Jason Investigates: Best Buy
BY JASON ST CLAIR
“One thing for sure, you should never stop innovating, look for opportunities to grow your business within the confines of how the business is structured right now. Look at how you might be able to partner with other business and our vendors”
This post will be a Jason Investigates, I know its been a while. But this company has always piqued my interest on how they have been able to keep the doors open while many of their competitors have shuttered their doors.
Over a 5 year span they have managed to grow their stock from $34 Dollars to $74 which they are at right now at the time of me getting this put together
First off who is the Company
A quote from their website in their About section Best Buy
“We at Best Buy work hard every day to enrich the lives of consumers through technology, whether they come to us online, visit our stores or invite us into their homes. We do this by solving technology problems and addressing key human needs across a range of areas, including entertainment, productivity, communication, food, security and health.”
This is a word for word quote taken from an article on the company’s plan for growth in the next 5 years
MINNEAPOLIS --(BUSINESS WIRE)-- Best Buy Co., Inc. (NYSE:BBY) will host an investor update this morning to highlight the progress it has made on its Building the New Blue growth strategy, detail how it plans to move forward with the strategy and discuss the company’s long-term financial outlook.
Best Buy CEO Corie Barry and other members of the executive team will outline the next phase of the company’s strategy, called Building the New Blue: Chapter Two. They will also provide a closer look at key growth initiatives, including Best Buy Health and an ongoing supply chain transformation.
“Our Building the New Blue strategy is the right one, and it’s working,” Barry said. “We are excited about what we have accomplished so far, and we believe we will continue to enrich our customers’ lives through technology and unlock profitable growth as we execute on the next chapter of this strategy.”
To support its Building the New Blue: Chapter Two strategy, Best Buy will invest to drive top- and bottom-line growth while remaining committed to continuing to create efficiencies that help fund these investments and offset potential pressures.
Today, Best Buy is setting financial targets for fiscal 2025:
Enterprise revenue of $50 billion , which compares to the company’s current fiscal 2020 guidance of $43.1 billion to $43.6 billion
Non-GAAP operating income rate of 5.0%, which compares to the company’s current fiscal 2020 guidance of flat to slightly up from fiscal 2019’s 4.6% non-GAAP operating income rate 1
$1 billion of additional cost reductions and efficiencies
Best Buy Chief Financial Officer Matt Bilunas commented, “In this next chapter, our focus continues to be top-line growth. We also believe the initiatives we will outline today, along with a continued focus on cost reductions, will result in operating income rate expansion over the five-year timeframe.”
With that said I wanted to do some research on how this company has managed to keep its doors open, obviously I don’t have access to their actual numbers, so I will have to rely on some research. One thing I can definitely tell you that Best Buy is not only in the business of selling Product to Customers, whether that’s through the small consumer or the directly to businesses. A large part of their income is through extended warranties. I also know that Best Buy makes a significant amount of money from their vendors. Don’t think that Best Buy doesn’t put a product on their front page of their website without paying a pretty penny for that. Same goes for the placement of product within their store. All their vendors have to pay for that real-estate.
Also, Amazon has been able to fend off their biggest competitor by utilizing there Renew Blue Strategy, which focuses on Scale and Location. Actual locations.
However, I found a really good run down from Panos on an article he wrote on Forbes, this is the direct quote from the article. If you want to see where I got all the information, the links will be on my website at Atheoz.com
Once—before Amazon invaded electronics commerce — Best Buy was growing bigger and better, benefiting from scale (bigger stores) in prime locations. Revenues, profits and stock prices soared, catching the attention of business strategists and Wall Street analysts.
After Amazon’s arrival, however, the game changed. Best Buy’s most important assets—location and scale—turned into liabilities. In what has come to be known as “show-rooming,” customers did their window-shopping at Best Buy, and their actual shopping at Amazon.com — which offered better price deals than Best Buy.
Best Buy’s revenues, profits, and stock headed south. And business strategists and stock analysts—some here at Forbes—predicted the slow death of the company.
Renew Blue changed the game. It helped Best Buy capitalize again on the benefits of scale and location -- in several ways. One of them was the introduction of matching prices policy. This was helped by a push in certain states to have on-line retailers collect taxes, narrowing the gap between on-line and in-store sales.
Then too, there was the use of stores as both warehouses and pick-up places to speed up delivery for on-line shoppers.
And there was expansion of product offerings in each store location to catch up with emerging trends in consumer electronics -- like home theaters and computing, health technology solutions, and assured living.
Wait, there's more. The concept of stores-within-stores, with Korean electronics giant Samsung and Microsoft opening up in Best Buy stores—in essence shifted the cost of show-rooming to these manufacturers.
The rest is history. Samsung and Microsoft were followed by Google, turning the partnership Best-Buy and electronics vendors into a form of “collective entrepreneurship.”
That’s a business model which allows the two sides to share the risks and rewards of getting closer to the customer.
Meanwhile, the company continues to reap the synergies associated with increased customer traffic — and the efficient and effective deployment of its Geek Squad to customers who buy flat panel TVs and other accessories that need installation services.
Still, Best Buy is in a cyclical and highly competitive industry in which the growing use of mobile Internet is eliminating boundaries between e-commerce and traditional commerce, depressing prices and margins across industries and sectors
So, to recap, rather than sticking with the status quo and just going belly up to their competition, they brought in some damn good leadership and made the changes that needed to be made to not only stay competitive, but thrive.
So, being that this a small business optimization podcast, what can we take away from Best Buy and use in our own small business. Well, one thing for sure, you should never stop innovating, look for opportunities to grow your business within the confines of how the business is structured right now. Look at how you might be able to partner with other business and our vendors. Take some time out of the week to write down possibilities to increase the value of your business. Take ideas from larger companies and mold and morph them into your own. The possibilities are limitless. If you need help getting some ideas together to increase your revenue stream, please reach out to me, its what I do!
One final Shutout, if shes reading, Corrie Barry the CEO of Best Buy, Damn impressive job, keep up the good work!
Take care and thanks for reading to the Atheoz Business Optimization Blog
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