Shopping has become a part of everyday life for many Americans. Big box outlets line major thoroughfares in America’s towns and cities, enticing consumers with eye-catching advertisements for products ranging from daily necessities to flashy toys that promise hours of entertainment. While many stores sell these entertainment products, such as televisions, computers, gaming systems, and mp3 players, there is one company that stands out from the rest as the “dominant technology and entertainment retailer” (taitsubler.com) in the United States. : BestBuy.
With gross income of more than $50 billion in fiscal year 2011 and net income of $1.227 billion, Best Buy Co., Inc has one of the largest market shares in the consumer electronics industry, as should be. Best Buy, founded in 1966, is an electronics retailer whose stores are packed with expensive toys and power tools. The stores are divided into departments, each department specializing in one type of technology. Each store has a Home Theater, Computer/Tablet, MP3/iPod, Games, Digital Imaging, Auto Electronics, Music/Movies, Home Appliances, and Mobile Devices (Cell Phones) department, displaying the products and their accessories .
Best Buy, which strives to be a one-stop shop for customers, also provides services that accompany its products. Through partnerships with companies like Comcast, Dish Network, Time Warner, and Clear Wireless, customers can walk out of the store with Internet connections, 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 products, such as televisions, computers, and home appliances. In fact, Best Buy now brands all of its warranties and installation services under the Geek Squad name and encourages customers to make use of in-store service counters, where they can speak face-to-face with a Geek Squad agent about the problems they are experiencing with their technology.
Geek Squad isn’t the only brand owned by Best Buy. Product brands such as Dynex, Insignia and Rocketfish are owned by Best Buy. These brands are primarily manufacturers of accessories for products such as wireless (computer) mice, speakers, cables, and cases, but both Dynex and Insignia are manufacturers of larger products, such as televisions. Having “own brands” is beneficial to the company because they lead to higher margins on those products, and Best Buy has more control over product inventory levels and more flexibility in creating new products to fit market trends. . For example, Best Buy was able to respond to the launch of the iPad by creating various iPad accessories, such as cases and stands, through its Rocketfish brand. Consumers not only benefited from having a greater variety of accessories to choose from, but also from lower prices that came about due to competition in the aftermarket.
Other brands associated with Best Buy include Magnolia, an offshoot of the home theater department, selling high-end TVs and speakers for customers who want above-average performance from their TV and speaker setups, and Napster , which, 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 2001, Best Buy also purchased another brand: Future Shop. Future Shop was a Canadian electronics distributor and, upon being purchased by Best Buy Co., Inc, was renamed Best Buy Canada Ltd. It operates as a largely separate entity from Best Buy Co., Inc, but has a strong presence within the nation, with gross receipts of more than $5 billion.
Best Buy Canada isn’t Best Buy’s only international project; it has also opened stores in China, Turkey and the UK. Unfortunately, it has not been successful in those regions. Best Buy recently closed its nine stores in China, but has plans to go after the consumer electronics market there by opening 50 new “Five Star Electronics”-branded stores. Best Buy, however, pulled out of the Turkey and UK markets entirely, closing the two stores in the Middle Eastern country and its eleven locations in Britain, with no announced plans to re-enter those markets.
Best Buy has also had increasing difficulty expanding nationally, facing stiff competition from other retailers, such as Wal-Mart and Target, which have recently made efforts to expand their electronics selections at increasingly competitive prices, as well as from online retailers like Amazon.com and Newegg.com, which can offer great selections at much lower prices due to their low overhead. Best Buy stores have been called “Amazon’s window” by consumers who use the blue and yellow retailer as a place to see and learn about products up close before ordering from another company online.
However, former Best Buy CEO Brian Dunn has an optimistic view of his company’s strategy to compete with these other companies. Bestbuy.com is Best Buy’s answer to online competitors, and Dunn has called it “extremely successful.” It also has an advantage over Amazon and Newegg; Products ordered on Bestbuy.com can be picked up at the store, eliminating the cost of shipping. 40% of online orders are picked up in store, according to Best Buy Gets Squeezed, which means consumers enjoy having this option available. Additionally, items ordered online can be returned to physical stores, which consumers find convenient and reassuring. “In the future, physical stores alone won’t cut it. Digital stores alone won’t cut it. What really matters is how they come together,” says Dunn (Best Buy Struggles with Global Ambitions).
However, investors do not share Brian Dunn’s confidence. The shares, trading under the symbol BBY, have fallen from a high of $43.21 per dollar to a low of $21.79 in less than a year, and although share prices are recovering slightly, they currently hover around $28. , a mere 65% of what they once quoted. were. Earnings per share have also declined, according to Best Buy Gets Squeezed, with earnings falling 47 cents per share to 60 cents.
In response, the company reduced the number of seasonal hires added for the year, reduced the employee discount (Best Buy currently has 180,000 employees, which is why this was felt to have a large bottom line impact), and plans to Reduce your retail square footage by 10%, which will reduce operating costs. Despite this, year-end earnings expectations were lowered, the company’s growth continued unchanged.
The economy has been to blame for the company and the current problems in the industry. Americans have been spending more cautiously lately, and with electronics seen as more of a luxury than a necessity, consumers have been spending less in that area in recent years. Furthermore, there have been few “must have” innovations in the electronics industry since the invention of HD and plasma televisions. 3D television was expected to be the industry’s new HD, however it was met with skepticism and lack of interest by consumers due to its lack of content and the requirement to wear bulky and expensive glasses while watching.
There is some hope, however, for the growth of tablets and mobile computing; and Best Buy has responded by creating large tablet screens inside its stores and providing additional training for employees in the Computer Departments. Mobile technology is one area where Best Buy is looking to expand its market share. Best Buy Mobile departments and independent retail stores stock cell phones and offer Internet service on the go (called mobile broadband). Sales in this department are extremely lucrative because wireless carriers like AT&T and Verizon provide pure compensation for every contract signed by Best Buy Mobile customers.
Customers of Best Buy Mobile are also likely to be repeat customers. Their cell phones are typically available for upgrades every two years, and Best Buy sends its customers upgrade reminder text messages, inviting them to come and see the latest and greatest technology near their upgrade time.
Text messaging isn’t the only way Best Buy is looking to engage with customers. It has a strong online presence, communicating with customers through social channels like Facebook, Twitter, and its customer service forums (http://forums.bestbuy.com/). This kind of constant, casual interaction with the customer helps the company stay top of mind with consumers and gets them excited about the latest technological innovations. This enthusiasm is what drives customers to stores and generates sales, which are necessary to change the current state of business.
Although Best Buy is currently going through a tough time, it remains the largest electronics retailer in North America and is poised for significant growth. With the US economy slowly recovering, and a holiday season looking increasingly positive for retailers, and technology constantly changing and becoming an important part of people’s daily lives, Brian Dunn remains optimistic. “I think we’re at the forefront of an explosion around technology and people’s appetite for it. We’re seeing explosive growth [ahead].”