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Business Policy & Strategy Clark Atlanta University School of Business
April 22, 2014
Agenda
I N T E R N A L
AN ALY S I S
E X T E R N A L
A N A LY S I S
C O M PA N Y
O V E R V I E W &
C U R R E N T
S I T U AT I O N
I S S U E S &
R E C O M M E N D AT I O N S
Introduction
Source: Best Buy
• Best Buy Co., Inc. is a multinational retailer of consumer electronics, computing and mobile phone products, entertainment products, appliances and related services.
• Founded by Richard Schultze in 1966
– Originally called “Sound of Music” until 1983
• Best Buy Growth
– 140,000 work for Best Buy globally
– BestBuy.com, CarphoneWarehouse.com, Five Star, The Geek Squad, Magnolia Audio Video, and PhoneHouse.com
– Nearly $50 billion in annual revenue (2013)
The Best Buy Promise
Source: Best BUy
To support you for the life of your products
The ability to shop when and where you want
Competitive prices
Knowledgeable, Impartial advice
The latest devices and services – all in one place
Current Situation
The anchor of Best Buy’s product portfolio is consumer electronics and computing and mobile technology. These business units are critical to their success Source: Best Buy
• Best Buy (2014) – World’s largest multi-channel consumer
electronics retailer
– #1 customer loyalty program
– Current CEO: Hubert Joly
Revenue Mix Feb ’14 Feb 13
Consumer Electronics 30% 32%
Computing & Mobile Phones
48% 45%
Entertainment 8% 10%
Appliances 7% 6%
Services 6% 6%
Other 1% 1%
• “Renew Blue” Initiative
– Named after blue shirt sales associates – Goal: Reduce cost by $725 million
– 2013: Eliminated approx $150 million (SG&A)
SWOT Analysis
o Chinese Market o Private Labels o Mobile Device Stores
o Largest specialty electronic retailer (SER)
o Customer centric business model o Strong support infrastructure
o Weak Financial Performance o 3rd-Party Vendors
o Pressurized Margins o Increased in Cost of Labor in
China
S
T
W
O
t r e n g t h s e a k n e s s e s
p p o r t u n t i e s h r e a t s
I N T E R N AL
E X T E R N AL
Best Buy is largest SER in the US and is expanding into international markets as it gains greater bargaining power. However, intensifying
competition in the market could affect the revenue growth and profitability of Best Buy.
Source: Market Line
Competitive Strategy
Source: Market Line
Differentiation through superior
customer experience
Intense competition has altered
tactics to remain competitive (Low
Cost Guarantee)
Best Cost
Strategy
Financial Analysis
Best Buy has a declining trend in operating profitability, closing stores (fixed assets) is only a temporary solution for maintaining its
viability. This is highly competitive industry for which Best Busy must improve operational profitability.
Source: Mergent, Hoovers
Balance Sheet Jan ’14 Jan ’13 Feb ‘12
Total Current Assets 10,485 12,047 10,297
Net Fixed Assets 2,598 3,270 3,471
Total Assets 14,013 16,787 16,005
Total Current Liabilities 7,436 10,810 8,855
Long Term Debt 1,612 1,153 1,685
Total Liabilities 10,027 13,726 12,260
Total Equity 3,986 3,061 3,745
Income Statement Jan ’14 Jan ’13 Feb ‘12
Revenue 42,410 49,621 50,705
COGS 32,720 37,783 38,132
Gross Profit 9,690 11,838 12,573
Gross Profit Margin (%) 23 24 25
Operating Income 1,140 162 1,085
Operating Margin (%) 3 0 2
Total Net Income 532 (249) (1,231)
Net Profit Margin (%) 1.25 -.5 -2.43
Financial Analysis
Best Buy has increase in cash is driven by less capital expenditures year to year, improvement in operating activities will be a future
source of cash, and provide additional liquidity to remain competitive.
Source: Mergent, Hoovers
Cash Flow Statement Jan ’14 Jan ’13 Feb ‘12
Beginning Cash 1,826 - 1,103
Operating Activities 1,094 1,422 3,293
Investing Activities (517) (602) (724)
Financial Activities 319 (396) (2,478)
Net Increase/Decrease in Cash 852 627 96
Ending Cash 2,678 1,826 1,199
Profitability Ratios Jan ’14 Jan ’13 Feb ‘12
ROA % (Net) 3.46 (2.92) (7.15)
ROE % (Net) 15.14 (14.08) (23.41)
Current Ratio 1.41 1.11 1.16
Net Current Assets % TA 21.76 7.37 9.01
LT Debt to Equity .40 .38 .45
Total Debt to Equity .42 .75 .59
DEGREE OF RIVALRY • Intense rivalry due to large number of
competitors (Wal-Mart, RadioShack, Apple Store)
• Wide strategies to secure market(more quality at economic pricing)
DEGREE OF RIVALRY: High
Porters 5 Forces Analysis
Best Buy’s greatest competition comes from Walmart who offers quality products at a low cost which decreases everyone else's margins. Source: Mergent, Hoovers
THREAT OF SUBSTITUTES • No substitute products • Electronic gadgets are
essential to everyday life and work
THREAT LEVEL: Low
SUPPLIER POWER • Limited number of
suppliers • Switching cost for suppliers
is low THREAT LEVEL: HIgh
BUYER POWER • Retailers provide price
matching • Switching cost for
buyer is low • E-Commerce have
buyers power BUYER POWER: High
THREAT OF NEW ENTRANTS • High industry imposed
barriers • Government regulations
(tariff rates, high capital requirements, entry restrictions)
THREAT LEVEL: Low
Industry Trends
Tablet computing will continue double digit growth
Smart phones are the industry’s primary driving force
Laptop/Notebook sales 26 million units by 2013
The industry shows that consumers are moving towards mobile technology and online purchases. Source: Forbes
E-Commerce 16.4%, Sales = $262 Billion
Strategic Issue
A DA P TA B I L I T Y
Best Buy’s inability to adapt to evolving consumer preferences has left them with weak financial performance and a loss in brand loyalty Source: Forbes, Best Buy
N O T T H E C H E A P E ST
U S E L E S S B LU E S H I R T S
I N C O N V E N I E N T
S LO W LY T R I M M I N G
FAT
C O ST S T R U C T U R E
D I S L O YA L C U S T O M E R S
Recommendations
Best Buy will experience cost savings as well as improved margins through the elimination of unprofitable stores and the advancement of
strategic alliances with Samsung, Apple & Microsoft
Source: Mergent, Hoovers
Strategically Sell off Big Box Stores
Expand Store Within A Store Strategy
• In Store Sales 0.9% U.S
• 0.1% Int’l
• Total Revenue 2.6%
• In Store Sales 0.4%
• 16% stock price
• $50 billion in revenue from this strategy
Financial Benefit of Big Box Reduction
Best Buy has said to close another 160 stores by 2015, each store closing generates over $5 million dollars in cost savings. By forecasting
store closures through 2018 we estimate that they will close a total of 250 big box stores.
Source: CNN MOney
Fiscal Year 2013 2014 2015 2016 2017 2018
Store Count 1056 1006 951 891 821 741
Cost Savings ($M) 250 275 300 350 400
Total Savings
1575
• Close 250 big box stores by 2018
• Generate total cost savings of over $1 billion
Financial Benefit of Store Within A Store
Best Buy has enjoyed a .4% increase in sales from stores that have adopted this Store Within A Store format, by enhancing this strategy
they can experience a $9 billion increase in revenue by the year 2018
Source: Time
Fiscal Year 2013 2014 2015 2016 2017 2018
Revenue ($Bil) 42,410 44,106 45,871 47,705 49,614 51,598
Increase in Revenue
9,188
• Close 250 big box stores by 2018
• Generate total cost savings of over $1 billion
Thank You!
ANY
QUESTIONS?