Best Buy wants to be the best consumer electronics outlet in the US and beyond. The multinational retailer sells both products and services through three primary channels: about 1,500 retail stores, online, and call centers. Its branded store banners include Best Buy, Best Buy Express, Best Buy Mobile, Five Star, Future Shop, Geek Squad, Magnolia Audio Video, and Pacific Sales. Its stores sell a variety of electronic gadgets, 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. Amid declining sales, Best Buy is focused on a turnaround and has exited Europe.
The US is Best Buy's largest market, accounting for almost 85% of its total sales. Canada contributes about 10% of sales. Best Buy rings up less than 5% of its sales in China, where is has about 190 stores under the Five Star banner. The retailer's ill-timed expansion into Europe ended in 2013 with the sale of its stake in a joint venture in the UK and Ireland to Carphone Warehouse Group.
Best Buy's operations consist of a domestic segment and an international segment. The domestic segment 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. (With Best Buy's sales in the tank, the Geek Squad is looking to extend its technology expertise to other venues, including eBay and select Target stores.)
Sales and Marketing
Best Buy's advertising costs consist primarily of print and television ads, as well as promotional events. Advertising expenses were $775 million, $732 million, and $828 million in fiscal 2014, 2013, and 2012, respectively.
In fiscal 2014 (ended January) Best Buy's sales fell 15% versus the prior year to $42.4 billion. The double-digit decline followed a 2% fall in the previous annual comparison. Best Buy blamed store closures at home and abroad for the decline, and falling same-store sales of less than 1%. Net earnings from continuing operations totaled $689 million in fiscal 2014 (12 months), compared to a net loss of $467 million in fiscal 2013 (11 months). Restructuring charges depressed earnings for the year. The company's gross profit rate decreased by 0.5% of revenue to 22.8% of revenue. The decrease was primarily due to an investment in price competitiveness (i.e. price cuts) in the US and a more promotional environment at home and abroad. Cash flow from operations, while positive, declined for the second consecutive year. Best Buy generated $1.1 billion in operating cash flow in fiscal 2014.
Under the leadership of turnaround expert and Frenchman Hubert Joly, who joined the ailing retailer as CEO in September 2012, Best Buy is focused on reviving its ailing US business, which has suffered from competition from the likes of Amazon.com and Wal-Mart Stores. Joly is working to stabilize the company's falling sales and is closing many of the chain's big-box stores, expanding smaller outlets, and improving its online operations. Best Buy has restructured its international segment by closing large-format Best Buy stores in China, Turkey, and the UK due to underperformance. The company embarked on a new store development plan in 2013, which is focused on trying to increase its number of stores while decreasing overall square footage. During fiscal 2014 (ended January) the company's store count remained relatively flat (after more aggressive store closings in prior years). However, Best Buy is working to get more from its brick-and-mortar stores by rolling out ship-from-store to more than 1,400 locations and the opening of 1,400 Samsung (maker of the popular Galaxy smartphones) and 600 Windows stores-within-a-store. Going forward, the chain plans to continue to evaluate its domestic store portfolio, including renegotiating leases and selectively opening or shuttering locations as needed to support its ongoing transformation. On the international front, the retailer opened 13 new stores and shuttered 27 in fiscal 2014. Store openings were primarily driven by Best Buy Mobile stores in Canada and Best Buy stores in Mexico. The chain shuttered Five Star locations in China. Now Best Buy is looking to sell its China business or find a partner there.
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. In China, where the chain operates about 190 stores under the Five Star banner, competition is heating up as other global retailers take aim at that vast market. Germany's METRO AG, plans to enter the Chinese market with its Media Markt and Saturn chains of consumer electronics stores.
The company also seeks to provide a better online experience by offering more competitive pricing and free shipping.
Mergers & Acquisitions
Best Buy has grown over the years through acquisitions and that continues to be a key component of its strategy today. In late 2011 it acquired mindSHIFT Technologies for $175 million, a deal that allows Best Buy to expand into cloud services and push growth in the small and midsized business IT services market. It will combine mindSHIFT's cloud, data center, and professional services with its Geek Squad services and Best Buy for Business operations to try to create a competitive edge.