Problems of Best Buy

Topics: Best Buy, Geek Squad, Magnolia Audio Video Pages: 8 (2546 words) Published: November 6, 2008

Best Buy Co. is a specialty retailer of consumer electronics, entertainment software, home office products, appliances and related services. The company operates both in the domestic and the international segment. Its domestic segment consists of all Best Buy stores and online operations within the United States, including the brand names: Best Buy, Geek Squad, Magnolia Audio Video, Pacific Sales Kitchen and Bath Centers and Speakeasy. Its international business covers Canada and most recently China.

With only 42 years of existence, the company has come a long way since Richard M. Schulze and business partner James Wheeler decided to open an audio specialty store called Sound of Music. Only 4 years later they had reached the $1 million mark in annual revenues and by 1984 they had opened eight more stores and changed their name to Best Buy Co., Inc. The year 1987 saw sales of $240 million, an expansion to more than 20 stores and the company’s debut on the New York Stock Exchange. Less than a decade later, Best Buy had surpassed Circuit City to become the nation's top consumer electronics retailer.

Of course, there were also a few bumps along the way. In 2001 Best Buy paid $696 million to acquire Musicland, a mall-based retailer of CDs. Unfortunately, that same year, Internet downloads were on high demand and after a round of lay offs and store closings, the company sold Musicland.

In 2002, Brad Anderson - who had worked his way up since starting as a commissioned salesman in 1973 - succeeded Schulze as Best Buy's CEO. Given the growth in complexity in digital devices, the new CEO saw huge potential in the technical services market and that October the company acquired Geek Squad, a 24-hour computer support taskforce. Best Buy started its international expansion that same year, opening the first Best Buy store in Canada near Toronto. They have now expanded to China and recently announced the opening of its first pilot stores in Mexico and Turkey.

With its current ongoing domestic and international expansion and the expanding of its Geek Squad, Best Buy has caused some analysts to complain that the company might be juggling too much. With a couple of lawsuits under its belt and the current economic slowdown, the stakes are higher than ever for Best Buy, but there is confidence in that Brad Anderson will make the right moves to keep its company among the retail's elite.

Crisis – 1: Sudden Market Shift: Slowing Economy and Increased Competition Pre-crisis: 2005-2007

As the U.S. economy flourished and new technologies, specifically flat panel televisions, exploded onto the retail scene, Best Buy grew rapidly. Averaging about 75 store openings per year through the early-to-mid 2000s, it also aggressively implemented its customer-centricity strategy, where stores were tailored to serve better local key demographics. As early as 2004, however, observers noticed that there was a glut of flat panel televisions on the market and that prices were primed to fall.

In May 2006, Best Buy made its boldest move to date, buying 75% of a prominent Chinese electronics and appliance seller, Jiangsu Five Star Appliance, deciding that partnering locally was the best approach to enter the China market. Choosing China as its first international location was extraordinarily risky, but Best Buy made the gamble pay off. Selectively partnering with local retailers and maintaining a blend of its own stores and the local nameplates in chosen Chinese cities has given the chain not only increased revenues but also provided local knowledge of the market. Best Buy has diversified investments by expanding further in Canada, and planning openings in Mexico and Turkey.

Even with a strong market position in electronics, Best Buy did an impressive job of continuing to innovate in its marketing and customer service. Its conversion of stores to its “customer-centric” model in the mid 2000s, where Best Buy identified...
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