Best Buy Company overview and operations

Best Buy is a retailer of consumer electronics, operating with a multichannel platform in North America and China (Best Buy, 2013). In the fiscal year 2013, Best Buy lose $441 million on revenues of $45.1 billion. In the previous year, the company lost $1.4 billion on revenues of $46 billion and suffered a loss in FY2011 as well (2013 Best Buy Form 10KT).

Best Buy operates retail stores and an online store. The company has a large geographic scope covering all of the U.S., Caanda and Mexico, and the company has some store sin China as well. Best Buy's industry is highly ompetitive. There are many firms competing for this business. Offline, there is Costco, Game Stop and Wal-Mart among others. Online, most of these retailers have a presence, and there is also Amazon. In addition, many manufacturers have their own online retail operations. In addition to intense competition, the industry is characterized by relatively poor bargaining power for industry players. The mutlitide of available retail channels makes for a high level of competition, and consuersm tend to be attracted primarily by price. Service and convenience are other contributing factors to the purchase decision. Best Buy responds to this by attempting to use its bargaining power to secure lower prices, by seeking efficiency in its operations and buy seeking to offer a high level of customer service in its stores. Nevertheless, there is no real source of sustainable competitive advantage for Best Buy, other than the strength of its brand. Other firms against which it competes also have strong brands.

The industry is challenged at present. The intensity of competition is combined with reltaivley slow growth. Demand in the consumer electronics industry is driven primarily by new product launches. In particular, revolutionary products spur new demand as consumers find new uses for technology. While there is a short cycle for new product innovations, this is required to sustain demand. The lack of major hit products can harm retialers in the industry because sales growth depends on more than just replacemtn purchases. As the result of intensive competition, advertising spending has been increasing rapidly in the industry and is expected to do so in the foreseeable future, with further developments being in online advertising (eMarketer, 2013). The confluence of slowing sales and increasing advertising revenues, along with high development costs and increasing commodification of key products has resulted in many firms in the industry landing in financial difficulty (Business Korea, 2013).

If firms in the industry are beginning to struggle because of the economics, this will have a negative impact on retailers as well. Best Buy is particularly vulnerable because it lacks the diversification of many of its major competitors. Wal-Mart, Amazon and Costco all sell a wide variety of products. Manufacturers with online retail operations may not be differentiated, but the benefit from vertical integration when they sell their own products without a middleman. Many competitors have better geographic diversification as well. Thus, Best Buy (and Game Stop as well) are more suscipetible to challenges than many of their competitors.