Best Buy Strategic Initiatives to Changing Markets

Katrina L. Le’Vere

Management/MGT-521

17 January 2012

Linda Begley

The Best Buy Company, founded in 1966, is a multinational retailer that offers video

products such as televisions, digital cameras, digital camcorders, and e-readers. Best Buy offers

DVD and Blu-Ray players, audio products, such as home theater audio systems and components,

satellite radio products, and musical instruments. Best Buy also sales CDs, DVDs, Blu-rays,

computer software, mobile phones, entertainment software, video gaming hardware and

software, appliances, and housewares. Best Buy also offers warranties, product repair as well as

delivery and installation services for home theaters, mobile audio, and appliances. Best Buy’s

headquarter is in Richfield, Minnesota, and it employs approximately 180,000 people. Their

employees serve customers through retail locations, websites, and call centers. The company,

formerly known as Sound of Music, Inc., changed its name to Best Buy Co., Inc. in 1983. Best

Buy is the only national electronic chain left after the closure of Circuit City in 2009 and Comp

USA before that. Best Buy is a Fortune 500 company with stores operating in the United States,

Canada, Europe, China, and Mexico. In 2011 Best Buy opened 134 opened new stores and

closed seven stores within the European sector. Best Buy operates under brand names such as

Best Buy Mobile, The Carphone Warehouse, Five Star, Future Shop, Geek Squad, Magnolia

Audio Video, Napster, Pacific Sales, and the Phone House.

Best Buy has managed to sustain its electronic chain even after the closing of Comp USA

and Circuit City, which closed in 2009. Best Buy expanded and improved its business through

improved technology and innovation. The company managed to stay in business despite

competition, economic conditions, and other challenges faced through the years.

Economic Trends

Businesses have been feeling the impact of the recent economic trends. Consumer job

losses, decreased savings, losses on investments, depreciated homes, and increased debts have

had major impacts on small businesses as well as the companies listed on the Fortune 500.

Recent law changes governing credit card fees have protected consumers but businesses had to

contend with less profits generated from credit card usage fees. There is the concern with future

spending because of opposing economic forces due to the current state of the economy. Price

deflation was projected to cause a demand for products but consumers cautious spending, high

unemployment, and credit restrictions impeded projected sales. In 2008, electronic stores surged

in the computer sector with a share growth of nearly five percent. The next year electronics

revenue was $16,263 million, which was a decrease of 0.1% when compared to FY 2008. There

is a projection that electronic sales will increase during FY2011 but there is room for concern. In

2011 Best Buy opened 134 opened new stores and closed seven stores within the European

sector. The plan was not without risks, overseas operations exposed the company to the risk of

currency fluctuations because of the dollars ability to strengthen and weaken against foreign

currency. The currency fluctuation affected the company decisions on making overseas

investments or bringing profits back to the United States. When Best Buy invested overseas, the

risk of the declining dollar made it a challenge. When it repatriated its profits, the company did it

when the dollar was at its weakest against that foreign currency.

Economic trends can serve as an ally or a threat, Best Buy monitors economic trends so

that it can adapt its business practices. The board of directors, managers, and employees are the

internal stakeholders who work together to ensure company stays afloat during economic

instability. Investors require updating on how well the company is doing so Best Buy provides

quarterly briefs and annual reports. External stakeholders also have an interest in what and how

the company does, these include; investors, suppliers, customers, government, media, and

competitors.

Adapting to Changing Markets

During the 1990s when the personal computer market took a downturn the company was

stuck with unsold merchandise worth millions of dollars. The sale of MP3 players have caused

deep cuts in compact discs sales. This technology along has led to purchasing music online.

Online retailers like Amazon and Apple have chipped away at the company’s ability to hold on

to customers. Best Buy was not prepared for this type of technology causing a reduction in its

sales. The online sales strategies of competitive prices and product availability have also made it

difficult for the company to hold onto its customer base and to establish new ones. Tactics as

simple as no sales tax when ordering online ate away at Best Buy’s sales. Online music sales

have eaten away at the company CD music sales. These are just a couple of examples of how

technology has impacted Best Buy’s business practices. The electronics retail business is very

competitive and the company’s strategy to stay in the business and remain competitive is to

adapt. Globalization has caused Best Buy to adapt its business strategies by taking the United

States merchandising lessons and applying them overseas. Best Buy’s adaptation to a changing

market was to adopt a global plan that started with opening stores in Canada, Europe, China, and

Mexico. The plan was not without risks, overseas operations exposed the company to the risk of

currency fluctuations because of the dollars ability to strengthen and weaken against foreign

currency. The currency fluctuation affected the company decisions on making overseas

investments or bringing profits back to the United States. When Best Buy invested overseas, the

risk of the declining dollar made it a challenge. Personnel, language, technology, and climate are

other concerns that the company had to make adjustments for when it globalized its operations.

Best Buy established strategies to grow market share, increase connected digital

solutions, increase international growth, and what the company called “efficient and effective”

operations. These objectives are what Best Buy established to help improve the company. What

Best Buy and many other businesses did not expect was the type of economic downturn the

world market is going through. Best Buy, like its competitors Wal-Mart and hhgregg, have

strived to be the best at what they do. To become the largest retailer of electronics took a

collective effort from everyone in the company. Adapting to changing markets required Best Buy

to think outside the box and take some risks. The company recently announced plans to reduce

the square footage of what it calls its big-box stores by 10% during the next three to five years.

They plan to add 600 to 800 small stores that will focus on mobile phones. Surprisingly Best Buy

has only a 6% market share in mobile phones, compared with a 22% share in most items of

consumer electronics. Best Buy managed to grow its market shares by increased revenue in the

4th quarter of fiscal year 2010. The company managed to increase its connected digital solutions;

this was accomplished through the sale of mobile phones, televisions, and computers.

International growth revenue increased in 2010 but the company presented no evidence of

expansion of their Best Buy Mobile concept to the Canadian stores. The company integrated its

Five Star and Best Buy operations in China and accomplished its planned synergies in Europe.

Best Buy’s efficient and effective enterprise led to increased operating income that provided a

source of revenue for the company in the year 2010.

In 2009 Best Buy launched “Twelpforce,” a Twitter-based platform designed to connect

its employees directly with customers to enable real time customer support. The philosophy was

to encourage the free flow of ideas and data from outside and inside the organization. Then Best

Buy created what they called “Blue Shirt Nation,” one of their internal early social experiments

designed to connect their employees from around the United States so its personnel could

communicate with each other especially, beyond the workplace. Afterwards, Best Buy created

what they called “IdeaX” designed to extend their outreach and invitation to connect to its

customers and shareholders.

Tactics to Achieve Strategic Goals

Best Buy realized that to compete it must analyze its market, adapt its strategies, and

execute with a purpose. The company implemented the Best Buy’s executive brick and click

strategy that allows customers to order products either online or physically in one of their stores,

also allowing them to either pick-up their order directly at a local branch of the store or get it

delivered to their home. The purpose of this strategy was to empower its consumers to research

and purchase products seamlessly, either online on in its stores. Their online shopping sites offer

expanded inventory to Best Buy products to include its acquisitions. Best Buys acquisitions are

The Magnolia, The Geek Squad, Pacific Sales, Best Buy Mobile, Speakeasy (Data; Telecom

services), and Napster. The Magnolia acquisition allowed Best Buy to start selling its own audio

and video products at a cheaper price. The company currently offers in-store promotions called,

The Magnolia Home Theater Store-within-A-Store. Residential and commercial product repair,

support, and installation services resulted from The Geek Squad acquisition. The company

wanted to offer its customers a smooth transition between buying its product and bring it home.

The acquisition of Pacific Sales allowed Best Buy to expand their product section kitchen and

bath, focus on the buying power of builders and remodelers, and the opportunity to grow a

customer base. Best Buy Mobile is a plan the will add 600 to 800 small stores that will focus on

mobile phones. Surprisingly Best Buy has only a 6% market share in mobile phones, compared

with a 22% share in most items of consumer electronics. There is plenty of potential for growth.

Speakeasy (Data; Telecom services) was acquired for its data and telecommunications services

like VoIP (Voice over Internet Provider). The company recently launched its Integrated Voice

offering, a service the vendor said is cheaper than replacing traditional business phone lines. The

Napster acquisition was mainly an interest in Napster’s mobile business to help bolster Best Buy

Mobile marketing power.

Best Buy changed its business model to a customer centric model. Each store custom

tailors their strategy to target market segments to certain groups in their local area. Stores

managers received training to target customer lifestyle groups instead of customer groups like;

affluent suburban families, trend-setting urban dwellers, and closely knit families of Middle

America.

Human Resources

Human resources professionals help companies achieve their business goals in numerous

ways. Best Buy partnered with Accenture for support in developing new capabilities and

improving effectiveness within their organization. Accenture manages Best Buys’ HR call

center, which currently answers more than 80 % of employees’ inquiries, 24 hours a day.

According to Best Buy, customer centricity requires the company to take full advantage of the

creativity and talent of each of their employees in all of its stores across the country. Cost and

quality control, training and development, turnover and retention, and compliance management

are some of the ways human resources professionals accomplish their goals within an

organization.

Human resources professionals helps Best Buy save money by developing compensation

packages, employee assistance programs, and benefit packages. Best Buy offers its employees a

competitive pay and incentives package that is managed through their corporate offices.

Globally, Best Buy focuses on four reward systems for its employees: benefits, learning and

development, work environment, and compensation. Best Buy offers several recognition

programs some of which are enterprise-wide, and some locally based. These programs include

the Best Buy Europe’s “Thank You” program, Achievers program, Chairman’s Award, and the

Five Star president’s award. Best Buy paid bonuses to eligible United States employees’ mid-

year. The company also spent 12 million dollars on Blue Crew Bucks, a bonus program for store

level employees including part-time. Most of their health, paid time-off, and retirement programs

were designed to meet the needs and wants of its employees based on their geographic location,

which includes employees in the United States, Europe, Mexico, Canada, and China.

The human resources department is responsible for creating training programs to

strengthen the quality of work within the company. Upgrading employee skills can increase

organizational and individual performance, which produces positive business results. Assessing

training needs, creating training manuals, and ensuring training objectives are met are all the

roles of human resources in training and development. In the United States, Best Buy trains their

employees by encouraging them to use their newly created platform called the Learning Lounge.

The Learning Lounge consists of videos, documents, and audio files that employees can

download to an MP3 player. Employees can access the site wherever there is an Internet

connection at any time or location. Approximately 70% of the information provided to Best Buy

came from its vendors; this makes the site cost-effective and includes up-to-date information

about the services and technology products Best Buy offers. An employee survey revealed that

93% of retail employees took courses through the Learning Lounge. Last year, employees

completed more than 406,000 required certification and nearly 4.3 million. Carphone Warehouse

in Europe began to offer laptops, mobile broadband, and other connected services more widely

due to changes in product offerings within the past year. A training program was put into place

that allowed all of the United Kingdom retail employees to attend a “wireless boot camp”- a

course for 8, 000 employees that provided training about the new products and services. Each

employee who passed the test was rewarded with a new personal laptop. In addition to e-

learning, face-to face training is another option for employees to receive training such as the new

employee training and orientation, monthly weekend training sessions in the stores, and all-store

meetings which are held throughout the year. Best Buy has expanded into other cultures,

therefore their training materials on diversity and other topics were translated into several

languages and introduced in a manner respectful to the culture.

One of the greatest challenges within an organization is keeping the employees happy.

Human resources play a significant role for attaining goals regarding turnover and retention.

Their job is to attract the most talented and qualified applicants, motivate the current workforce,

and influence long-term commitment to the organization. At Best Buy it is important that all

employees stay connected. Employees were invited to communicate their ideas and concerns that

allowed them to have a voice in the company. This leads to a highly engaged workforce that

understands, participates, and shows concern. Best Buy has implemented programs such as the

Employee Business Network (EBN), which is based on an interest in and support for a common

dimension of diversity such as age, race, gender or sexual orientation. Thousands of employees

participated in more than 175 EBN chapters, including 32 new EBN chapters that the company

formed last year. Best Buy also has eight Focused Involvement Networks (FIN). Connecting

employees goes farther than sharing and support. These networks serve as a venue for employees

to develop ideas and plan projects. Networks reduce turnover, develops leaders, and captures

insight that helps the business expand. Best Buy measures employee engagement across their

enterprise using the Viewpoint survey. The survey results helps managers understand what they

are doing well and the areas requiring improvement. Plans will be developed based on the survey

results, which focus on improving employee experience. An Employee Satisfaction Index (ESI)

survey is administered bi-annually to the United States retail stores. The ESI measures employee

satisfaction and commitment. It also provides insight into 17 different dimensions of the

workplace environment. These insights give managers direction on how to improve the

workplace experience, which increases employee satisfaction and loyalty.

Human resources professionals handle the dispute resolution operations and labor

relations of an organization. Their job is to make sure that the company is knowledgeable of the

federal and state employment laws in reference to wage, labor, and equal opportunity

requirements. Enforcing these rules helps companies avoid lawsuits and liabilities when

problems arise between employers and their employees. Best Buy has three priorities for

governance compliance and ethics: maintain a sound leadership structure, stay on top of the

issues, and engage in open and honest communication about Best Buy’s values and interests.

Best Buy follows the laws, policies, and regulations set by governments in the areas where they

do business. Led by the chief compliance officer, Best Buy has a team that monitors and

addresses legal issues and creates policies that ensures Best Buy is adhering to the law. The

compliance team identifies legal issues that help alleviate corruption, protect the environment,

and makes sure the product is safe for the customers. Best Buy received an award for their work

in obeying the United States Foreign Corrupt Practices Act. Privacy is another concern that Best

Buy follows closely. To enhance privacy standards that will protect personal data across the

United States Best Buy works with the Retail Industry Leaders Association (RILA) and the

United States Federal Trade Commission (FTC). Legal and compliance guidance provided to

Best Buys’ marketing and transaction teams on behavioral advertising and mobile marketing

ensures the customers personal information is kept confidential.

Conclusion

Since its opening in 1966, Best Buy has grown steadily and enhanced its business

through inspired innovations. The company has strived to transform itself into a dynamic,

customer-driven, talent-powered company focused on enhancing their customers’ enjoyment of

technology. Best Buy has seen significant challenges through the years and they have learned,

changed, and grown from each of these challenges. Best Buy has seen some good times and

some challenging times during its existence. The company has adapted practices to help improve

the company’s practices, operational processes, services, and most of all profitability. The

company has done well selling electronic merchandise; this was indicated by its listing on the

Fortune 500 list. A true testimony of how well the company is doing is its financial health. Best

Buy financial health is good as indicated by the company’s financial statements. The company is

profitable but Best Buy it must continue to adapt to stay ahead of their competition.

As a mutual fund manager, I have analyzed the company’s beginning to present. I would

invest in this company. The company’s founder, CEO, and executive staff have guided the

company through this country’s changing times. After its opening over 45 years ago the

company has weathered the storm of change. Best Buy has managed always to adapt its business

practices to meet the constant demands required in the electronics consumer world. Best Buy’s

status on the Fortune 500 list required its competitors to take note of its success. This is a

testament to the company’s ability to adapt its business practices to meet its stakeholder’s needs.

Reviewing each of Best Buy’s financial statements has shown me why the company has

managed to make profits “however” there is some concern about the company’s most recent total

assets and total liabilities. Financial statements tell a story about the activities that take place

during the fiscal year end, which management can use to make adjustments to the way they

conduct their business. Financial statements serve as a tool that measure a company’s success or

failure. With its internal and external stakeholders watching management must compare year

after year results along with its strategies to ensure their projected goals will be met. Also the

company can compare itself to its competitors to further analyze if its business practices are

generating competitive revenue and cash. Best Buy has established itself as the number one

retailer of consumer electronic, home office products, entertainment products, appliances, and

related services. It is ironic that technology would be its Achilles heel.

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