Best Buy Case Analysis
In 1966 Best Buy began as a single location car and home stereo store founded by Richard Shulze in Minnesota. Now the company is an electronic superstore that has thousands of stores throughout the U.S., Canada, the U.K., and Asia. Best Buy has set themselves apart from its competitors, and have been successful for decades. The electronic superstore sells consumer electronics, home office equipment, appliances, and electronic services. Best Buy showed that they were the electronic store giant when their competitors, Circuit City and CompUSA were shut down due to the recession. Unlike these companies, the recession did not slow Best Buy’s revenue until 2011 when they had a sluggish 1.16 revenue growth for the 2011 fiscal year. Although two of their major competitors shut down due to the recession, several more emerged and proved to be threats to the electronic superstore giant. Wal-Mart, Amazon, Costco, and Radio Shack all have ...view middle of the document...
This has proven to be one of their attributes and what sets them apart from their competitors. In order to compete with Amazon they have provided their own mobile site for customers to browse and shop so they can be on a level playing field with the online superstore giant. Beyond this Best Buy did little to set themselves apart from their competition, but instead they fast followers and copied what strategies Wal-Mart and Target used. According to Ran Jay Gulati of Harvard Business School, Best buy was able to do a better job than its competitors at looking at the electronic industry. They do not look at the industry from a company standpoint but instead from a consumer point of view. Instead of telling customers what to buy, they figure out what the customers want, and their tendencies. Best Buy is also highly skillful at anticipating all the needs a customer may have when they come into the store looking to buy a product.
The economic downturn and changes in the competitive nature of the industry has affected Best Buy and is a reason for it’s sluggish growth in 2011. A major attribute that factored into Best Buy’s decreasing net income was an increase in selling, general and administrative expenses. They did not adjust their fixed costs when their revenue growth decreased and the economic downturn changed it’s competitive nature. Of Best Buy’s total gross revenues domestic sales contributed to 74 percent while the international segment contributed to the rest. Best Buy’s most successful international regions consist of Europe, Canada, and China and their international gross revenue has increased 15 percent per year whereas their domestic gross revenue has only increased to less than 6 percent per year.
Compared to their competitors, Best Buy’s gross profit margin ranks second only to Wal-Mart’s. Their 25.14 percent is only slightly less than Wal-Mart’s 25.26 percent. Best Buy’s challenge lies in net profit margin. Their 2.54 percent is less than Wal-Mart’s 3.88 and Amazon’s 2.85 percent. The strategic leaders of Best Buy face difficult challenges ahead of them, but their four decades of previous experience will help lead them through tough times to come.