) Policies Growth oriented by expansion vertically & horizontally. ? Cost reduction is very important (restructure commission sales scheme, shipping the correct farm animal to the correct locations). ? Training & educate employees fixednessly, promotion from within at all levels. ? Rapidly response to external change. II. Strategic Mangers A. Board Of Directors ? Sixteen members three are outsider. ? Chairman and founder (Richard M. Schulze), his beneficial ownership of 17. 1 % ? Brian Dunn as Previous CEO, Currently (Mike Mikan) as stave CEO of Bes t Buy, who has been Director since 2008. All film directors and executive officers as a group, and each person we know who beneficially owns more than 5% of the outstanding shares of Best Buy common stock. pic pic pic pic pic Richard Shultze Mike Mikan Shari Ballard Jim Muehlbauer Carol Surface Founder, Chairman Interim CEO President International chief financial officer VP, Chief HR & Enterprise EVP B. Top Management The two former CEOs was Richar Shultze and Brad Anderson, but recently Brad stepping down, Brian Dunn replaced, and now replaced with Interim CEO. ? June 7, 2012 The board of directors of Best Buy Co. , Inc. (NYSEBBY) today announced the appointment of Hatim A. Tyabji as chairman of the caller-up, effective immediately. Mr. Tyabji, currently Chairman of the Audit Committee, has served as a director since 1998. ? Top managers are recently promoted internally and externally hired ? Top Mangers whom Richard Shultze Founder & Chairman. G. Mike Mikan Interim CEOShari Ba llard President, International and Enterprise EVP. Jim Muehlbauer Executive VP. And CFO. ? Top way members are very experienced in Industry III. Market Overview The Best Buy family of brands and partnerships collectively generates more than $49 billion in annual gross and includes brands such as Best Buy Best Buy Mobile Audio visions The Carphone Warehouse Future Shop Geek Squad Jiangsu Five hotshot Magnolia Audio Video Napster Pacific Sales and The Phone House. Community partnership is central to the way Best Buy does business.In fiscal 2010, the company donated a grant $25. 2 million to improve the vitality of the communities where best Buy employees and customers live and work. Strategic priorities focus on growth opportunities, trading operations, and improved international returns. IV. External Environment (EFAS TABLE see Exhibit 1) Natural Environment 1. Global warming that increasing by emissions of technology usage. (T) 2. Energy availability a growing proble m. (T) societal Environment 1. Economic a. Unstable economy (stumble) along with eliminate of consumer expends. (T) b.Individual economies becoming interconnected into a world economy. (O) c. Financial crisis that hit EU, might be crucial reason to eliminate the Investment in Euro zone. (T) 2. Technological a. IT & communication revolution. (O) b. Entering computerization at all fields such Manufacturing, business, Agriculture,etc. (O) c. Trend of cordial media online & digital marketing. (O) 3. Political-Legal a. NAFTA, EFTA, and other agreements between countries to free trading cycle are opening doors to penetrate markets in Latin America and other acclivitous markets. (O) b.Regulations of national Reserve beach that effect on retail sectors credit systems. (T) c. Environmentalism being reflected in Laws on pollution and energy usage. (T) 4. Socio Cultural a. Decreasing of unemployment rate which is indicator of increasing of families income then Expands rate. (O) b. Trans forming in purchasing behavior from market place to market space. (T) c. Trend of using digital devises rather than paper & blocks for daily functions such newlys, reading books, schedule organizer,etc. (O) d. Trend to value for money as a concept of consumers behavior. (T) Task Environment 1.North American market mature and extremely war-riddenvigilant consumers demand high quality with low price in safe, environmentally sound products. (T) 2. Industry going global as North American and europiuman firms expands internationally. (T) 3. Rivalry High. GameStop Corp, Amazon. com, Wal-Mart expanding into consumer electronics and stepping price competition (T) 4. Buyers Power Law. Technology and materials can be sourced worldwide. (O) 5. Power of Other Stakeholders Medium. Quality, safety, environmental regulations increasing. (T) 6. Entry Barriers High. New entrants unlikely that for large international firms. T) V. Internal Environment (IFAS Table See Exhibit 2) (IFAS Table See Exh ibit 2) A. Corporate Structure 1. penny-pinching Domestic Management through separating the Market into Eight territories each is Divided into Districts (S) 2. Best Buy had an international operation Segment (S) B. Corporate Culture 1. Every employee must have the companys vision embedded in their service and attitude (S) 2. Best Buy had a reputation for retaining talent and was widely recognized for its capital service (S) C. Corporate Resources 1. Marketing a. Using Customer Centricity Model to market various products (S) b.Supply products that address the needs of Customer (S) c. Meet Customer Needs through End to end Solutions (S) d. More training to BestBuy Employees help it supply customer with Knowledge service which is A Value added Service (S) 2. Finance (See Exhibits 4 and 5 Ratios & cash flows ) a. plus in Long Term Debt from fiscal 2008 to 2009 (W) b. After the Acquisition of Napster and BestBuy Europe Decrease in Available Cash in 2009 (W) c. Increase in Company tho roughgoing Assets and grosss due to Successful Acquisitions (S) d.Declining in the Net Income and operating Margin (W) e. The Risk of Having Bad Debts Due to increase in inventory and increase of Revenues However its not matching the Big increase in Account receivable (W) 3. R a. Best Buy is Willing to take part in tests of New products (with limited cost to company) (W) 4. Operations a. Increasing Revenues By growing its Customer Base and Increasing its market share Internationally (S) b. Good Domestic Management through separating the Market into Eight territories each is Divided into Districts (S) c.Best Buy had an international operation Segment (S) 5. Human Resources a. Main Objective is preparation the customer with the right knowledge of products and services (S) b. Changing the compensation structure into non-commissioned-based (S) c. Claims that Best Buy employees misrepresented the Manufacture warranty in order to trade in its own product service and replacement plan (W) d. Best Buy had undisclosed Anti-price matching policy (W) 6. Information Systems a. Consolidate Data from Retialers , Act as a clearing house for info and results.Communicate the common needs and encourage innovation (S) VI. Analysis of Strategic Factors Situational Analysis (SWOT) (SFAS Matrix see Exhibit 3) 1. Strengths. Company Image and Profile Sales Stuff Policy Strong financial Position Customer Centricity Model Diversified portfolio in Global Markets Good crosswise Integration Talent management Good Domestic management Successful Acquisitions Credit payment policy Value Added Services 2. Weaknesses Market Space Sales Pricing Policy Assets Management Operational Cost Increase in LTD and Debt Management Fluctuating Leadership 3. Opportunities Potential market of Medical Portable Devices looseness Segment growth and Smart Phones Technology Revolution Bankruptcy of Circuit City Expansion of Global Market place 4. Threats Regulations of Federal Reserve Ba nk Economic Down turn Decreasing the entry barrier Online Competitor Price War with Wal-Mart Wal-Mart Deal with Nintendo and Apple Strong penetration Of Competitor Review of Current Mission and Objectives 1. Bad financial position according to last 2 years. 2. Facing a fierce competition and new challenge expected. VI.Strategic Alternatives and Recommended Strategy Strategic Alternatives. Corporate Strategy 1. Growth Strategy Growth vertically through open new stores across U. S to fill gap in fierce competition. Pros come over competitors expansions strategy Cons Cash Liquidity Issues. proceed of global expansions, and focus on emerged & untapped markets. Pros supporting of Best Buys overseas position to be Leader in this Marekts. Cons domestic regulations in foreign countries and security. Horizontal integration by joint stake with new suppliers. Pros more control on operational costCons Management issue, and conflictions. 2. Stability Strategy Hold acquisitions in Eur o zone according to economic crisis, and in Canada as well. Pros saving more capital & cost to be invested in North America and other virgin markets. Cons allow to competitors to raising their market share in such left market. 3. Retrenchment Strategy Develop downsizing policy in costly labor markets such (Europe). Pros Divesting BBY improves bottom line and focus ME & Asia Markets. Cons loosing Europes market share. Decreasing some of discretionary disbursements in such (Advertising ) in one or two of states that saturated.Pros saving a lot of regular cost to be invested in domestic expansion. Cons risk of loose customers positioning by time. Business Strategy 1. Differentiation Strategy Develop trade-off strategy that allow Best Buys customers to replace their own devices by new technology devices in justified prices. Pros another source of money that generate liquidity for company Cons adding operational cost line 2. Alliance strategy Build a solid strategic Alliance with a r eliable brand in market space that has urgently need to access to retail market. (Win/Win) Pros Access to know-how of online market.Cons reveal of operations and management techniques. RECOMMENDED STRATGIES 1. Growth Strategy Growth vertically through open new stores across U. S to fill gap in fierce competition. Pros come over competitors expansions strategy Cons Cash Liquidity Issues. Continuing of global expansions, and focus on emerged & untapped markets. Pros supporting of Best Buys overseas position to be Leader in this Marekts. Cons domestic regulations in foreign countries and security. Horizontal integration by joint venture with new suppliers. Pros more control on operational cost Cons Management issue, and conflictions. . Differentiation Strategy Develop trade-off strategy that allow Best Buys customers to replace their own devices by new technology devices in justified prices. Pros another source of money that generate liquidity for company Cons adding operational co st line. VII. Implementation As the recommended strategies is growth strategy so business development dept. should select strategic locations across U. S that include high traffic . The operations and mainly the supply chain plane section must do their best for getting best prices and cutting operations cost. Maintain the current global expansion plan and build solid studies for emerging markets and developing countries customers culture there. Developing more powerful CRM application and POS systems to recognize customers data. XI. Evaluation and Control involving the top managers, key persons and employees in operations efficiency programs Monitoring the performance regularly especially after new application applied. Follow up the plan of domestic operations that related to supplier. Exhibit 1 E F A S Exhibit 2 I F A S Exhibit 3 S F A S Exhibit 4 BEST BUY CO. , INC. CONDENSED CONSOLIDATED BALANCE SHEET ($ in millions, except per share amounts) February28, 2009 Assets Current Assets C $4 a 9 s 8 h a n d c a s h e q u i v a l e n t s To 8 ta , l 1 cu 9 rr 2 en t as se ts L 7 a 5 n 5 d a n d b u i l d i n g s 6,940 L 2 e , s 7 s 6 a 6 c c u m u l a t e d d e p r e c i a t i o n Ne 4 t , pr 1 op 7 er 4 ty an d eq ui pm en t Tradenames 173 Customer Relationships 322 Equity and Other Investments 395 Other Assets 367 Total Assets $ 15,826 Liabilities and Shareholders Equity Current Liabilities A $4 c , c 9 o 9 u 7 n t s p a y a b l e To 8 ta , l 4 cu 3 rr 5 en t li ab il it ie s Long-Term Debt 1,126 Minority refers 513 Shareholders Equity P r e f e r r e d s t o c k , $ 1 . 0 0 p a r v a l u e A u t h o r i z e d 4 0 0 , 0 0 0 s h a r e s I s s u e d a n d o u t s t a n d i n g n o n e Total shareholders equity Total Liabilities and Shareholders Equity $ 15,826 BEST BUY CO. ,INC. CONDENSED CONSOLIDATED BALANCE SHEETS ($in millions) (Unaudited and subject to reclassification) CONDENSED CONSOLIDATED BALANCE SHEETS ($ in millions) (Unaudited and subject to reclassification) Mar. 3, 2012 Feb. 6, 2011 ASSETS Current assets Cash and cash equivalents $ 1,199 $ 1,103 Short-term investments - 22 Receivables 2,359 2,348 Merchandise inventories 5,731 5,897 Other current assets 1,079 1,103 Total current assets 10,368 10,473 Net property & equipment 3,471 3,823 Goodwill 1,335 2,454 Tradenames 130 133 Customer relationships 29 203 Equity and other investments 140 328 Other assets 403 435 TOTAL ASSETS $ 16,076 $ 17,849 LIABILITIES & EQUITY Current liabilities Accounts payable $ 5,435 $ 4,894 Accrued liabilities 2,968 2,771 Short-term debt 480 557 Current portion of long-term debt 43 441 Total current liabilities 8,926 8,663 Long-term liabilities 1,099 1,183 Long-term debt 1,685 711 Equity 4,366 7,292 TOTAL LIABILITIES & EQUITY $ 16,076 $ 17,849 BEST BUY CO. , INC. CONDENSED CONSOLIDATED STATEMENTS OF bread ($ in millions, except per share amounts) Feb. 8, 2009 Revenue $ 45,015 Cost of goods sold 34,017 Gross returns 10,998 Gross profit % 24. 4% Selling, general and administrative expenses 8,984 SG % 20. 0% Restructuring charges 78 Goodwill and tradename impairment 66 operating(a) income 1,870 operational income % 4. % Other income (expense) Investment income and other 35 Investment impairment (111 ) Interest expense )(94 ) Earnings before income tax expense and minority interests 1,700 Income tax expense 674 Effective tax rate 39. % Minority interests (30 ) Equity in remuneration (loss) of affiliates 7 Net wage $ 1,003 Earnings per share Basic $ 2. 43 Diluted(1) $ 2. 39 Dividends declared per common s hare $ 0. 4 Weighted average common shares outstanding (in millions) Basic 412. 5 Diluted(1) 422. 9 BEST BUY CO. , INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS ($ in millions, except per share amounts) Feb. 7, 2010 Revenue $ 49,694 Cost of goods sold Cost of goods sold 37,534 Restructuring charges cost of goods sold Total cost of goods sold 37,534 Gross profit 12,160 Gross profit % 24. 5 % Selling, general and administrative expenses 9,873 SG&A % 19. 9 % Restructuring charges 52 Operating income 2,235 Operating income % 4. % Other income (expense) Investment income and other 54 Interest expense (94 ) Earnings before income taxes and equity in wages of affiliates 2,195 Income tax expense 802 Effective tax rate 36. 5 % Equity in profit of affiliates 1 Net earnings including noncontrolling interests 1,394 Net earnings attributable to noncontrol ling interests (77 ) Net earnings attributable to Best Buy Co. , Inc. $ 1,317 Earnings per share attributable to Best Buy Co. , Inc. Basic $ 3. 16 Diluted(1) $ 3. 10 BEST BUY CO. , INC. CONSOLIDATED STATEMENTS OF EARNINGS ($ in millions, except per share amounts) (Unaudited and subject to reclassification) Twelve Months Ended Mar. 3, Feb. 26, 2012 2011 Revenue $ 50,705 $49,747 Cost of goods sold 38,113 37,197 Restructuring charges cost of goods sold 19 9 Gross profit (24. 8%, 25. 25. %) 12,573 12,541 Selling, G&A expenses 10,242 10,029 Goodwill impairment 1,207 Restructuring charges 39 138 Operating income 1,085 2,374 Other income (expense) Gain on sale of investments 55 Investment income and other 37 43 Interest expense (134) (86) Earnings from continuing operations before income tax 1,043 2,331 expense and equity in (loss) earnings of affiliates Income tax expense 709 779 Effective tax rate 68. 0% 33. 4% Equity in (loss) earnings of affiliates (4) 2 Net (loss) earnings from continuing operations 330 1,554 Loss from discontinued operations, net of tax (308) (188) Net (loss) earnings including noncontrolling interest 22 1,366 Net earnings from continuing operations attributable to (1,387) (127) noncontrolling interests Net loss from discontinued operations attributable to 134 38 noncontrolling interests Net (loss) earnings attributable to Best Buy Co. , Inc. $(1,231) $ 1,277 Continuing operations $ (2. 89) $ 3. 51 Discontinued operations $ (0. 47) $ (0. 37) Basic (loss) earnings per share $ (3. 36) $ 3. 4 Continuing operations $ (2. 89) $ 3. 44 Discontinued operations $ (0. 47) $ (0. 36) Diluted (loss) earnings per share $ (3. 36) $ 3. 08 Dividends declared per Best Buy Co. , Inc. common share $ 0. 2 $ 0. 58 Basic 366. 3 406. 1 Diluted 366. 3 416. 5 F e b r u Febru BEST BUY CO. INC CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ($ in millions) (Unaudited and subject to reclassification) Twelve Months Ended Mar. 3, Feb. 6, 2012 2011 OPERATING ACTIVITIES Net earnings including noncontrolling interests $ 22 $ 1,366 Adjustments to reconcile net earnings to total cash provided by operating activities Depreciation and amortization of definite-lived intangible 45 978 assets Goodwill impairment 1,207 recognize gain on sale of investments (55) Other, net 462 209 Changes in operating assets and liabilities, net of acquired assets and liabilities Receivables (28) (371) Merchandise inventories 120 (400) Accounts payable 643 (443) Other assets and liabilities (23) (149) Total cash provided by operating activities 3,293 1,190 INVESTING ACTIVITIES Additions to property and equipment (766) (744) Other, net 42 175 Total cash used in investing activities (724) (569) FINANCING ACTIVITIES Repurchase of common stock (1,500) (1,193) Borrowings (repayments) of debt, net