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The problem addressed in the Best Buy case study is related to the focus of the strategy implemented by Hubert Joy in order to solve Best Buy’s two main issues; “declining comps and margins”. Before Joy’s administration, the company’s stock price fell to $15 after it was at $45 despite being the world largest retailer of consumer electronic ($50 billion vs $30 billion for Wallmart and $14 billion for Amazon). With Joy’s leadership, Best Buy’s efforts begin to bear in mind customers, employees, supply-chain partners, investors and the broader community in order to gain market share while increasing return on invested capital
There are five forces that influence the nature and degree of competition; “the threat of new entrants, the bargaining power of customers, the bargaining power of suppliers, the threat of substitute products and the jocheying among current contestant” Porter (1989). In Best Buy’s case study the low supplier power force can be evidenced in the ever-falling prices preassure environment on consumer-electronic manufacturers and suppliers to improve functionality, postability and other ways of differenciate their products from competitors. Because of the fierce competition among Best Buy alternatives the buyer power can be identified as strong, as many customers of the electronic segment are price sensitive, which forces Best Buy to participate in price competitions.
The high competitive rivalry force is determined by the market saturation, as other competitors like Apple, Walmart and Metro AG operate to gain market share from other organizations. The high threat of new entry force is due the rise of new technologies that offer new channels, like the birth of online retailing and Amazon’s dominance
The main broader environmental factor that affects Best Buy’s business has to do with the 2008-2009 global recession as it caused the reduction of consumer spending. The overall economic downturn was the reason for Best Buy’s competitor, Circuit City’s downfall. In the year Circuit City closed, best buy reported a 5.5% increase in market share
One other factor affecting Best Buy’s performance is the increasing competitive preassure from multichannel competitors. This is the case of “Fulfillment by Amazon”, an Amazon’s move that enabled to third party vendors to use Amazon’s customer-service and supply chain infrastructure, while further broadening its online presence
Hubert Joy’s strategic objective for Best Buy has four perspectives; he wants Best Buy to become (1) a “high-end customer-service experience” to compete with the likes of the Apple Store, (2) a retail chain for the “personal-tech powerhouses”, (4) a “friendly retail partner” for the average consumer, and (4) an “infinite online warehouse” in order to win price competitions with Amazon like businesses. This objectives implies the focus on the new “Connected Store” format and “Best Buy Mobile” concept store.
In order to achieve this goal, Joy’s focus is right on customers, employees, supply-chain partners, investors and the broader community. Best Buy’s partnership with vendors offer the chance to showcase many product portfolios to facilitate buying decisions, in this case, highly trained salespeople provide a service of product support not available through online channels.
In regards of the phisical facilities, Best Buy’s focus is on its higher performing units in North America (including Canada and Mexico) and it is aiming to exit the Asian an European markets altogether. On the other hand, it plans to cut costs by reducing its “big box” real state by 10% by 2016, open 600 to 800 new Best Buy Mobile stores, which focus on smartphones and other mobile devices and increase the number or retail points in order to increase the company’s flexibility as multichannel retailer.
All these actions are conceived with the goal of turning around negative-comps-and-declining- margins phase to a transformation phase that include driving profitable growth and continuing margins improvements while funding investments in the future
The Best Buy target market represents great opportunities as the global computer and electronics industry is projected to reach a value of $620 billion by 2016, which is the segment that Best Buy currently dominates. On the other hand, an important environment threat comes with the fact that the consumer-eletronics retail industry is both cyclical and seasonal, which means that sales are correlated with macroeconomic factors such as the housing market and the ability to obtain credit, so Best Buy’s revenues are tied to the economic environment
A Best Buy’s weakness is evidenced in Best Buy’s frustration to learn that in many opportunities their stores are serving as showrooms for Amazon buyers. Alternatively, their focus on customer segments that add value, helps them to target especific campaings to their customer base; urban trendsetters, upscale suburban, empty nesters, and middle America. This hyper focus in target markets via in-depth data analysis and systematic customer segmentation allows them to achieve a “customer-centricity” approach, in which businesses act from the “outside in”, asking what problems their customer are facing in order to provide first-class solutions
Another Best Buy’s key advantage is its top management team, many of the high executives of the C-suite count with strong background and proven succesful experiences outside Best Buy, they have worked in corporations as Mars Chocolate, Google, CNN, AutoNation, Expedia, LL Bean and McKinsey and Company. In addition, many high-level executives are personnel from within Best Buy’s workforce who contribute with valuable insights
Its private-label brands; insignia (electronic equipment, i.e. tv, car stereos, etc), Dynex (economically priced computer), Init (Storage solutions, like equipment bags), Rocketfish (high-end cables), The Geek Squad (provides computer repair and installation services) and its own stores-within-a-store brands like Pacific Kitchen and Magnolia Design allow Best Buy to compete against competitors with their own branded products
The company should focus on understanding and predicting consumer demand as well as focus on its workforce capacitation, because they are two imperatives in the modern consumer-electronic industry, to achieve this, Best Buy must stay up to date in the technological trends
They should also focus on developing sustainable operations in order to maximize business processes’ productivity which also increase the return on invested capital. Best Buy is not an outsider in this focus as they renovated its commitment to environmental sustainability and corporate social responsibility with the following achievements; (1) One billion pounds of equipment were kept from landfills with the company’s electronics recycling program (2) carbon footprint reduction by 20%, (3) the establishment of 8 Teen Tech Centers and (4) raised $10 million to support ST. Jude Childern’s Reseach Hospital