Final Project

1 Best Buy

Best Buy stores, owned and operated by Minneapolis-based Best Buy Co., Inc., is one of the nation’s leading retailers of technology and entertainment p roducts and services. Through more than 940 retail stores across the United States and in Canada, their employees connect customers with technology and entertainment en tertainment products and services that make life easier and more fun. They sell consumer electronics, home-office products, entertainment software, appliances and related services. As a Minneapolis-based company, their operations include: Best Buy, Five Star Appliance, Future Shop, Geek Squad, Magnolia Audio Video and Pacific Sales Kitchen and Bath Centers. Existing Mission Statement :

Best Buy’s mission is to give our customers great experiences- whether they are shopping for consumer electronics, home office products, entertainment software and appliances, or using those products and related services in their homes and offices. Existing Vision Statement:

Best Buy’s vision is to make life fun and easy for consumers. New Mission Statement:

To give customers a great experience in every aspect of shopping including value, customer service, and up to date technology and products. New Vision Statement:

Make life fun and easy for consumers while offering the best product possible and growing as a company to help fulfill those needs.

2 Best Buy’s History:

Best Buy was started by Richard Schulze and business partner and was originally called the Sound of Music. The first store was opened in 1966 in St. Paul, Minnesota. The next year the second and third Sound of Music stores were opened o pened near the University of Minnesota and in downtown Minneapolis. In 1973, a Sound of o f Music facility opens in Edina, Minnesota, featuring a 5,000-square-foot showroom and 3,000-square-foot warehouse. Sound of Music begins to expand into the suburbs and had nine stores by the end of 1978. In 1979, Sound of Music expands into video products; p roducts; first suppliers of video and laser disc equipment include Panasonic, Magnavox, Sony and Sharp. Stores add photography and home office products, with video equipment and TV’s expanding to all stores in 1981. Sound of Music’s board of directors approves a new corporate name in 1983: Best Buy Co., Inc. Best Buy opens its first superstore in Burnsville, Minnesota, featuring expanded selling space, a wide assortment of discounted brandname goods, central service, and warehouse distribution. distribution. Stores also began selling selling appliances and VCRs. In 1988 Best Buy stores stores begin selling PCs. Best Buy became the nation’s top retailer retailer of PCs to home users in 1995. 199 5. In 1997 Best Buy became the first national retailer to sell DVD hardware and software. Three years later Best Buy entered the online retailing business by launching Bestbuy.com. Soon later Best Buy opened its first Canadian Best Buy store in Toronto. That same year, 2002, Best Buy and the Geek Squad join forces. In 2003, Best Buy opened its first global sourcing office in Shanghai, China. Later that year, Fortune magazine ranks Best Buy #4 on its list of most admired U.S. companies in the specialty retailers industry and Forbes magazine names Best Buy as one of America’s most philanthropic corporations. To top it off, the next year, 2004, Forbes magazine names Best Buy “Company of the Year.”

3 Organizational Culture :

Best Buys organizational culture is much like an energized family which is kept this way by learning. This is done by in the store training so employees can be kept up with the latest trends and innovations that are listed on Best Buy’s personal intranet site. Best Buy does not want their employee’s to feel like they are just another person in the company but as an employee within the industry. Best Buy would like to think that employee’s find their jobs to be exhilarating, challenging, rewarding, and last but not least, fun. Best Buy’s corporate vision vision is to “Make Life Life Fun and Easy”. Best Buy also has four guides which is linked to their vision statement and is to be used to guide the actions of the employee’s: Have fun while being the best Learn from challenge and change Show respect, humility, and integrity Unleash the power of our people Symbol:

Best Buy has become the leader in electronic retail in the United States reaching every goal that has been set before be fore it. In the spring of 2003 Best Buy opened their new corporate campus, which represented the milestones that Best Buy h as achieved over the past 40 years.

4 Competitive Profile Matrix:

Best Buy Competitors: Circuit City, Staples, Office Depot Best Buy Weight Rate Management Exp Market Share INV System Financial Position Product Quality Consumer Loyalty Sales Global Expansion Organiz. Structure Merchandise Variety Ecommerce Customer Service Price Competitiveness

TOTAL

.08 .1 .08 .07 .08 .08 .07 .05 .07 .06 .08 .09 .09

1.

3 4 3 4 4 4 4 2 4 4 3 2 4

WS .24 .4 .24 .28 .32 .32 .28 .1 .28 .24 .24 .18 .36

3.48

Circuit City

Staples

Office Depot

Rate

WS

Rate

WS WS

Rate

WS

2 2 3 2 4 2 2 3 2 3 3 3 3

.16 .2 .24 .14 .32 .16 .14 .15 .14 .18 .24 .27 .27

3 3 3 3 4 3 3 4 3 3 3 3 3

.24 .3 .24 .21 .32 .24 .21 .2 .21 .18 .24 .27 .27

3 3 3 4 4 3 3 4 3 3 4 4 4

.24 .3 .24 .28 .32 .24 .21 .2 .21 .18 .32 .36 .36

2.61

3.13

3.46

The Competitive Profile Matrix represents Best Buy’s competitors and how well they compete in various areas within the industry. Best Buy’s rating is the highest, 3.48, among its competitors and is due to its strengths in market share, financial position, sales, and merchandise variety. Best Buy’s closest competitor was found to be Office Depot who succeeded where Best Buy had weaknesses. Office Depot’s strategic strengths were ecommerce and global expansion in which they both received ratings of o f 4. Office Depot has excelled by pursuing markets in 21 international markets, by providing diversified language settings on there web site and providing stores in 14 of those markets. The Competitive Profile Matrix also showed that Circuit City City was our least threatening competitor by declining market share and sales which exemplifies why they received a weighted score of 2.61.

5 EFE Matrix:

Key External Factors Opportunities 1. 2. 3. 4. 5. 6. 7.

Online Online sale saless expecte expected d to rise rise annual annually ly 19% 19% Digital Digital products products are leading leading the indust industry’s ry’s growth growth One stop stop shopping shopping centers centers are growing growing in in populari popularity ty Potent Potential ial succe success ss of ‘custo ‘customer mer centr centrici icity’ ty’ Enviro Environme nment nt conscio conscious us custom customers ers Indust Industryry-wid widee incr increas easee on on ROE ROE Comp Compan anie iess repu reputa tati tion on

Threats 1. 2. 3. 4. 5. 6. 7.

Gas pric prices es have have risen risen by by 75% over 4 years years Leadin Leading g competit competitors ors have have lower lower cost str struct ucture uress Variety Variety of competition competition nationally nationally,, regionall regionally y and locall locally y Dollar Dollar valu valuee down 15% 15% compa compared red to to GBP over over the the year year Price wa wars Decrea Decrease se in in dispo disposab sable le U.S U.S doll dollars ars Attorn Attorney ey gener general’ al’ss price price fixin fixing g enquiry enquiry

6 EFE Matrix for Best Buy Company, Inc .

Key External Factors Weight

Rating Weighted Score

Opportunities

1. 2. 3. 4. 5. 6. 7.

Online sales expected to rise annually 19% Digital products are leading the industry’s growth One stop shopping centers are growing in popularity Potential success of ‘customer centricity’ Environment conscious customers Industry-wide increase on ROE Companies reputation

.1 .07 .08 .08 .06 .04 .07

3 3 4 3 3 3 4

.3 .21 .32 .24 .18 .12 .28

.06 .09 .09 .03 .1 .07 .06

2 2 2 1 2 2 1

.12 .18 .18 .03 .2 .14 .06

Threats

1. 2. 3. 4. 5. 6. 7.

Gas prices have risen by 75% over 4 years Leading competitors have lower cost structures Variety of competition nationally, regionally and locally Dollar value down 15% compared to GBP over the year Price wars Decrease in disposable U.S dollars Attorney general’s price fixing enquiry

Total

1.00

2.56

The EFE is a useful analytical tool to use when attempting to analyze whether a company is strong or weak externally in comparison to its competitors. The expected 19% increase in online sales is a major opportunity that must be cap italized on in order for Best Buy to excel over its competitors. The potential success of the ‘customer centricity’ approach is also an opportunity for a growth in customer satisfaction. Price wars are the major threat to Best Buy’s profit margins, as well as the lower cost structures of many of Best Buy’s competitors. The total score for the EFE analysis was 2.56 This is a mediocre score although it is closer to 4 than to 1. This result suggests that Best Buy could certainly improve on taking advantage of the opportunities

7 that are presented to them and also deal with the threats they face in a better fashion. It shows that the opportunities outweigh the threats, and that taking better advantage of the opportunities could lead to future success.

8 Porter’s Value Chain:

Porter's Value Chain Warehousing Products Distributing Products Logistical Efficiency

$50,000,000

Identifying Customer Needs Implementing 'Customer Centricity' Generating Online Sales

$100,000,000

After Purchase Support Warranties Rebate Offers

($20,000,000)

International Boundaries Developing Positive Culture Quota Restrictions Taxes Organizational Structure

($50,000,000)

Hiring Experienced Managers Competitive Compensation Internal Training Language Barriers

($75,000,000)

High-Tech Computer Systems User Friendly Website User Friendly Store Layout Outsourcing IT

($100,000,000)

Bulk Discounts Economies of Scale

$200,000,000

Total Value Added

$105,000,000

IFE Matrix:

9

Key Internal Factors Strengths 1. Innovative 2. Fortune 100 company 3. Largest electronic retailer in U.S. 4. Customer-centric 5. Community involvement 6. Customer loyalty program 7. Commitment to growth 8. Global 9. Geek Squad-24 hour response 10. Locations visible and easily accessed Weaknesses 1. Internal ad agency 2. Customer service 3. Time Management

10 IFE for Best Buy Key Internal Factors_________________Weight_____Rating_____Weighted Score Strengths

Innovative Fortune 100 company Largest electronic retailer in U.S. Customer-centric Community involvement Customer loyalty program Commitment to growth Global Geek squad-24 hour response Locations visible and easily accessed

.12 .06 .11 .08 .06 .06 .12 .09 .06 .09

4 3 4 4 4 3 4 4 3 4

.48 .18 .44 .32 .24 .18 .48 .36 .18 .36

Internal ad agency Customer service Time management

.03 .10 .02

2 1 1

.06 .10 .02

Total

1.0

Weaknesses

3.46

After evaluating Best Buy’s internal factors, we found that one of their major strengths is their commitment to growth and innovation. Their desire to succeed has led them to be the largest electronics specialty store in the United States. Not only are Best Buy stores everywhere, they offer a variety of products such as appliances, entertainment software, home office equipment, and consumer electronics. Their stores are all over the United States and Canada and they have opened a flagship store in Shanghai to try to penetrate the market in China. However, with the company being so large, careful attention has not always been given to the consumers needs in the past. Some customers feel overwhelmed in an environment where there are so many options to choose from and they may need better assistance in order to make the right choice. With their great popularity comes a great expectation. In order to change their

11 perception, Best Buy has come up with a customer-centric model to implement in eventually all of their stores. By developing more customer-segmented stores, Best Buy can provide their customers with a more superior shopping experience. The purpose of developing this model is to deliver customized store experiences, solutions, products and services to meet the distinct needs of certain customers. Best Buy also wanted to gain a competitive advantage over competitors such as Staples and Circuit City. In this fast paced industry it is important to stay ahead of the game instead of playing catch up with your competitors. Customer demand in this industry is also constantly increasing. Consumers always want newer, better and possibly smaller products, so it is imperative that Best Buy is able to meet their needs or demands. They are trying to bring technology and consumers together in a retail environment that focuses on educating customers. For the past 20 years Best Buy has had an internal ad agency. While they have done a tremendous job, we feel that this may be a disadvantage to the company. An outside agency would be able to offer a fresh perspective and may be able to reach a broader market. Best Buy also needs help with enhancing its appeal to women. Most women who frequent the store are mothers who are looking for technology to improve their children’s lives: not their own.

SWOT Matrix:

12 The SWOT matrix provided information that is helpful in pairing the company’s resources and abilities to the competitive environment in which it operates by evaluating its internal strengths and weaknesses as well as its external opportunities and threats. Best Buy effectively uses its strengths to gain an advantage in its market. The following are some strategies that we feel might help boost their efforts: Strengths 1. Innovative 2. Fortune 100 Company 3. Largest electronic retailer in the U.S. 4. Customer-centric 5. Community involvement 6. Commitment to growth SWOT Matrix 7. Global 8. Locations are visible and accessible

Weaknesses 1. Internal ad agency 2. Customer Service

7

Opportunities 1. Online Sales 2. Internet simplified 3. Looking for outside ad agency 4. Enhance appeal to women

SO Strategies 1. Gain increased control over competitors through horizontal integration 2. Increase market share for present products through market penetration

WO Strategies 1. Improve current products- product development

WT Strategies Hire outside ad agency to offer fresh perspectives.

Past Strategies Threats 1. Increase in gas prices 2. Music Dualpiracy branding 3. I- tunes 4. Staples 5. Circuit City

Space Matrix:

ST Strategies 1. Expand domestic marketintroduce current products and services into new geographic areas 2. Expand international market – China

13

SPACE Matrix

Conservative Strategies

h t g n e r t S l a i c n a n i F

Competitive Advantage

Defensive Strategies

(3.25, 3.50)

Aggressive Strategies

Industry Strength

l a t n y e t i l i m n b a o r t i v S n E

Competitive strategies

14

SPACE Matrix Financial Strength (FS) Return on Investment (21.7%) Annual Revenues ($31 billion) Cash Flows ($327 million) Liquidity ($3.7 billion) Total FS Environmental Stability (ES) Rising gas prices mean decreases in sales Increase in online sales Online piracy has decreased software and music demands One stop shops such as Best Buy will cause barriers to entry Total ES

Competitive Advantage (CA)

5

Number of retail outlets (830)

6 6 5

Quality of suppliers Best Buys new customer-centricity store models Utilization of both retail and specialty stores

5.75

-2

Total CA

-2 -1 -2 1.75

Industry Strength (IS)

-3 -2

Overall sales in relation to competitors Expansion of Geek Squad to all Best Buy locations

6 5

-3

Recent Growth and expansion

4

Reengineerment of Best Buys supply chain

5

-1 2.25

Total IS

5

A SPACE Matrix was designed to help determine the types of strategies that would be the most strategically appealing to Best Buy Company. The SPACE Matrix directs companies to use one of four types of major strategies: aggressive, conservative, defensive, or competitive. In order to determine which type of strategy is best for a given company, the SPACE Matrix takes into consideration factors in four major categories: financial strength, competitive advantage, environmental stability, and industry strength.

15 After developing several factors for each of these major categories, all of which are listed in the above table, it was determined that Best Buy Company should choose aggressive strategies. This was determined by reviewing the factors, which reveal that Best Buy Company is operating a financially strong company in a strong and stable industry with a fairly large competitive advantage.

16 BCG Matrix:

BCG Matrix

Question Marks e t a r h t w o r g t e k r a M

Stars

CE

HO

A

ES

Dogs

Cash Cows

Relative market share

17

BCG Matrix Department Consumer Electronics Home Office Entertainment Software Appliances Total

Sales

13,265 9,872 5,862 1,851 30,850

% Sales

43% 32% 19% 6% 100%

Profits

2697.77 1810.25 1374.88 612.1

% Profits

42% 28% 21% 9%

RMSP

IG Rate %

114.38% 68.33% 124.72% 15.50%

0.09 0.08 -0.33 -0.02

Best Buy Company sells many different products, all of which may be categorized into one of four departments: consumer electronics, home office, entertainment software, and appliances. The sales figures, profit margins, relative market share position, and industry growth rates for each of these departments are displayed in the above figure. A BCG, or Boston Consulting Group, Matrix was performed to measure the performance of each of these departments. After performing the BCG Matrix, the state of each department within the Best Buy Company was then analyzed. The consumer electronics department, which resulted in the largest percentage of Best Buys sales, was found to be doing very well. Because of its enormous relative market share position and its positive industry growth rate, it would be considered a star. The department that accounted for Best Buy Company’s second largest percentage of sales, or its home office department, was also found to be doing well. With a relative market share position of over 68%, and its positive industry growth rate, the home office department would also be considered a star.

18 The analysis of Best Buy Company’s third largest department, or its entertainment software department, was slightly different from those of the top two departments. While the entertainment software department was found to have a dominant relative market share position, the industry growth rate in this department was negative. This simply means that Best Buy Company’s entertainment software department can be considered a cash cow. The appliance department of Best Buy Company represented its lowest percentage of sales. Because this department had both a low relative market share position and a negative industry growth rate, it would be considered a dog. However, it did still have a positive profit margin, so it is not necessarily hurting the company.

19

IE Matrix:

The IE Matrix THE IFE TOTAL WEIGHTED SCORES Strong 3.0 to 4.0

Average 2.0 to 2.99 3.0

Weak 1.0 to 1.99

2.0

1.0 4.0 High 3.0 to 4.0

THE EFE TOTAL 3.0 WEIGHTED Medium SCORES 2.0 to 2.99 2.0

I

II

III

IV

V

VI

VIII

IX

1 3

2 4

VII

Low 1.0 to 1.99

1.0 Division

$ Revenue (millions)

1. Consumer Electronics 10,424.54 2. Home Office 9,327.22 3. Entertainment Software 6,035.26 4. Appliances 1,645.98

% Revenue

$ Profit (millions)

% Profits

IFE

EFE

38 34

2697.77 1810.25

42 28

3.53 3.46

2.64 2.56

22 6

1374.88 612.10

21 9

3.52 3.22

2.37 2.49

All four divisions of Best Buy fall in the fourth cell which is part of the “grow and build” region. We plan to use an intensive strategy with elements of an integrative strategy. Because the Appliance Division is close to cells V and VII, we want to use a more conservative approach

20 strategy. We plan to use market penetration by building stores with large Appliance Departments in China. We also plan to use a product development strategy with local brand acquisitions. Our other three divisions combine to make up 94 percent of the company’s total revenue. Because we are so strong in these areas we plan to use an aggressive strategy by means of market penetration, market development, and product development as outlined in the Grand Strategy Matrix.

21 IFE’s for each department: IFE Matrix for Best Buy Inc. Consumer Electronics Division Criteria

Weight

Rating

Weighted Score

.13 .06 .11 .08 .06 .06 .13 .09 .06 .09

4 3 4 4 3 4 4 3 4 4

.52 .18 .44 .32 .18 .24 .52 .27 .24 .36

11. Internal ad agency 12. Customer service

.03 .10

2 2

.06 .20

Total

1.0

Strengths

1. Innovative 2. Fortune 100 company 3. Largest electronic retailer in U.S. 4. Customer-centric 5. Community involvement 6. Customer loyalty program 7. Commitment to growth 8. Global 9. Geek squad-24 hour response 10. Locations visible and easily accessed

Weaknesses

3.53

For the most part, the IFE matrix for the Consumer Electronics Division resembles the IFE Matrix for the entire company with a few exceptions. The two major strengths in this area in comparison to the rest of the company are the customer loyalty program, and the Geek Squad service. Customers are willing to spend a little more, especially on h igh priced consumer electronics, if they are getting value in their service. Our customers can listen to advice from knowledgeable employees and even test products before they buy. They know that if they ever need help, our 24 hour response team will guide them to a solution.

22 IFE Matrix for Best Buy Inc. Home Office Department

Criteria

Weight

Rating

Weighted Score

.13 .06 .11 .08 .06 .06 .13 .09 .06 .09

4 3 4 4 4 3 4 4 3 4

.39 .18 .44 .32 .24 .18 .52 .36 .18 .36


.03 .10

2 1

.06 .10

Total

1.0

Strengths


Weaknesses

3.46

The IFE Matrix for the Home Office Department epitomizes Best Buy’s strengths and weakness for the company as a whole. Key areas of interest include: highly innovative, customer centric, and locations that are easily accessed.

23 IFE Matrix for Best Buy Inc. Entertainment Software Department

Criteria

Weight

Rating

Weighted Score

.13 .06 .11 .08 .06 .06 .13 .09 .06 .09

4 3 4 4 4 3 4 4 4 4

.52 .18 .44 .32 .24 .18 .52 .36 .24 .36


.03 .10

2 1

.06 .10

Total

1.0

Strengths


Weaknesses

3.52

The one deviation in this IFE Matrix from the overall company’s IFE is that the Geek Squad’s 24 hour response is a major strength in the Entertainment Software Department. Most of the technical support is software related. Because of this, we provide better service than the rest of the industry in this regard.

24 IFE Matrix for Best Buy Inc. Appliances Division

Criteria

Weight

Rating

Weighted Score

.13 .06 .11 .08 .06 .06 .13 .09 .06 .09

3 3 3 4 4 3 4 4 3 4

.39 .18 .33 .32 .24 .18 .52 .36 .18 .36


.03 .10

2 1

.06 .10

Total

1.0

Strengths


Weaknesses

3.22

One of the reasons for Best Buy’s success is the increase in popularity in “the one-stop shop.” Best Buy has capitalized on this demand by the introduction of the Appliance Division. Being the largest electronic retailer in the U.S. can be both good and bad for Best Buy. Good because, people know Best Buy will have what you are looking for if it is electronic related. It can also be considered bad due to the popularity of the consumer electronics, appliances are often overlooked. Although we are not as innovative in this area as some of our competitors such as Costco and Sears, we are taking steps forward to improve.

25 EFE’s for each department: EFE Matrix for Best Buy Company, Inc. Consumer Electronics Division

Key External Factors

Weight

Rating

WS

3 4 4 4 3 3 3

.3 .28 .32 .32 .18 .12 .21

2 2 2 1 2 2 1

.12 .18 .18 .03 .2 .14 .06

Opportunities

1. 2. 3. 4. 5. 6. 7.


.1 .07 .08 .08 .06 .04 .07

Threats

8. Gas prices have risen by 75% over 4 years .06 9. Leading competitors have lower cost structures .09 10. Variety of competition nationally, regionally and locally .09 11. Dollar value down 15% compared to GBP over the year .03 12. Price wars .1 13. Decrease in disposable U.S dollars .07 14. Attorney general’s price fixing enquiry .06 Total

1.00

2.64

The major key opportunity in the Consumer Electronics Division is that digital products are leading the industry’s growth. The only downside to this is that the price of digital products is on the decline. Best Buy is combating this potential threat with their customer centricity program. Rather than trying to be a cost leader, we want to provide excellent customer service. Most consumers are willing to pay a little more on luxury goods if it’s something they know they want.

26 EFE Matrix for Best Buy Company, Inc. Home Office Division Key External Factors

Weight

Rating

WS

.1 .07 .08 .08 .06 .04 .07

4 3 4 3 3 3 4

.4 .21 .32 .24 .18 .12 .28

8. Gas prices have risen by 75% over 4 years .06 9. Leading competitors have lower cost structures .09 10. Variety of competition nationally, regionally and locally .09 11. Dollar value down 15% compared to GBP over the year .03 12. Price wars .1 13. Decrease in disposable U.S dollars .07 14. Attorney general’s price fixing enquiry .06

2 2 2 1 1 2 1

.12 .18 .18 .03 .1 .14 .06

Opportunities

1. 2. 3. 4. 5. 6. 7.


Threats

Total

1.00

2.56

The reason for the continued success of the home office division is the growing popularity in one stop shopping centers. Peripherals that are included in the Home Office Division have a much higher profit margin than the more expensive consumer electronics. Due to the convenience factor, many people spend little time comparing prices on these cheaper goods. Indirectly we are controlling price wars by making goods available in convenient locations for customers.

27 EFE Matrix for Best Buy Company, Inc. Entertainment Software Division


Weight

Rating

WS

Opportunities

1. 2. 3. 4. 5. 6. 7.


.1 .07 .08 .08 .06 .04 .07

3 3 4 3 3 3 4

.3 .21 .32 .24 .18 .12 .28


2 2 1 1 1 2 1

.12 .18 .09 .03 .1 .14 .06

Threats

Total

1.00

2.37

Particularly in the Entertainment Software Division, price wars are extremely crucial. With the recent boom in MP3s, CD sales are at an all-time low and software is becoming increasingly cheaper. Due to this threat to the Entertainment Software Division, we need new marketing strategies. We need to go to local communities and find out the kinds of music people would like to see in our Best Buy stores. We also want to provide bundle purchases where if a certain item is purchased, discounted software is included. We can also have in-store displays where we demonstrate the latest software for sale.

28 EFE Matrix for Best Buy Company, Inc. Appliances Division


Weight

Rating

WS

Opportunities

1. 2. 3. 4. 5. 6. 7.


.1 .07 .08 .08 .06 .04 .07

3 3 4 3 3 3 3

.3 .21 .32 .24 .18 .12 .21


2 2 2 1 2 2 1

.12 .18 .18 .03 .2 .14 .06

Threats

Total

1.00

2.49

Although the Appliance Division is small in terms of the company’s overall size, it has shown excellent growth in several markets. We are trying to change people’s current view of Best Buy being an electronics only store. We hope by understanding what the consumer’s needs are, we can make life fun and easy for them by making Best Buy a one stop shop where the value continues beyond the purchase.

29 Grand Strategy Matrix: The Grand Strategy Matrix

RAPID MARKET GROWTH

Quadrant II

Quadrant I

WEAK

STRONG

COMPETITIVE POSITION

COMPETITIVE POSITION

Quadrant III

Quadrant IV

SLOW MARKET GROWTH

Quadrant I 1. Market development It also boils down to consumers, where they like to shop and where they spend their money. It's as basic as how a store feels, how the products and aisles are laid out, and how the workers there treat you. In today's connected world, where entertainment and technology products intersect, Best Buy leads the competition w ith their excellent

30 customer service. We want to make sure our customers know that we care about them making the right purchase, because their business matters to us. 2. Market penetration By offering our products on-line with BestBuy.com, we are able to enter markets with little or no barriers to entry. We can overcome language barriers by offering the website in a variety of languages. By entering into China we can attempt to tap into this $100 billion consumer electronics market. Similar to the way we en tered the Canadian market Best Buy acquired a majority interest in the retail chain Jiangsu Five Star Appliance Co., Ltd. China’s fourth-largest appliance and consumer electronics retailer. We a lso have a global sourcing office in Shanghai, China. We plan to build stores in China and continue to penetrate this market that shows amazing potential. 3. Product development Electronic equipment, personal computers and accessories, an d storage products are just a few of the areas we want to continue to develop. Ideally we will look at products already on the market that have a reputation for high quality, acquire those products and adopt them into our stores as our own. 4. Backward integration Best Buy knows that the quality of their suppliers’ product data is critical to ensuring the success of their Foundation Data Management (FDM) initiative in general and their Global Data Synchronization initiative in particular. Because only product data that is accurate, consistent and complete can support the Best Buy supply chain and meet consumer demand, Best Buy now requires all suppliers that synchronize their data with

31 Best Buy to subscribe to the UDEX Product Data Quality (PDQ) service. Experience has shown that developing and implementing a thorough product data quality assurance process takes most suppliers approximately six months; suppliers with larger product assortments will generally benefit from even more advanced planning.

32 Quantitative Strategic Planning Matrix:

QSPM Key Factors Opportunities

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Strategy 3 AS TAS

Online sales expected to rise annually 19%

.09

-

-

-

-

-

-

Digital products are leading the industry’s growth

.06

4

.24

3

.18

3

.18

3. 4. 5. 6. 7.

One stop shopping centers are growing in popularity

.04

3

. 12

3

. 12

3

. 12

Potential success of ‘customer centricity’

.09

4

.36

4

.36

3

.27

Environment conscious customers

.05

3

.15

3

.15

3

.15

Industry-wide increase on ROE

.05

3

.15

4

.20

3

.15

Companies reputation

.10

4

.40

4

.40

4

.40

Gas prices have risen by 75% over 4 years

_

.08

1

_

____________ ____________ _________

.08

2

.16

1

.08

Leading competitors have lower cost structures

.06

2

.12

2

.12

2

.12

Variety of competition nationally, regionally and locally

.10

1

.10

2

.20

1

.10

Dollar value down 15% compared to GBP over the year

.10

1

.10

1

.10

2

.20

Price wars

.06

1

.10

1

.10

1

.10

Decrease in disposable U.S dollars

.08

1

.08

-

-

1

.08

Attorney general’s price fixing enquiry

.04

-

-

-

-

-

-

Strengths

1.0 __

______________________________________

Innovative

.10

3

.30

4

.40

3

Fortune 100 company

.06

-

-

-

-

-

Largest electronic retailer in U.S.

.09

3

.27

4

.36

4

.36

Customer-centric

.08

3

.24

3

.24

3

.24

.30

Community involvement

.04

-

-

-

-

-

-

Customer loyalty program

.05

3

.15

3

.15

3

.15

Commitment to growth

.11

4

.44

4

.44

4

.44

3

.18

Global

.12

-

-

4

.28

-

-

Geek squad-24 hour response

.07

-

-

-

-

-

-

Locations visible and easily accessed

.06

Weaknesses

1. 2. 3.

Strategy 2 AS TAS _

1. 2.

Threats

1. 2. 3. 4. 5. 6. 7.

Strategy 1 AS TAS

Weight

3 _

.18

3

_

.18

_

Internal Ad Agency

.05

1

.05

1

.05

1

.05

Customer Service

.09

-

-

-

-

-

-

Timing Issues

.08 1.0

1

.08 3.71

Strategy 1: Market Penetration- Expand Domestic Market Strategy 2: Market Penetration- Expand Internationally into China Strategy 3: Horizontal Integration-Buying Competitors

1

.08 4.27

1

.08 3.75

33

The three strategies that Best Buy has decided to evaluate in the QSPM are Market Penetration, focusing on expanding our domestic market in the United States; Market Penetration, focusing on expanding internationally into China; and Horizontal Integration, focusing our efforts on buying domestic competitors. Each of the strategies has its benefits and downfalls. We seek to expand our stores into existing markets in order to attain a greater overall market share within the industry. Since our stores typically draw customers from their local area, we run the risk of drawing customers away from current Best Buy stores, causing comparable store sales and performance and customer traffic at the existing stores to decline. Our future growth is partially dependent on the ability for us to build or lease new stores. We face many issues in this stage of growth such as location choices, local zoning issues, environmental regulations, and other regulations applicable to the types of stores that we desire to construct that may impact our store openings. We also expect to expand into new domestic markets. The risks that come associated with this strategy include difficulty in attracting customers due to lack of customer familiarity with our brand, ou r lack of familiarity with local customer preferences, and seasonal differences in the market. In addition, entry into new markets

34 may bring us into competition with new competitors or with existing competitors with a large, established market presence. Best Buy’s international segment was developed in fiscal year 20 02 in connection with the companies acquisition of the Canada based Future Shop. We hope to grow this segment with our strategy of introducing new stores into China in the near future. Although we predict the opening of the new international stores to be a great success, there are many factors that need to be taken into consideration when deciding whether or not to pursue this strategy. The international regulatory and legal environment exposes us to complex compliance and litigation risks that could affect our operation and financial results. One of the risks that we face includes the difficulty of complying with conflicting regulations in local, national, or international jurisdictions. Another consideration is the impact of the changes in tax laws from one country to another. A large issue that needs to be considered is the differences in labor and employment laws. Labor laws in China greatly differ from the laws that Best Buy is used to conducting business under. There are also many significant uncertainties of op erating globally, including the costs and difficulties of managing international operations, foreign operations, foreign currencies, complex laws, contractual obligations and intellectual property rights. Our third strategy we are evaluating is the option of horizontal integration by continuing to purchase domestic competitors. This will benefit Best Buy by eliminating some of the competition resulting in customers redirecting their business to Best Buy. We predict that these acquisitions will positively affect our overall financial performance in the market. Though this is a positive growth strategy, the acquisitions may bring about many do wnfalls such as the result in difficulties in assimilating acquired companies which may result in the diversion of our cap ital

35 and our management’s attention from other business issues and opportunities. It is always a possibility that we may not be able to successfully integrate companies that are acquired, including their financial systems, distribution, operations and general procedures. If we fail to integrate operating companies successfully, Best Buy could suffer materially.

Long-Term Objectives: 1. Expand internationally into China.

Over the next three years we will build 10 stores in China. We will build three the first year, three the second and four the fourth. By expanding slowly, we will be able to monitor customer purchasing behavior. This will help us better target our customers. Our priority is to keep the customer centricity program a number one focus in the opening of our new stores. Our system processes across all areas will be consistent in every store in China. Our goal is that this reliability on managed routines will translate into maximum efficiency and repeat business. 2. Increase market share domestically.

With recent improved processes and increased emphasis on customer value, Best Buy can once again pursue an aggressive strategy. Our goal is to increase our current 20 percent market share 5 percent to 25 percent overall within 5 years. 3. Expand in niche markets.

Through the expansion of stores with Magnolia displays we can cater to the h igh-end customers. We currently have 20 Magnolia Audio Video stores separate from the Best Buy

36 location. We plan to increase this number to 35 over the next 5 years. We also plan to increase our current number of in-store displays from 180 stores to 5 00 in the next 5 years. Another key niche market we plan to expand in is the Geek Squad stores that specialize in technical support service. Currently there are 12 in the U.S. We plan to increase this number to 20, including 2 in Canada.

4. Continue to increase customer service with customer centric stores.

Fewer items with more technologically savvy sales support and solution-oriented offerings will translate into repeat business. This theme is currently in place in about 40 percent of our stores. We want to eventually integrate the customer-centricity program into all of our stores globally. 5. Increase market share in Canada.

After the purchase of Canadian discount and warehouse store Future Shop in 2001, Best Buy already had the infrastructure in place to enter a foreign market. In four years Best Buy went from 0 percent to 10 percent. We can confidently expand aggressively and expect to gain another 5 percent within 5 years. 6. Adopt acquired brands.

Best Buy currently has five private labels which include Insignia, Dynex, Init, Geek Squad, and Rocketfish. One thing all five of these brands have in common is that they are all highend brands. In the minds of the customer the value is worth the extra cost. We want to continue with this trend and continue to market any acquired brands.

37

Past Strategies: In the past, Best Buy has used a dual branding strategy to help attract more customers

with a choice of store. This strategy has helped them target different customers while giving them more flexibility to learn and adapt by using two approaches. The key to this strategy is to make sure that the two organizational cultures are similar enough that they can work together. Dual branding has helped retain the Future Shop brand and it has also utilized existing commitments to store sites. There has been a shift from a product-centric to a customer-centric model within the company. This customer-segmented model is intended to target 5 specific customer segments: Affluent professionals seeking the best technology experience, younger males wanting cutting edge technology and entertainment, fathers looking for technology to improve their lifestyle, mothers who seek technology to enrich their children’s lives, and small-business people using technology to improve their bottom lines. These segments represent considerable new growth or include some of the company’s best current customers Best Buy strives to be an effective enterprise through thorough preparation. They spend more on employee training than any other retailer. Associates are receiving detailed customercentric training in order to prepare them for any problems or questions that might occur. There is

38 also decentralization of decision making to allow employees closest to the customer to make informed decisions Best Buy has made it a point to be known for offering a variety of entertainment choices. They have partnered with Netfilx by co-branding a DVD rental service which only furthers their position as a full service movie destination. In addition to Netflix, they have partnered with XM satellite radio. Best Strategy Analysis of Costs, Benefits, and Implementation:

After carefully analyzing the three alternatives developed in the Quantitative Strategic Planning Matrix (QSPM), we feel that there is one strategy that is better than all the rest. We feel that the best strategy for Best Buy is to improve sales and profit by expanding its international segment into China. By doing this Best Buy would become the first American electronics retailer to move into China. China’s electronics market, which is expected to exceed $300 billion usd in 2006, is nearly twice the size of the US electronics market, only expected to grow to about $150 billion usd in 2006. Because of the size of the Chinese electronics market, and because the electronics market in China is growing at a rate of approximately eight percent yearly, we feel that now is the time for the largest electronics retailer in the US to penetrate the Chinese market. Below are some factors that are keys to the success of this strategy.

Key Aspects of Chinese Expansion Activity Average leasing cost in metropolitan areas Average purchase cost of buildings in metropolitan area Expected electronics sales in China for 2006

Result $24 million yuan($3 million US dollars) $250 million yuan($32.5 million US dollars) $300 billion usd

39 Expected electronics sales in U.S. for 2006 Debt-to-capitalization ratio Total available capital(minus Investing and Financing activities)

$150 billion usd 10% Approx. $270 million usd

As you can see by the above chart, it is very expensive to lease, or purchase, commercial real estate in the major metropolitan areas of China, which include Shanghai, Beijing, and Hong Kong. So, it is our recommendation that Best Buy lease property over the short-term, maybe with an option in the lease contract to purchase the leased space within a specified number of years. Another factor that is an equally important factor in this strategy is that Best Buy should be able to enter the Chinese market as Best Buy. After much research on Chinese copyright laws and the current organizations in China, our team has no reason to believe that Best Buy will have to deal with complex procedures to secure its brand in China. In addition, as you can see from the above chart, Best Buy has a debt-to-capitalization ratio of only ten percent. This means that only approximately ten percent of Best Buy’s operations are financed, the rest of which are paid in full. In addition, Best Buy has over $270 million usd in available capital, which means that they have the funds available to invest heavily in this strategy. Since Best Buy has never operated stores in China, it would be impossible for us to predict the demand for our products in China. However, Best Buy’s innovative customer centricity store model, coupled with its top-notch sales and service teams and a booming Chinese electronics market should yield huge revenues for the company, which in turn should yield enormous profits. We must also not forget that Best Buy currently operates three g lobal sourcing offices in China already, and it currently sells many Chinese brands in its stores. Because Best

40 Buy already directly deals with many Chinese companies, the transition into China should only be that much easier. After discussing many major advantages of this strategy, we must talk about inventory. Our team recommends that Best Buy avoid building costly warehouses in China. Instead we propose that Best Buy utilize a Just-In-Time inventory strategy in China. Because of the uncertainty of success in China, and the cost of building huge warehouses in China, we feel that that a Just-In-Time inventory system is better suited for Best Buy China’s operations. After reviewing all of the knowledge of Best Buy as it relates to the Chinese market, our team feels that this strategy is the most feasible, and we are op timistic that it will yield tremendous profits for Best Buy. We have included a high level overview of the costs of this strategy below.

Cost of Implementation Cost Activity

Leasing Costs Costs of Decorating and Initial Inventory Estimated Corporate taxes Estimated payroll

Year 1(3 stores) $9 million $12 million

Year 2 (3 stores) $18 million $12 million

Year 3 (4 stores) $30 million $16 million

Total Cost

$57 million $40 million

33%

33%

33%

33%

$10 million

$20 million

$33 million

$63 million

Total Cost of Opening 10 stores in China

$160 million + 33% tax based on total revenue

As you can see, our strategy proposes the opening ten new Best Buy stores in China over the course of the next three years. The total strategy implementation is expected to incur sunk costs of approximately $160 million usd over the next three years. We would also like to note that the

41 corporate tax in China is less than that of the US. Detailed income statements will be included later in this proposal, but these are the most important costs associated with the implementation of this strategy. As it turns out, Best Buy opened its first branded store in Shanghai in January of 2007. However, as it is relatively new we could find no exact figures describing the actual revenues that Best Buy’s first store in China is generating. In addition, Best Buy chose to purchase retail space in an existing building for a price that was over $30 million usd. This was different from our proposed strategy, which suggests that Best Buy leases commercial real estate instead of purchasing it. It is also of interest to note that Best Bu y recently purchased Jiangsu Five Star Appliance Co., Ltd, which happens to be China’s fourth largest appliance and consumer electronics company. Best Buy gained 131 stores and a substantial market share in the Chinese electronics software industry as a result of the acquisition. However, our strategy is primarily driven to push the market penetration and expansion of Best Buy branded stores in China. But, I think it is quite interesting that we selected this strategy before knowing that Best Buy had already moved into China. Because of this, it is evident that all of our company analysis paid off, and it is clear that the strategy pertaining to Chinese market penetration is clearly the best longterm strategy for Best Buy at this current point in time. The implementation of this strategy should be fairly simple. We have already determined that Best Buy will be able to enter the Chinese market with its own brand. Because Best Buy already maintains global sourcing offices in China, Best Buy China already has key Chinese contacts. The implementation of this strategy will begin with the leasing of buildings in key areas of China’s metropolitan cities. Designers hired by Best Buy will then design and convert the

42 layout of the buildings according to Best Buy standards. The buildings will then be stocked with inventory and opened for business. We feel that Best Buy China should open ten new stores over the next three years. Our strategy calls for Best Buy China to open three stores in year one, three stores in year two, and four stores in year three. A detailed timetable for this strategy has been included at the end of this section. The following are forecasted highlights of the financial measures we hope this strategy will achieve over the next three years.

Forecasted Financial Highlights Financial Measure Revenue Profit Margin

Year 1 $150 million 25%



Total available capital

$15 million

$50 million

$110.48 million

Total operating expenses

$112.5 million $37.5 million



Total Profit

As you can see, we have high expectations for Best Buy China. We expect this new strategy to yield revenues of $540 million usd, including p rofits of $151 million usd, by the end of year three. As noted earlier, we have included detailed income statements for each year. These incomes statements appear on the next five pages, followed by a detailed timetable describing the implementation of the Best Buy China strategy.

43

Income Statements (Next 3 Years): Best Buy, Inc Statement of Income Forecasted for China Strategy (2007)

Sales Revenue Less: Sales Returns and Allowances Net Sales Cost of Goods Sold Gross Profit Operating Expenses: Depreciation Expense Leasing Expense Utilities Expense Insurance Expense-General Administrative Expenses: Bad Debt Expense Office Expense Office and Admin Salaries Payroll Tax Expense-Office and Administration Selling Expenses: Sales Salaries and Commission Payroll Tax Expense-Selling Insurance Expense-Selling Advertising Expense Total Operating Expenses Operating Income(Expense) Other Income(Expense) Interest Expense Total other income(expense),net Income Before Income Taxes Income Tax Expense Net Income(loss)

$155,000,000.00 ($5,000,000.00) $150,000,000.00 ($58,000,000.00) $92,000,000.00 ($4,000,000.00) ($9,000,000.00) ($1,000,000.00) ($2,000,000.00) ($3,000,000.00) ($2,000,000.00) ($2,000,000.00) ($500,000.00) ($6,000,000.00) ($1,500,000.00) ($1,000,000.00) ($3,000,000.00) ($35,000,000.00) $57,000,000.00 ($1,000,000.00) ($1,000,000.00) $56,000,000.00 ($18,480,000.00) $37,520,000.00

44

Best Buy, Inc Statement of Income Forecasted for China Strategy (2008)


$312,000,000.00 ($5,500,000.00) $306,500,000.00 ($120,640,000.00) $185,860,000.00 ($6,000,000.00) ($15,000,000.00) ($2,080,000.00) ($3,000,000.00) ($3,050,000.00) ($3,000,000.00) ($3,800,000.00) ($865,000.00) ($9,000,000.00) ($2,500,000.00) ($1,700,000.00) ($4,465,000.00) ($54,460,000.00) $131,400,000.00 ($1,000,000.00) ($1,000,000.00) $130,400,000.00 ($43,032,000.00) $87,368,000.00

45

Best Buy, Inc Statement of Income Forecasted for China Strategy (2009)


$540,000,000.00 ($6,000,000.00) $534,000,000.00 ($220,827,840.00) $313,172,160.00 ($10,000,000.00) ($30,000,000.00) ($3,500,000.00) ($3,800,000.00) ($3,250,000.00) ($3,750,000.00) ($5,000,000.00) ($1,250,000.00) ($12,000,000.00) ($3,500,000.00) ($3,000,000.00) ($7,400,000.00) ($86,450,000.00) $226,722,160.00 ($1,000,000.00) ($1,000,000.00) $225,722,160.00 ($74,488,312.80) $151,233,847.20

46

Balance Sheet (Next 3 Years): Best Buy, Inc. Consolidated Balance Sheet Forecasted for China Strategy($ in millions) Assets Current Assets Cash and cash equivalents Short-term investments Receivables Merchandise inventories Other current assets Total current assets Property and Equipment Land and buildings Leasehold improvements Fixtures and equipment Property under master and capital lease

2007

2008

2009

152 73 30 54 12 321

264 84 36 58 15 457

298 92 56 63 20 529

Less accumulated depreciation Net Property and equipment Goodwill Trade name Long-term investments Other Assets Total Assets

30 15 10 9 64 (12) 52 15 4 16 56 464

44 21 16 17 98 (16) 82 22 5 21 62 649

46 21 24 25 116 (18) 98 25 14 24 73 763

Liabilities and Shareholders' Equity Current Liabilities Accounts payable Unredeemed gift card liabilities Accrued compensation and related expenses Accrued liabilities Accrued income taxes Current portion of long-term debt Total Current liabilities Long-Term Liabilities Long-Term Debt

187 60 23 40 22 25 357 28 16

213 73 32 54 43 29 444 34 19

187 36 29 44 74 26 396 38 21

47 Shareholder's Equity Additional paid-in capital Retained earnings Total shareholder's equity Total Liabilities and Shareholders' Equity

25 38 63 464

27 125 152 649

Statement of Cash Flows (Next 3 Years): Best Buy, Inc Statement of Cash Flows Forecasted for China Strategy 2007

2008

2009

$ 87,368,000 $ 6,000,000

$152,000,00 0 $ 10,000,000

$(6,000,000)

$(20,000,000 )

$(4,000,000)

$ (5,000,000)

$(3,000,000)

Operating Activities

Net Income before dividends Depreciation Expense

Increase in Receivables Increase in Merchandise inventories Increase in Other current assets Increase in Accounts payable Increase in Unredeemed gift card liabilities Increase in Accrued compensation Increase in Accrued liabilities Increase in Accrued income taxes

$ 37,520,000 $ 4,000,000 $(30,000,000 ) $(54,000,000 ) $(12,000,000 ) $187,000,00 0 $ 60,000,000 $ 23,000,000

$ 13,000,000 $ 9,000,000

$ 40,000,000 $ 22,000,000

$ 14,000,000 $ 21,000,000

$ (5,000,000) $(26,000,000 ) $(37,000,000 ) $ (3,000,000) $(10,000,000 ) $ 31,000,000

$(73,000,000 ) $(52,000,000 )

$ 11,000,000 $(30,000,000 )

$ (8,000,000) $(16,000,000 )

$ 25,000,000 $(25,000,000 )

$ 4,000,000 $(37,000,000 )

$ (3,000,000) $(25,000,000 )

$152,520,00 0

$111,368,00 0 $152,520,00 0 $263,888,00 0

$ 35,000,000 $263,888,00 0 $298,888,00 0

$ 26,000,000

Investing Activities

Short-term investments Net Fixed Assets

Financing Activities Increase in notes payable

Paid in Capital

Cash at beginning of year Cash at end of year

$ $152,520,00 0

31 277 308 763

48

Detailed Timetable:

2007

ID

20 08

2009

T a s k N a m e S t a r t F in is Dh u r a tio n J u l A u g S e p O c t N o v D e c J a n F e b M a r A p r M a y J u n J u l A u g S e p O c t N o v D e c J a n F e b M a r A p r M a y J u n J u l A u g S e p O c t N o v

1 2 3 4 5 6 7 8 9 10 11 12

P u r c h a s e o r le a s e 4/1b u1/ ild7/3 in g0/ s 7 9d (F ir s t th r e e) s t o r e s 2 0 0 7 2 0 0 7 R e d e s ig n B u ild i n g s8/1/u s in9/2g 8/ 4 3d B e s t B u y s t a n d a r d2s0 0 7 2 0 0 7 1 0/1/ 1 1/1/ Stock Best Buy Stores 2 4d 20072007 1 1/1/ 1 1/2 1/ O p e n S to r e s 1 5d 20072007 P u r c h a s e o r le a s e 4/1b u1/ ild7/3 in g0/ s 7 9d (N e x t th r e e s t o r e s 2 0 0 8 2 0 0 8 R e d e s ig n B u ild i n g s8/1/u s in9/3g 0/ 4 3d B e s t B u y s t a n d a r d2s0 0 8 2 0 0 8 1 0/1/ 1 0/3 1/ Stock Best Buy Stores 2 3d 20082008 1 1/3/ 1 1/2 1/ O p e n S to r e s 1 5d 20082008 P u r c h a s e o r le a s e 1/1b u2/ ild5/2 in g9/ s 1 0 d0 (N e x t fo u r ) s t o r e s 2 0 0 9 2 0 0 9 R e d e s ig n B u ild i n g s6/1/u s in8/2g 8/ 6 5d B e s t B u y s t a n d a r d2s0 0 9 2 0 0 9 9/1/ 9/3 0/ Stock Best Buy Stores 2 2d 20092009 1 0/1/ 1 1/1 3/ O p e n S to r e s 3 2d 20092009

49

Specific Annual Objectives and Policies:

The following objectives are those that we aim to implement before the years end. All of the objectives are aimed towards expansion of Best Buy Asia and will be reviewed at the end of the time period.

• • • •

•

Open a minimum of three new stores in China Develop logistical efficiency between the U.S and China Obtain 10% market share of the Chinese electronic goods retailers market Build customer loyalty in China with superior customer service – incorporating the customer centricity model Strengthen relationships with manufacturers that are seeking to gain broader distribution in China and North America

50

Procedures for Strategy Evaluation and Review:

1. Monitor and control forecasted results with actual results to ensure accuracy and continuous improvement. 2. Ensure that every customer will experience the same satisfaction no matter which store they go to. 3. Examine annual objectives of Best Buy to keep the company on track. 4. Take corrective actions to ensure performance of the projected plans. Strategy evaluations and reviews should be done quarterly or annually depending on the information that is needed. Monitoring forecasted results should be done quarterly where the other three can be reviewed on annual bases with customer surveys being the best strategy for reviewing store satisfactions. Warning signals that should be watched for would be lagging forecast results within the industry as well as po or revenues when reviewing annual and quarterly financial statements.

51

Contingency Plan:

After careful analysis of our primary long-term strategy, which includes market penetration and growth in the Chinese electronics market, we have developed a rather simple contingency plan. We call our contingency plan the “3 S’s of the Chinese market strategy.”

Sell

The first S in the contingency plan represents “sell.” If for unforeseen reasons Best Buy is not able to effectively penetrate and grow within the Chinese market, we simply sell as many of our assets, for as much as we can get for them. Although we may take losses in the short-run for exiting the Chinese market, it will not affect our business as an entire entity.

Salvage

The second S in the contingency plan represents “salvage.” After we sell our assets from Best Buy China, we try to salvage as much as we can. This includes both our brand name and our money.

Safety

The third S in the contingency plan represents “safety.” If unfortunate circumstances lead us to abandon our operations in China, sell our assets, and salvage what we can from Best Buy China, we will retreat to the safety of the American market and refocus our efforts on the American

Final Project

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