Best Buy Co., Inc.
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Best Buy Co., Inc. 1
Case Overview
In June 2019, Best Buy, appointed Corie Barry as the new CEO. After having just two CEOs in its first 43 years of operations (Richard Schulze and his successor, Brad Anderson), Best Buy went through three top leaders in a six-month period in 2012. Brian Dunn resigned in April amidst a personal scandal after just three years at the helm. At the sametime, founder Schulze stepped down from his role as chairman of the board and tried to reassert his control via a bid to take the company private. Hubert Joly assumed the lead position from interim CEO George Mikan in August 2012, and he immediately sought to turnaround Best Buy and return it to profitability. Joly picked his successor in 2019, Corie Barry, who is the fifth CEO and first female leader of Best Buy. Joly remains as chairman and Barry has become one of the youngest CEO of a S&P500 company.
After appointing Hubert Joly as CEO in 2012, Best Buy experienced an impressive turnaround, and it survived a shakeout of traditional retailers following Amazon’s disruption. Best Buy’s stock performance likely owes as much to the struggle of other traditional retailers as to the success of its own efforts. Amazon remains a concern with its 2017 acquisition of Whole Foods now giving it a physical presence where customers maybe able to pickup purchases, including consumer electronics. In a partnership with Sears, Amazon also rolled out appliance sales nationwide in 2017. Best Buy has also increased its reliance on the North American market, and insider stock sales outnumber purchases. The selection of Corie Barry suggests no new significant changes in Best Buy’s strategy; however, consumer electronics and retail in general continue to adapt to changing technology and consumer tastes. Holding steady may work, or it may simply hasten the firm’sdemise.
The case describes the company’s history. Best Buy was founded by Dick Schulze as an audio specialty store in Minnesota in 1966. It grew rapidly over the next few years due to its focus on providing added value at costs comparable to competitors, holding an IPO in 1969 and reaching $1 million in annual revenues by 1971. The company continued to expand by adding locations and product lines, changing its name from Sound of Music, Inc. to Best Buy in 1983. Shortly thereafter, Best Buy adopted its now- familiar superstore format with an increasingly diversified product range. It went public on the NYSE in 1987. Best Buy’s next retail innovation, named Concept II, combined a grab-and-go format with low prices and a wide assortment in 35,000-square-foot retail warehouses. The success of this approach propelled Best Buy to $1 billion in sales revenues and landed it on the Fortune 500 by 1995. In 2000, Best Buy entered a new phase of inorganic growth through acquisitions, purchasing multiple companies both domestically (for example, Magnolia, Geek Squad, Napster) and abroad.
Best Buy’s history dovetails with the development of the consumer-electronics retail industry, which also expanded rapidly in the second half of the 20th century. Demand for home electronics increased with the post- World War II suburban migration, with strong growth continuing through the mid-1990s. As the electronics retail industry matured, smaller competitors went out of business while superstores like Best Buy and Circuit City increased their control of the market. The next major shift occurred when Amazon pioneered online retailing in 1998, leading to yet another period of expansion and market consolidation. Revenues tend to be both cyclical (tied to macroeconomic factors) and seasonal (dependent on holiday sales) in nature. Product lifecycles have grown increasingly shorter, as manufacturers cannibalize their own products to maintain customer interest and loyalty.
Prior to the 2008 recession, Circuit City was one of the top three consumer electronics retailers (along with Best Buy and Radio Shack). When the weakening housing market led to a decline in consumer spending starting in late 2006, Circuit City was affected disproportionately as nearly 44 percent of its revenues came from TV sales. The company tried to cut costs but was ultimately liquidated in 2009. The resulting power vacuum led to increased competition in the consumer-electronics industry. Best Buy initially gained a 5.5 percent increase in market share but started to lose ground as companies like Walmart, Target, Amazon, and Apple entered the fray. Walmart can price its electronics significantly low. One of the major threats came from “showrooming,” where customers would goto Best Buy to view and learn about the products, but then purchase them more cheaply from Amazon online. Target does not devote as much of its floor space to electronics but can undercut Best Buy due to lower staffing costs while catering to customers who do not need expert advice but appreciate the convenience of one-stop shopping.
Joly’s successful “Renew Blue” strategy focused on the company’s five major stakeholder groups: employees, customers, supply chain partners, investors, and the broader community. The top management team is almost entirely new, comprised of both insiders and outsiders appointed by Joly over the past three years. The company’s emphasis on customer-centricity entails segmenting customers based on demographic, attitudinal, and value tiers, and configuring stores to serve the needs of the predominant customer segments in that region. As opposed to selling products, employees help customers figure out what they need and provide technology solutions. This approach requires significant investments in the company’s human resources, to motivate and equip them to build relationships with customers. Another key tenet of Joly’s plan is to focus on innovation and to build strategic partnerships with leading technology companies like Apple and Samsung, as the key to reinvigorating the in-store experience (i.e., the store-within-a-store format). Shareholders benefit from Best Buy’s investments in its own proprietary brands, as well as the company’s decision to divest several international holdings and a plan to repurchase $1 billion in stock.
Despite its survival as a retailer, Best Buy and Corie Barry confront multiple challenges. For example, it is still a predominantly bricks-and-mortar store with an online presence (just 20.9 percent of sales are generated online in 2018 compared to 17 percent in 2015). Additionally, the United States is no longer the world’s largest consumer retail market, and Best Buy has retreated to North America after failing to expand to China and Europe. Further, consumer electronics are caught in trade disputes between China and the United States. Also, by opening Apple its retail stores, Apple is taking customers from Best Buy due to offering a narrow selection of its proprietary products at a price premium which once was an exclusive distributor of Apple products. Under Joly, Best Buy balanced providing differentiated service with trained staff at competitive prices involves. Also, Best Buy has implemented price matching to limit ‘showrooming”. However, Corie Barry needs to consider whether that balance can be maintained going forward, or whether Best Buy needs to further adapt.
Requirement
Please answer the following questions using the information provided regarding Best Buy Co above.
1. Identify Best Buy Co’s two main competitors and describe the competitive position of Best Buy relative to its main competitors, post-2009. Also, discuss Best Buy Co’s two key success factors in response to the market and the business strategy. (4 Marks- Max 350 words)
2. Evaluate the competitive forces for the consumer electronics retail industry for Best Buy using Porter’s Five Forces analysis. Discuss whether Best Buy is positioned for long-term profitability. (5 Marks- Max 450 words)
3. Discuss how Best Buy Co’s traditional business-level strategy (cost leadership/differentiation) evolved overtime from 1971 to under Joly’s leadership? What functional structure would be most appropriate for the traditional strategy? Also, discuss what are the concerns associated with Joly’s new “Renew Blue” strategy. (5 marks- Max 500 Words)
4. Provide an example to discuss how Best Buy Co. can use Management Accounting System (MAS) for motivational influence. (4 marks- Max 250 Words)
Total: 18 Marks
2023-09-02