Best Buy Company overview and business analysis

Best Buy

The company that I am studying is Best Buy. According to its website, Best Buy is a "multi-channel consumer electronics retailer with stores in the United States, Canada, China, Europe and Mexico." Best Buy is the 11th-largest online retailer in the United States, have a strong customer loyalty program and the company has over 165,000 employees (BestBuy.com, 2013). Best Buy is traded on the New York Stock Exchange under the ticker symbol BBY. The company, as noted, is in the consumer electronics retail industry. The major competitors for Best Buy are other companies that sell consumer electronics, whether that is their primary business or not. As such, the following companies are all competitors: Amazon, Wal-Mart, Apple and other manufacturers, Costco and other warehouse store, other discounters like Target, and smaller Internet-based businesses like Tiger Direct (2012 Best Buy Annual Report).

The leadership of the company is based around the CEO Hubert Joly, who is the President and Chief Executive Officer. He joined the company in late 2012. He worked previously as CEO of Carlson, a hospitality and travel company. The Chief Financial Officer and Chief Administrative Office is Sharon McCollam, who came to the company in December 2012 from a similar position with Williams-Sonoma. The other executives have been with the company longer. Keith Nelsen is the Chief Risk Officer, Carol Surface is the Chief Human Resources Officer, Shari Ballard is the President of the International side of the company, Susan Grafton is Chief Accounting Officer and Christopher Gould is the VP, Treasurer (2012 Best Buy Annual Report).

Recruiting and training for most employees is at the local level, guided by head office but implemented by local managers. The employees are not unionized, and organized labor does not appear to be a major factor in the company's future either. Employees are subject to a training program after hiring to ensure that they are familiar both with the products that Best Buy sells and with the corporate culture and customer service standards as well.

Best Buy makes extensive investments in it. The company's inventory system provides real-time data to store managers that help in ordering. Management routinely uses dashboards and decision support systems (DSS) to provide it with information about internal performance measures and competitive data as well. The company makes regular capital investments to upgrade its information technology infrastructure. The first 11 months of the 2013 fiscal year, the company invested $394 million in it upgrades, after a $274 million investment for the same the year prior.

Last year, Best Buy lost money. The net loss was $441 million, compared with a net loss of $1.231 billion the year before. Prior to that, Best Buy was profitable. In both years of losses, the company recorded operating profits on continuing operations, but had to write down over $1 billion in both years, leading to the losses (MSN Moneycentral, 2013). If there are no further writedowns, the company can expect to return to profitability, since it is still profitable on an ongoing operations basis. This assessment is based on the understanding that there will not be major changes in the macroeconomic environment. It is understood that the economy is growing slowly, and it is believed that many of the changes that Best Buy has implemented recently reflect moves to prepare the company to succeed in that environment. The expectation is that the leadership team can restore growth to Best Buy.

Best Buy is not a deep discounter, like some of its competitors. The company has a differentiated strategy whereby it provides the best selection of consumer electronics, and has staff members who are trained in these electronics. The company also offers services as well, to help consumers get the most out of their electronic goods. The company believes that its position as a specialist will attract more customers, because for many potential customers there are knowledge barriers to consumer electronics purchases. Best Buy aims to help consumers overcome those barriers and by reducing the risk involved with consumer electronics purchases the company hopes to outcompete deep discounters who cannot offer the same high level of service.

Part II. The company is traded on the New York Stock Exchange, under the symbol BBY. Best Buy had its initial public offering (IPO) on Nasdaq in 1985 but migrated to the NYSE in 1987. A chart of the company's stock over the past four weeks is as follows:

Source: Yahoo! Finance (2013)

Short-term movements in share price are mostly relevant to day traders. Most investors hold the stock much more than four weeks. The stock has fluctuated in value over the short run largely because the broad market has done the same, albeit with less intensity, but with beta of 1.48 Best Buy is expected to be more volatile than the broad market.

Best Buy is neither a conglomerate, nor a subsidiary, nor a multinational enterprise nor a holding company. It is primarily a domestic corporation, with a few international subsidiaries. Three-quarters of its business is domestic. As noted, Best Buy does not produce anything other than value-added service. It sells consumer electronics made by other companies. Those other companies are its primary suppliers, and include Apple, Samsung, Sony, Hewlett-Packard, Toshiba and wide range of other companies. The suppliers do not usually utilize just-in-time systems, but Best Buy does try to keep its inventory to manageable levels. It works with key suppliers mainly to ensure availability of goods, especially during key times of the year. With respect to buyers, these are consumers. Best Buy typically seeks to win consumers with a value-added service platform and a comprehensive range of goods.

3. Outlook. Best Buy remains competitive, but has had to deal with some issues related to writedowns and a sluggish business environment. Its revenues have fluctuated over the past few years and are at a lower than average level. The company's asset base has shrunk over that period as well, indicating some changes in its asset mix over the past few years as well. However, it should be noted that cash flow from operations has remained strongly positive over the entire five-year period -- in fact is was highest in FY2012, the year when the net loss was biggest. The key will be to stabilize the company with respect to further writedowns, as they reduce the value of the business. Hopefully, with a successful and stable business, this company can continue to do well and see its stock price increase.

The competitive environment is not expected to change significantly. There are threats from many different competitors, but clearly Best Buy has carved out a niche for itself, and this is to its benefit. There are few credible direct threats to its business, but there will continue to be threats from existing competitors. Best Buy needs to continually communicate the benefits of its service offering to consumers, especially as key suppliers continue to promote their own online retail channels. However, it does not appear that there will be a dramatic change in the position of the competitive environment for Best Buy in the short run.