Best Buy Co. Inc.docx 20146j

EXTERNAL ANALYSIS FOR BEST BUY CO. INC.

Introduction

Best Buy Co., Inc. is a public limited company whose stocks are listed in the New York stock exchange. It is a specialty retailer of consumer electronics in United States which s for about twenty percent of domestic market retail business in technology based items. It has store in 24 different locations in United States (USSEC, 2011). Apart from its operations in USA, it also carries out its operations in Mexico, Turkey and United Kingdom etc. (Boyle, 2006). As of 2010, company along with its various subsidiaries operates more than one thousand and fifty stores only in domestic markets (USSEC, 2011). It is a private listed company. The stocks of the company are listed in the New York Stock Exchange under the symbol BBY. The company was ranked as a company of the year by Forbes (Tatge, 2006). It was also ranked as a “specialty retailer of the decade” (DSN, 2001). It is

currently ranked at number 45 in the Fortune 1000 companies list (One Source, 2011). It is among the primary retailers of electronic goods in the United States. During the first quarter of the fiscal year 2011, it has earned revenues over six hundred million (Best Buy, 2011). SWOT Analysis SWOT Matrix The SWOT analysis of Best Buy Co. Inc. is as follows: Weaknesses Strengths ●

Market position

●

Limited suppliers

●

Networking

●

Lawsuits

●

Profitable growth in stores business

●

Limited geographic concentration

●

Alliance Opportunities

Threats

●

Acquisitions

●

Competition

●

Expansions

●

slow sales curve

●

Expanding the product lines

●

increased rental prices

Strengths Best Buy Co. Inc. is the largest consumer electronic goods retailer in USA and s for around twenty percent of the market share in the country. The company enjoys unique market position and it was ranked at number forty five in the Fortune global 1000 companies as of 2010 (one source, 2011). The company outlets are present in numerous states of United States. It maintains a strong network which helps it maintain the economies of scale and enhance the brand image. This strong networking enables the company to serve a wide range of customers to penetrate the market more effectively (Data monitor, 2007).

Best Buy was regarded as top company for the year in 2004 by Forbes magazine with respect to its growth rate, profitability and community involvements (Tatge, 2004). The company also witnessed an increase in customer satisfaction. The company’s score in the American Customer Satisfaction Index rose by positive point in 2007 (Data monitor, 2007). It also manages various mobile stores in the United States which is a product of its t venture with the various other warehouses. This relationship with the other stores and warehouses has added to the advantage to the company in helping consumers buy and use its products. Weaknesses The company, despite of its market position and profitability, has some weaknesses. The prime one is the dependence on few numbers of suppliers. By the end of 2007, it maintained around twenty five largest suppliers that ed for 3/5th of the purchases of the company (Data monitor, 2007). Moreover, the company does not maintain long term contracts in black and white with its major suppliers. This can be a great set-back for the company if any of its suppliers turned its back to Best Buy. Best Buy has been the victim of various law suits against its business operations. One of them is a law suit that alleges it charges customers higher than d prices based on the internal prices of the company. In 2000, two customers charged the company for hiding the warranty details of a manufacturer in order to sell their own label products. It paid over two hundred thousand US dollars to settle the issue but remain consistent that it is not doing anything wrong (Civil Justice Report, 2001). The company is heavily relying upon its domestic (US) electronics market for revenue generation. The US market is suffering from the slow-down in the economy which has hit the sales of electronic items as well due to the increased rate of interest Hence, an over dependence on the US market, in the current market scenario could significantly affect the company’s revenues. Also due to the lack of geographic presence and expansion, the

growth rate of the company is also very slow (Data monitor, 2007).

Opportunities There are certain opportunities available to the company that will help Best Buy to excel in the market. First it can make significant acquisitions. It acquired few companies in the recent years (Data monitor, 2007). This strategic acquisition helped the company to expand and grow its customer base and the number of brands. Such acquisitions provide opportunities like entering new markets, developing of new product lines under the company brand names etc. and also enable the growth potential to the company for future business. Secondly, it should focus on the international expansion of its business units. The company is preparing to open large-format stores in the United Kingdom this year (USSEC, 2011). Expansion in new geographies will increase the business opportunities and the market share of the company. Likewise, it can consider its product line expansion in of expanding electronic equipment market. The growth rate of this market is very high in the world. This indicates a growing consumer demand for these goods.

Threats

Best Buy has to face fierce competition with three main competitors and the Retail giants in the domestic markets. Its main competitors are Amazon, Apple Inc. and Wal-Mart stores (Hoovers, 2011).The electronic distribution industry is very competitive. Large companies like Wal-Mart are increasing their inventory of consumer products related to electronics and relevant products. Many of these retailers are offering installation services as well to increase their market penetration. Increasing competition could increase the pressure on the company’s margins which could affect the operating results of the company (Data monitor, 2010).

There has been an increase in the prices of rental equipment in United States. If the trend continues, it may cause the operating expenses of the company to increase. Rising operating expenses can decrease the company’s operating capabilities and can badly affect the company’s overall profitability. Due to the fluctuating economy of United States, the studies have found that there is very slow trend of customer buying practices. This trend will lead to slow sales and ultimately will affect the market position of the company.

PESTEL Analysis The PESTEL analysis contains the analysis of Political, Economic, Social, Technological, Environmental and Legal environments of a country with reference to a particular object. The PESTEL analysis of Best Buy Co. Inc. is as follows: Political The company is engaged in various activities to promote the promotion of candidates and political organizations. In United States, direct corporate contribution to the candidates of any political party and committees is not allowed in some states and at federal level. The companies can make individual contributions on behalf of these candidates and parties. The company complies with all the laws related to the political contributions and strives to contribute to the parties that are interested in the well being of their industry (Best Buy, 2009). Economic The company has most of its operations in United States and the economic conditions of the country are not hidden from anyone. The economic slowdown has no doubt affected the business operations of Bust Buy Co. and they are facing consumer related challenges at every point in the market. There have been dramatic and long lasting changes in the behaviors of consumers due to the economic slowdown in the country. They will need time to adjust themselves to the new realities. Due to these economic conditions, in 2008, Best Buy Co. asked its employees to

separate from the company on voluntary basis (ecoustics, 2008). This strategy allowed the company to settle down in the market to some extent. By the end of fiscal year 2008, its revenue showed remarkable stability and consistency proving the decision of cutting down work force was right (ecoustics, 2008). Corporate partnership with W has helped the company to perform better in the adverse conditions of the economy and markets. Early this year, the company has noted a growth rate of around 30% (W, 2011). Their operating income increased to around 4% of its revenue in the second quarter of fiscal 2011, compared to 2.5% of revenue in the prior-year period. Social Best Buy is engaged in effective social and community related initiatives. It has developed Children’s Foundation that aims to the local communities via its grant making programs. It took an initiative to encourage the teens to speak their selves up. The program called “@15” has a goal to give power to the teens to improve their relationships and educational status at school, engage in their communities, and skills that can be helpful for them in professional lives (Best Buy Community Relations, 2011). Apart from these initiatives it is actively engaged in various other programs like teach @15 awards, @15 scholarships, @15 community grants and store donations to promote education, community relationship etc. with the help of various national and international NGO’s. In order to carry out its community related programs it is partnered with various other foundations. These partners includes ission Possible, AFI ScreenNation™, America Scores, American Red Cross Society, Ashoka’s Youth Venture, Boys and Girls Clubs of America, Communities in Schools, Dollars for Schools, DonorsChoose.Org, DoSomething.org, Genesys works, GoNorth!, GRAMMY Foundation, j. k. livin foundation, KIPP, MercyCorps, MOUSE,

NCLR, National Urban League, NYLC, PACER Center’s Teens against Bullying, Project Girl, RACE- are we so different, Room to Read, Scholarship America, Search Institute and various others (Best Buy Partners, 2011). Technological The company is highly equipped with the latest gadgets and the technology it requires to facilitate its customer base. The future proofs program initiated by the company allows the customers to select the technology as per their requirements and keeps them updated with the latest updates on the technology they like. Moreover it has been using website encryption technology to ensure secure transactions with the customers. They are also using technologies like click stream on the websites to keep the anonymous track of their visitors’ preferences and likes. This technology helps them to develop a better, more secure shopping experience and helps Best Buy to understand how visitors use their Web site (Best Buy , 2011). Environmental The company was regarded as one of those corporations who were involved in unethical deforestation in Canada (Greenpeace, 2007). Since then, Best Buy launched a program called Greener together to increase the energy efficiency in its products and to reduce the level of waste by using recyclable packaging and disposing system. In 2009, Fortune magazine reported that Best Buy started a campaign called Best Buy wants your electronic junk. It started offering free recycling of gadgets large and small, more than twenty million pounds of junk items that were recycled by the company. This helped to enhance the green reputation of the company and was used as a strategic way to get customers into stores (Marc, 2009). Legal In 2005, one lawsuit was filed against the company in the US district court in California. The company was alleged for discriminating against the women employees specially African-

American and Latino employees. It was charged to deny the good sales position and promotions due to their ethnicity but the company denied this fact. The company agreed to change its corporate and personal policies as well as procedures to improve its employee relationships. The company is keen to enhance equal employment opportunities at its stores nationwide (Associated Press, 2011). Moreover, it tries to comply with all the rules, regulations and laws of the federal, state and local governments of the regions it operates in.

Porter’s five forces analysis Rivalry among established competitions The extent of rivalry among the already established competitors and the Best Buy Co. Inc. is very high in the retail business. Its main competitors are Amazon, Apple Inc. and WalMart store. All of these companies have given cut throat competition in the market. The success of a company depends on the products it offers in of its quality and the economic pricings. The more quality at economic pricing structure are well appreciated by the customers. Wal-Mart has an effective strategy of offering goods at very low prices. This strategy is killing the profit margin of other competitors in the markets. Bargaining power of suppliers The bargaining power of suppliers is medium to high in the case of retail business of technology based products. Best Buy obtains its merchandize from limited number of suppliers which makes it vulnerable to the moods and requirements of those suppliers. The suppliers have every bit of power to obtain their desired profits from Best Buy Inc. If Best Buy engages in the wide range of supplier networking system then it would no more remain a subject to supplier’s bargaining power.

The bargaining power of buyers

The bargaining power of buyers is high in the case of Best Buy. The customer needs and wants are derived by the quality of products and the prices offered and these needs and wants are subject to change overtime. The Best Buy is using customer centric model which has weaken its ability to deal with the customers. This model has given subsequent amount of power to the buyers and empowered them to demand products at their preferred prices. If not complied, the customers tend to switch to the other retailer. Complying with the demands of the customers can increase the cost of doing business to Best Buy (Gulati, 2010).

The threat of substitute products or services Today, people seek entertainment and electronic gadgets essential to carry out their everyday life works and business. Almost everyone has at least one television, computer, mobile phone etc. these things are not likely to be replaced with any other gadgets or related products. If they want to replace it, they will replace with the up to date technology. So the likelihood of people to replace the products offered by Best Buy with the substitute products is very low.

The threat of the entry of new competitors

The industry imposes certain barriers to the entry of the new companies in the markets. This means that the level of threat of new entrants is relatively low in the industry. There are varying reasons to the low rate of entry. Among them is the entry barriers imposed by the industry. The new entrants will have to comply with the governmental regulations in order to make their entry in the markets. Then the existing players are protected by the number of barriers which makes it difficult for the new entrants to give hard time to them. Among them are: entry restrictions, tariff rates, high capital requirement, distribution channels etc. These barriers limit them to compete against the existing market players (Kwok, Dornbach-Bender and Lange,

2009).

Recommendations This study provided brief overview on the external environment analysis of Best Buy Co. Inc. The findings of the study suggested that Best Buy Co. Inc. should focus on the following factors in order to excel its business and social image in the world: 1.

Expand, expand and expand. Best buy should consider geographical concentration. They have the right set of strategies, right people and the amount needed for expansion. All they have to do is to start their operations in other regions as well. For the developing markets like China, India etc. are highly beneficial.

2.

Lease the rental areas to improve the current liabilities. Leasing will decrease the monthly expenses of the company.

3.

Innovate yourself to effectively and efficiently deal with the competition

4.

Devise effective Corporate Social Responsibility strategies to take part in the community development. This will benefit the company in the sense of improved corporate image and societal involvement will lead to positive promotion of the company.

References Associated Press, (2011). Best Buy settles in discrimination case, AP Associated Press, Retrieved on June 24, 2011 from http://money.msn.com/businessnews/article.aspx?feed=AP&date=20110617&id=13789935 Best Buy Co. Inc, (2011). Competitive landscape, Hoovers Website, Retrieved on June 23, 2011 from http://www.hoovers.com/company/Best_Buy_Co_Inc/rftfsi-1- 1njea3.html Best Buy Co. Inc. (2009). Political Report, Retrieved on June 24, 2011 from http://phx.corporateir.net/External.File?item=UGFyZW50SUQ9NDI1NTM1fENoaWxkSUQ9NDQw Nzg0fFR5cGU9MQ==&t=1 Best Buy Co. Inc, (2011). Community Relations, Retrieved on June 24, 2011 from

http://www.bestbuy-communityrelations.com/ (2011). Our Partners, Retrieved on June 24, 2011 from http://www.bestbuycommunityrelations.com/our_partners.htm (2011). , Retrieved on June 24, 2011 from http://www.bestbuy.com/site/Help-Topics/PrivacyPolicy/pcmcat204400050062.c?id=pcmcat204400050062&DCMP=rdr2623#priva cy_cookies Best Buy Continues To Prepare For Difficult Economic Environment, (2008). Ecoustics Website, Retrieved on June 24, 2011 from http://www.ecoustics.com/electronics/products/new/536287.html Boyle, M., (2006). Best Buy's Giant Gamble. Fortune, retrieved on June 23, 2011 from http://money.cnn.com/magazines/fortune/fortune_archive/2006/04/03/8373034/ Civil Justice Report, (2001). Extended Warranties, Retrieved on June 23, 2011 from http://www.manhattan-institute.org/html/cjr_3_part2.htm W, (2011).Carphone Warehouse Group plc:Q4 Trading Update, Retrieved on June 24, 2011from http://google.brand.edgaronline.com/EFX_dll/EDGARpro.dll?FetchFilingHtmlSection1?SectionID=79079 407304-18106&SessionID=TCXpHvEvZg4zu27 Datamonitor, (2007). Best Buy Co. Inc., Retrieved on June 23, 2011 from http://favormall.net/clientimages/38996/retailing-bestbuycoinc.pdf (2010), Best Buy Co. Inc. Retrieved on June 23, 2011 Don Reisinger, (2011). Best Buy revenue, earnings slip in 4th quarter, CNET Website, Retrieved on June 23, 2011 from http://news.cnet.com/8301-13506_3-2004675217.html?tag=mncol;txt Form 10-Q for BEST BUY CO INC, (2010). Quarterly Report, Retrieved on June 24, 2011 from http://biz.yahoo.com/e/101007/bby10-q.html Greanpeace, (2007). Companies Revealed to be purchasing forest destruction, retrieved on June 24, 2011 from http://www.greenpeace.org/usa/en/media-center/news- releases/companiesrevealed-to-be-purch/ Gulati, R., (2010). Inside Best Buy's Customer-Centric Strategy, Harvard Business Review, Retrieved on June 24, 2011 from http://blogs.hbr.org/hbsfaculty/2010/04/inside-best-buys-customer-cent.html Kwok, I., Dornbach-Bender, R., and Lange, R., (2009). Strategic report for Best Buy Co., Oasis Consulting, Retrieved on June 24, 2011 from http://economicsfiles.pomona.edu/jlikens/SeniorSeminars/oasis/reports/BBY.pdf Marc, G., (2009). Best Buy wants your electronic junk, Fortune, retrieved on June 24, 2011 from http://money.cnn.com/2009/11/30/technology/best_buy_recycling.fortune/index.h tm One source, (2011). Fortune 1000 companies, retrieved on June 23, 2011 from http://www.onesource.com/free/Company/FortuneList/Fortune/0 Staff Writer, (2001). DSN honors Best Buy with Specialty Retailer award. Discount Store News. Retrieved on June 23, 2011 from

http://findarticles.com/p/articles/mi_m0FNP/is_2_40/ai_70202157/ Tatge, M., (2004) Fun & Games, Retrieved on June 23, 2011 from http://www.forbes.com/free_forbes/2004/0112/138.html USSEC, 2011. Best Buy Co. Inc. Form 10-k, Retrieved on June 23, 2011 from http://phx.corporateir.net/External.File?item=UGFyZW50SUQ9NDQ3NTB8Q2hpbGRJRD0tMXxU eXBlPTM=&t=1