Best Buy Financial

Topics: Best Buy, Big-box store, Dow Jones & Company Pages: 43 (8032 words) Published: September 19, 2012
9 -7 1 3 -4 0 3
JUNE 30, 2012


Best Buy in Crisis
At the end of fiscal 2012, Best Buy found itself in an increasingly challenging situation. Although it could still claim to be the world’s largest consumer electronics retailer with $50.7 billion in revenues, growth for the year, at 0.9% was anemic. Meanwhile, Amazon’s sales in Best Buy’s categories were growing at more than 50% p.a. and its total sales, at $48 billion, were approaching those of Best Buy. Operating profits were also disappointing having dropped 54% to $1.1 billion and net income fell into the red at -$1.2 billion. The fiscal 2012 year-end stock price fell to $24.70, down from a high of $53.86 in 2006. In five years, Best Buy had lost more than 55% of its market capitalization.1 Best Buy had slowly been losing market share to both discounters and online retailers. As WalMart cherry-picked popular items for steep discounts and Amazon encouraged consumers to compare prices using smart phones, Best Buy became a showroom for lower cost retailers. 2 Although there had been promising growth in Best Buy’s online and mobile divisions, store closures and programs to reduce the size of stores by 10% increased expenses.3 International expansion, a key pillar of a goal to double revenues in five years was struggling. Adding to the problems, the boom in digital TV sales was cooling and in 2011 mobile devices comprised a larger percentage of overall electronics sales than digital TV sets, effectively ending the sixty-year reign of television as the biggest category in consumer electronics.4 Moreover, many mobile devices were sold by telephone service providers, creating increased retail competition. To add to Best Buy’s problems, on April 10, 2012, CEO Brian Dunn resigned after an investigation into his “personal conduct” with a female subordinate. 5 Board member G. Mike Mikan took over as interim CEO. On May 14, 2012, Dick Schulze, the firm’s founder, stepped down as Chairman after other board members suggested that he had not kept them properly informed of Dunn’s behavior. At first, he agreed to remain on the board for a year, but on June 7, he reversed this decision, resigning in order to “explore all available options” for his 20.1% stake in the company. Schulze was the company’s single largest shareholder and had steered the firm through many crises since the company was founded in 1966.

Early Years 6
In 1966, Dick Schulze and a business partner opened the first Sound of Music store in St. Paul, Minnesota. Sound of Music sold hi-fi audio products and by 1969 it had expanded into five more locations around Minneapolis. By 1970, revenue reached $1 million and Schulze bought out his ________________________________________________________________________________________________________________ Professor John R. Wells and Research Associate Galen Danskin prepared this case. This case was developed from published sources. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2012 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

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Best Buy in Crisis

original business partner. In 1973, Sound of Music opened its first 3,000 square-foot central warehouse and first 5,000 square-foot showroom. By the end of 1978, it operated nine stores of around 5,000 square feet. However, competition in hi-fi audio grew increasingly cut-throat and the company began looking for a...
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