Best Buy wants to be the best consumer electronics outlet in the US and beyond. The multinational retailer sells both products and services through more than 1,600 retail, mobile stand-alone, and smaller express stores under the Best Buy, Best Buy Express, Best Buy Mobile, Five Star, Future Shop, Geek Squad, Magnolia Audio Video, and Pacific Kitchen and Home Sales banners. Its stores sell a variety of electronic gadgets and wearables, tablets, movies, music, computers, mobile phones, and appliances. On the services side, it offers installation and maintenance, technical support, and subscriptions for mobile phone and Internet services.
Best Buy's operations consist of its Domestic and International segments. The Domestic segment, which made up 92% of the retailer's total sales in fiscal 2016 (ended January), focuses on the US market, where Best Buy Mobile (mobile sales and service), Geek Squad (technology support services), and Pacific Sales (kitchen appliance sales and installation) can be found in US Best Buy stores using the store-within-a-store format. Some also operate as standalone stores.
The company's International segment (11% of revenue) focuses on markets in Canada and Mexico. It counts the sales in Canada under the Best Buy (bestbuy.ca), Best Buy Mobile, Cell Shop, Future Shop (futureshop.ca), and Geek Squad; as well as sales in Mexico under the Best Buy (bestbuy.com.mx), Best Buy Express, and Geek Squad brands.
Product-wise, the company generated more than 45% of its total revenue from computers and mobile phone sales in FY2016, while over 30% of its revenue came from consumer electronic sales. The remaining revenue came from Entertainment (nearly 10%%), Appliances (7%), Services (5%), and other categories (1%).
Best Buy generated more than 90% of its total sales in the US during FY2016, while Canada contributed more than 5%. Its third-largest market is Mexico. The retailer also has a presence in Bermuda, China, Germany, Hong Kong, Japan, Luxembourg, the Netherlands, the Republic of Mauritius, Taiwan, Turks and Caicos, and the UK, among other countries.
Sales and Marketing
Best Buy purchases its merchandise from a variety of suppliers, though in FY2016, the company purchased 51% of its merchandise from five main suppliers: Apple, Samsung, Hewlett-Packard, Sony, and LG Electronics.
Best Buy's advertising costs consist primarily of digital, print and television ads, as well as promotional events. The company spent $742 million on advertising in FY2016 (ended January), compared to $711 million and $757 million in fiscal years 2015 and 2014, respectively.
Best Buy's annual sales have been in decline over the past few years due to fierce competition from larger or online retailers, while annual profits have taken off as the company has drastically slashed its operating costs shed many of its under-performing operations.
Best Buy's revenue fell 2% to $39.6 billion during fiscal 2016 (ended January), mostly as its international business was hurt by unfavorable foreign currency exchange rates and Canadian store closures amidst the soft economy there. Sales in the US grew 1% thanks to 0.5% same-store growth, while US online revenue grew by 13.5% with increased traffic and higher conversion rates. Services income and Appliances sales were the fastest-growing product/service segments, with comparable store sales in those growing by 15% and 12% for the year, respectively.
Revenue declines and restructuring charges stemming from Canadian store closures in FY2016 caused Best Buy's net income to plunge 27% to $897 million for the year. The retailer's operating cash levels tumbled 32% on lower cash-based earnings and due to the timing of inventory receipts (as it purchased Holiday items early and held onto its inventory longer for the Super Bowl) and income tax payments.
Struggling from declining sales amidst stiff competition from retailers like Amazon and Wal-Mart, Best Buy reiterated that in 2016 and beyond, it would look for ways to optimize store space, renegotiate leases, and selectively open and close locations to support the company's long-term transformation. To this end, the retailer began embarking on new store development plans as early as 2013, with the goal of increasing its store revenue while decreasing costly square footage.
Embarking into new business territory, Best Buy in 2016 began pushing its Magnolia Design Center stores-with-a-store, which help customers create a custom living room of Best Buy entertainment center furniture and electronics. During 2015, Best Buy worked to expand its growing categories with structural barriers to entry, such as large appliances and mobile, opening 60 new Pacific Kitchen & Home stores-within-a-store during fiscal 2016. It also planned to bring its popular installment billing service to its online platforms. Also in 2015, Best Buy pledged to expand its line of exclusive brand and private label products, improve its margin recovery on returned or damaged products, and test new promotional and pricing strategies to optimize returns on sales. The retailer has also been emphasizing its Ship-From-Store service to get more return out of its brick-and-mortar stores.
Best Buy has also been utilizing its Renew Blue cost reduction program to drastically cut costs and boost its bottom line in recent years. In 2015, the retailer successfully eliminated some $1.02 billion in annualized costs through its cost reduction program. For 2016, Best Buy planned to launch phase two of its cost reduction and gross profit optimization program, targeting annualized savings of $400 million over the following three years. In 2014, to free up resources to focus on more profitable divisions, the retailer sold mindSHIFT Technologies and agreed to sell its struggling Jiangsu Five Star Appliance business as well.
Best Buy continues to face challenges in growing internationally. Regrouping in Canada in 2015, Best Buy was forced to close 66 struggling Future Shop stores and consolidate its remaining 65 Future Shop and Best Buy stores and websites into the Best Buy brand in the region. In 2014, despite opening 13 international stores, with most of the store additions being Best Buy Mobile stores in Canada and Best Buy stores in Mexico, the retailer had to shutter 27 stores elsewhere where international performance has been less than desirable. The company's ill-timed expansion in Europe ended in 2013 with the sale of its stake in a joint venture in the UK and Ireland.
Best Buy has struggled to grow internationally over the years, and was forced to close many of its large-format Best Buy stores in China, Turkey, and the UK due to under performance. Cutting its losses in Europe, where it operated a joint venture with Carphone Warehouse Group, Best Buy sold its stake in the partnership for less than half of what it paid in 2008. The £500 million ($775 million) sale boosted Best Buys cash levels and allowed the company to focus on reviving its core US business.