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Best Buy : company profile

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Best Buy is the leading US speciality retailer of consumer electronics, selling a wide range of audio and video products, home office products such as computers and peripherals, as well as an increasingly broad selection of entertainment software and a limited range of home appliances (the latter under the Home Life banner). Until recently, the group had maintained an aggressive store-opening policy, launching between 75 and 80 new stores every year since 2001. That pace slowed considerably since the late 2000s as a result of economic slowdown and online competition. In 2008, the company announced plans to move into Europe through a joint venture with UK company Carphone Warehouse. That strategy failed to take off and was finally abandoned in 2013. By that time, growth in the US had slowed dramatically, and another crisis exploded in 2012 with the dismissal of CEO Brian Dunn and resignation of founder chairman Richard Schulze. New management has restored basic stability since then, but the physical electronics retail market remains very challenging. So far at least Best Buy has been able to cope with the changing market better than competitors Circuit City (which collapsed in 2008) and RadioShack (which also effectively closed its doors in 2015).


Who handles advertising? Click here for agency account assignments from Adbrands.net. The group declared advertising expenses of $743m for the year to Jan 2017.


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Brands & Activities

As of 3Q 2016, there were around 1,026 full-service Best Buy outlets in the US, mostly large format warehouse-style superstores. In the domestic market, product mix is divided between consumer electronics (accounting for around 32% of store revenues), computing & mobile phones (46%), and entertainment software (8%), with the remainder from other appliances and services. The main retail brand is Best Buy, but the group also controls other banners including smaller Magnolia Audio Video stores in the US (acquired in 2001 as Magnolia Hi-Fi). Only two branches of Magnolia remained by early 2014, although the brand also has store-within-store desks in some Best Buy branches. In 2006 the group moved into the home decoration market for the first time with the purchase of Pacific Sales kitchen and bathroom centres in southern California. There are fewer than 30 stores. Another retail chain, Musicland, selling CDs and videos mostly in shopping mall locations, was acquired in 2001 but sold three years later as a result of disappointing performance.

Moving away from old-style "lab stores", Best Buy outlets have been gradually converted to a more flexible format, which the group describes as "customer centricity", giving local managers more freedom to tailor their range to the specific requirements of local demographic groups. In particular, the customer-centric offer is designed to make stores more appealing to female shoppers or families. With that goal in mind, the group broadened its offering, introducing a range of stylish home cinema furniture by interior designer Maria Yee, as well as a range of laptop, iPod and camera bags under the Liz Claiborne brand. The group's other private label brands include Insignia and Dynex televisions, Rocketfish video cables and Init electronics cases and accessories. Several US stores house Apple stores-within-the-store, and the group was one of the first partners selected by Dell to begin store-based retail of its computers. The biggest rollout has been for stores within a store for Samsung (in more than 600 outlets), Microsoft Windows (over 800 outlets), Sony home theatre products (380 outlets) and AT&T and Verizon mobile (250 outlets).

However, the group's most successful such projects have been for inhouse offerings. In 2006, it began testing specialised Best Buy Mobile outlets, selling only handsets, initially in a partnership with UK-based retailer Carphone Warehouse. Outlets were established in most larger Best Buy stores, as well as a number of standalone outlets. This proved a popular concept with US shoppers, and by early 2014, there were desks in all main Best Buy stores as well as several hundred standalone outlets. The number of the latter has reduced from over 400 at its peak to around 330 in 2016. Best Buy bought out Carphone Warehouse's 50% stake in the US business in November 2011 for $1.3bn.

The company has also rolled out an enhanced customer service offer including personal shopping assistance, home installation and support services. Geek Squad, acquired in 2003, provides out-of-store technology support and maintenance services for residential and small business customers. The service was rolled out nationally through all Best Buy outlets in 2004, and there is also a growing network of standalone stores. In 2012 the group acquired Mindshift Technologies, which manages outsourced IT and data storage services for SME business customers in the US. It sold that business again in 2014.

Nevertheless, performance has been severely dented in recent years by so-called "showrooming" in which customers use Best Buy and other bricks and mortar retailers to test products before then buying them online at a lower price. Comparable same-store sales in the US have declined virtually every quarter between 2010 and 2015. The annual decline for the year to Feb 2013 was 2.9%, compared to 1.7% in the previous period. It reduced to 0.4% in the year to 2014. That improvement was partly the result of more carefully targeted marketing, but also a move to match prices against Amazon and other online sellers. The group has also shifted considerable resource into data analysis to identify customers' individual interests which can then be exploited in personalised communications.

In 2008, Best Buy also moved in a different direction with the acquisition of Napster, the subscription-based music download and streaming service, for around $121m. That deal was designed to carve out a position in music streaming, but failed to make significant inroads into iTunes' dominance. The business was sold on in 2011 for an undisclosed price to rival Rhapsody.

Best Buy took its first steps outside the US in 2002 with the acquisition of Canada's leading electronics retailer Future Shop, and it launched the Best Buy brand in Canada for the first time the following year. The two chains continued to operate as separate brands, with some stores even located alongside one another. However they differed in their sales approach: Future Shop staff were generally more proactive with customers, and were paid on a commission basis, whereas Best Buy Canada, with non-commissioned staff, is geared more towards a self-serve concept. In April 2015, as a result of slowing consumer electronics sales, the group announced plans to shutter the Future Shop brand altogether, converting around half of its outlets to Best Buy and closing the rest. There are now a total of around 190 full-service and mobile stores. Best Buy Canada also offers the Geek Squad service. There is also a handful of stores in Mexico, fewer than 25 in all.

In 2006, the group acquired a controlling stake in China's 4th biggest electronics retailer, 5 Star. It bought out the remaining minority shareholders in 2009. As in Canada, it had also begun to introduce dual branding here, opening the first of ten Best Buy stores in Shanghai in 2007. However, sales in these were disappointing, and they were closed mid-2011. The group continued to trade in China as Five Star, with 190 stores by early 2014, but trading remained tough and it sold all its remaining outlets as well in early 2015.

The ambitious project to-date was an attempt to crack the European market through a substantial upgrade of the relationship with mobile partner Carphone Warehouse. In 2008, Best Buy agreed to invest around $2.1bn in a new joint venture with Carphone Warehouse which acquired the British company's existing retail interests in Europe, comprising 2,400 Carphone Warehouse and Phone House stores in nine countries. In addition to its existing chain of Carphone Warehouse outlets, the joint venture began rolling out a chain of large-format "big box" stores under the Best Buy Europe name, starting in 2010. These sold a much larger selection of electronics products in addition to mobile phones. As many as 200 such outlets were originally planned by 2013. However, sales in the initial stores were weak, and the partners took the decision to pull the plug on all 44 large-format UK stores in November 2011. In April 2013, Best Buy pulled out of the Carphone Warehouse joint venture altogether, selling its shares back to its partner for £471m. A move into Turkey in 2009 was also unsuccessful. Those stores were closed in 2011.


Helped by the meltdown of former rival Circuit City, total revenues grew steadily in the late 2000s and early 2010s, peaking at $50.7bn for the year to March 2012. However that growth was fed almost exclusively by store openings, while same-store sales were flat or in decline, falling over 2% in fiscal 2011, 1.5% in fiscal 2012. Meanwhile, earnings were dented significantly by the poor performance of Best Buy's European experiment and accompanying impairment charges, as well as the buyout of Best Buy Mobile. Bottom line plunged from a profit of $1.28bn in 2011 to a net loss of $1.23bn for 2012. The group changed its year-end the following year, so filed accounts for fiscal 2012, now ending Feb 2013, were for 11 months only. Revenues were $45.09bn, and net losses reduced to $441m. However same-store declines worsened to 3.4%.

Since then revenues have continued to decline, mainly as a result of the gradual extrication from international markets. For the year to Jan 2016 they slipped 2% to $39.53bn, the first full year under $40bn for a decade. The US accounted for 82% of revenues, and domestic same store sales rose 0.5% year on year. However that figure was offset by steep declines from international. Bottom line has bounced back from 2011 and 2012's losses, but net attributable income for ye 2016 fell 27% to $897m.growth).


Richard Schulze and a partner opened the first Sound Of Music store in St Paul, Minnesota in 1966, selling audio components. Gradually they opened other stores in the Twin Cities area, with nine stores by 1978. The group opened its first "no frills" large format store in 1981, almost by accident after the previous flagship outlet was destroyed by a tornado. Business was so good in the larger premises that the group began opening other large format outlets. During the 1980s the chain expanded its range to stock the first consumer video technology, as well as photography and home office products. It changed its name to Best Buy in 1983, before going public in 1985. Best Buy introduced its first self-service discount warehouses in 1989, and the chain expanded rapidly during the 1990s. It has continued the pace since 2000.

Best Buy's senior management team was embroiled in chaos in Spring 2012. CEO Brian Dunn resigned abruptly following the board's decision to launch an internal investigation into what was described as personal misconduct. Dunn was said to have had an "inappropriate relationship" with a female employee. The review subsequently found proof that the relationship had "negatively impacted the work environment" but that Dunn had not misused company assets or resources. However it also found fault in group chairman and founder Richard Schulze, who had been aware of the relationship but neglected to inform his fellow directors. As a result, he too resigned from the board, although he remains Best Buy's biggest shareholder with around 20% of equity. A few weeks later he offered to buy back the outstanding public shares at a price which valued the group at a little over $8.8bn. The offer was not taken up by shareholders. Board director George "Mike" Mikan was named as interim CEO following Dunn's departure, until the appointment of Hubert Joly as full-time leader in Sept 2012. A further reshuffle followed, with several executives replaced.

Last full revision 9th December 2016

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