Corporate Analysis of Best Buy

Group AFK: Colin Fitzpatrick, Sarina Ball, Bobby Hardin Jr.

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Table of Contents

Executive Summary …………………………………………………………………………… 3

Introduction ……………………………………………………………………………………. 4

External Analysis ……………………………………………………………………………… 6

Porter’s Five Forces Model ……………………………………………………………. 6

PESTEL Factors ……………………………………………………………………….. 9

Internal Analysis ………………………………………………………………………………. 16

Value Chain Analysis ………………………………………………………………….. 17

Value Chain Activities: Advantages & Disadvantages …………………………………21

Financial Ratio Analysis ………………………………………………………………. 21

VRIO Resource Framework..………………………………………………………….. 24

Strategy Recommendations …………………………………………………………………… 26

Company’s Business Level Strategy.……………………………………………………26

Company’s Corporate Level Strategy…………………………………………………...29

Final Recommendations ………………………………………………………………...1

Appendix……….………………………………………………………………………………..1

References ………………………………………………………………………………………1
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Executive Summary

In this paper, you will discern the strategic analysis of Best Buy, a technology based retailer

headquartered in the United States. The objective of this inquiry is to use both internal analysis,

and external analysis to provide Best Buy with strategy recommendations to help quantify the

overall administrative direction the company should take as well as arrange procedures needed to

be implemented in order to improve its current sales figures. Breaking down the material, the

goal of the external analysis is to assess the general environment in which Best Buy competes on

an industry level, gauge their target market whilst also conducting a Porter’s Five Forces analysis

on the microelectronics industry to license a full audit of the companies financials including

syndicate stability and profitability. For the internal analysis, the aim is to analyze the

advantages and disadvantages of Best Buy’s Value Chain activities and a financial analysis to

collate the firm to one of its biggest competitors: Walmart. Lastly there will be a review of the

maturity level of the industry in which Best Buy competes in, VRIO framework of the company,

and strategy proposals that will help put the company in a preeminent position.
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Introduction

Best Buy is an American retailer specializing in a variety of consumer related products

such as: software, video games, TV’s, music, mobile phones, digital cameras, car stereos, and video

cameras, in addition to home appliances (washing machines, dryers, and refrigerators). It is

headquartered in Richfield, Minnesota where it was founded and sells products both online and

in physical retail centers. As of 2022 Best Buy owns and operates one thousand one hundred and

forty four brick and mortar retail stores in the United States, Canada and Mexico however the

majority of its revenue is generated in the United States. Recently BestBuy has been

experiencing a decline in physical stores over time; in 2014 the company hit its peak when it

operated 1,779 stores which is a substantial abatement. Despite these setbacks however,

according to the company's S.E.C filings the corporation has been growing steadily since 2009

and generated 51,761 million dollars in revenue the first quarter in January of 2022 and generates

around 49 billion dollars in revenue each year (Cuofano, 2019). For the most part, it is estimated

that Best Buy’s online sales account for around 45% of its total revenue, on average this figure

has been growing since 2018. In addition in 2022 the number of total employees at Best Buy

totaled 105,000. Best Buy was originally founded as an audio specialty company called The

Sound Of Music in 1966 but was rebranded as a general consumer electronics retailer in 1983 .It

is important to note that although Best Buy is predominantly a retailer, Best Buy is also a

wholesaler of eight companies' products: Dynex, RocketFish, Insignia, Modal, Platinum, Init,

Pacific Sales and Magnolia Home Theater.

Altogether, in regards to the publication of the company's mission statement BestBuy

defies corporate convention. While a mission statement is provided online and was traced back
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to the year 2013, it was not formally released by the company. Furthermore, the source is

unknown and only surmised to be affiliated with the company (Jurevicius, 2021). Best Buy’s

unsubstantiated mission statement reads as follows: “we’re a growth company focused on better

solving the unmet needs of our customers—and we rely on our employees to solve those

puzzles” (Samuel, 2021). In addition, the company also does not provide a clear cut vision

statement. Consequently the company’s vision statement is also up for supposition. As of right

now, two different sources listed two different vision statements for Best Buy postulated from

the company's blog and public postings. The first vision statement provided by the website

Strategic Management Insights reads as follows: "We believe technology is amazing, and we

aspire to enhance our customers’ lives through technology – anywhere, anytime." Next, the

second vision statement provided by the website How I got the Job reads as follows: “to

positively impact the world, enrich people’s lives through technology and contribute to the

common good.” Both Best Buys’ vision statements and the mission statement leave room for

amelioration.The senior leadership of the firm includes the current chief executive officer of

BestBuy which is Corie Barry who joined the company in 1999 and has held a variety of

financial and operational roles across the company. The chief financial officer is Matt Bilunas

and he is responsible for overseeing all aspects of global finance and strategic planning. Matt

joined Best Buy in 2006 and has served a variety of financial leadership roles both in the field

and on the corporate campus.

Best Buy’s primary target market is Millennials aged 21-40 with low-to middle-class

socioeconomic status as of 2022 (Thomas, n.d.). Best Buy provides counseling services along

with innovative products to the mass market in its stores. It caters to clients who are not
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technology savvy. This is made evident by the services it provides both in-home and in-store.

Firstly, in-home services include: wifi setup, professional TV mounting, smart doorbell

installations and authorized apple device repair. Secondly, in store services include device

inspection by the Geek Squad and in-store product advisers for unsure clients. Many clients visit

Best Buy in order to receive reassurance that they are buying the best computer, tablet or phone

for their daily needs. On average the demographic for Best Buy tends to skew more male than

female. However, currently Best buy is experiencing a demographics trend which entails an

influx of female customers.

External Analysis

Industry

The industry in which Best Buy resides is classified as “brick and mortar” electronic

retailing. Although Best Buy competes in both an online and physical marketplace our analysis

will center on the physical market marketplace. In addition, we will be tailoring the analysis to

only include only the business to consumer portion of total transactions in the corporation. Brick

and mortar retail is a colloquial term that refers to a store with at least one physical location that

customers can peruse in person. Businesses that maintain physical locations provide services to

clients, sell goods and display new products. Stores in the electronic retailing industry sell

primarily technology related products such as phones, computers, kitchen appliances, video

games and television sets. To simplify matters we will further cater the review to include only

retailers in the United States since Best Buy generates eighty percent of its revenue from this

region as well as China since retailers source ninety percent of their goods from this country.
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Maturity Level

The brick and mortar electronic retailing industry on a whole is currently in the growth

phase. Nowadays most individuals have incorporated consumer electronics items into their

routines. Furthermore, as mentioned in Porter’s Five Forces analysis, investments accrued by

leading market players in research and development activities to produce new consumer

electronic items with enhanced features is anticipated to drive most of the new economic growth

of the consumer electronics market in the forecasted years. Likewise, the integration of these

new novel advanced technologies by society is also anticipated to propel sales and heighten

competition in this industry. In 2021 the consumer electronics market was estimated to be worth

728.1 billion U.S dollars and is expected to reach 964.6 billion by 2028 based on primary

research done by Vantage. Additionally, it is important to note that while the comprehensive

electronic retailing industry is in the growth phase, specific items sold in certain categories

within the industry are nearing maturity. For example, the growth for computers and TV’s in the

past three years has been much faster than smartphones. Across all consumer micro-electronic

categories, computer sales are expected to grow over thirty four percent whereas TV sets over

twelve, smartphones however are only projected to grow one percent (Stewart & Crossan, 2022).

All together, this gives a sense of assurance of longevity for the firm. A growing and stable

industry with new products available for consumers to purchase every season due to a high

influx of money into key research and development sectors secures a loyal customer base for

Best Buy years to come.

P.E.S.T.E.L

Political: (Non-Market Strategy):

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The 2020 to present global silicone chip shortage is an ongoing global crisis which is

currently affecting many electronic retailers. The crisis has led to major price increases, shortage

queues among computers, video game consoles, graphics applications, household appliances and

other products that require semiconductors. In early 2020 the governments of Taiwan, South

Korea, China mitigated production due to the COVID-19 pandemic disrupting supply chains

(Taylor, 2021). The antecedent outsourcing of production of silicone chips had made western

electronics retailers reliant upon Asian producers overseas so when the Taiwenese and Chinese

governments decreed production to cease it caused widespread pandemonium in the western

market. Furthermore, domestically the perfect storm of supply and demand forces brought upon

by the pandemic caused a surge in inquiry for computers, peripherals and networks due to an

increase in remote learning and work from subsequent governmental state-wide lockdowns.

Thereafter, the price of noble gasses like neon, argon, xenon and helium increased sixfold

due to political tension in Ukraine. Noble gasses are critical in the production of

microelectronics, neon, in particular, plays a vital role in the optical lithographic process used to

etch patterns on silicon wafers, creating circuits in semiconductor chips (Wong, 2022). The

supply of neon was severely constrained by the 2022 Russian invasion of Ukraine sparking

concerns that the conflict will further the transpiring chip shortage. The second largest country in

Europe, Ukraine extracts around half of the global neon supply from the atmosphere as a

byproduct of steel smelting, and around 90% of the United States semiconductor-grade neon is

imported from Ukraine. As of late semiconductor manufacturers have been searching for

alternative suppliers in China but the existing facilities would need at least nine months

preparation to increase extraction levels to the desired amount (Howley, 2021). However,
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fortunately over the last seven to eight years suppliers have already started shifting production to

other countries since chipmakers have been aware of such an eventuality for a long time. In any

case the result of this conflict will be one to three percent increase in price in many stores since

supply issues tend to tickle down from the producers to consumers.

Economic: (Deflation or Inflation)

The Federal Reserve of the United States in order to curtail the rising 8.3% inflation rate

(the highest at nearly 40 years) has raised interest rates by 75 bps or basis points which can

impact retailers' access to capital for expansion (Schulze & Jamner, 2022). The results of the

Federal Reserve's plan to tighten the economy can have devastating implications for the future if

not executed carefully. For instance, it could potentially make it harder for retailers to raise the

capital needed to open new stores. Moreover, raising inflation in the United States is going to

drive down the value of the currency while concurrently raising prices which greatly abbreviates

consumers’ disposable income. Moody’s Analytics and Penn-Wharton estimate that inflation is

costing the average household three hundred dollars per month. In addition, the Harris Poll, a

global market research and consulting firm recently conducted a survey and found that eighty

four of Americans are planning to cut back on key purchases (Riedl, 2022). The significance of

which cannot be over-emphasized since the majority of consumer electronics goods sold are

considered commodities and the sale of such items is reliant upon customers’ disposable income.

In addition, the sale of microelectronics is also dependent upon the Chinese economy

since 90.6% percent of the world's personal computers and 70.6% of the global supply of

smartphones were produced in China (Bühring, 2018). The Chinese Yuan is currently
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depreciating against the dollar. China's growth rate by year has slowed dramatically since the

10.6% extensive growth in 2010 to 2.3% in 2020. For foreign producers this means their capital

has further reach and expansion is a viable option but the dire state of the U.S economy can

diminish the value of this recourse. Many market watchers such as Clearbridge are predicting a

recession anywhere within a few months to a year. The prices of the current economy are steady

but on average unemployment is higher than usual in the United States.

Sociocultural: (Trends, Norms, Values Culture)

In the year 2012 margins tightened for physical consumer electronics stores the reason:

the consumer market place had changed. As digital e-commerce, and comparison apps have

grown in popularity, more consumers have retreated to device retailers exclusively to touch or

inspect novel technology gadgets and interact with them instead of actually intending to buy

them (Moores, 2018). This new trend entails customers browsing and evaluating in-store what

suits them best and later finalizing their purchase on online platforms for the lowest price they

find. Moving forward into 2023 and beyond this new concept deemed “showcasing" will become

increasingly more relevant as the online retailing branch expands. It is important to note that

showcasing does not act in accordance with the traditional business model where the

preponderance of a store’s revenue is consumer driven. As of 2015, the electronic retailers'

business model implies making most of their revenue by using their physical space to showcase

different vendors, in exchange for a commission fee.

Nevertheless, retail stores still have the upper hand in providing customers with presale

assurance even though online retailers may offer a wider assortment of goods at a lower price.
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This contemporary consumer trend involves consumers being reluctant to buy big-ticket items

such as high-priced electronics online. In fact, Kbb Review, an independent news and current

event magazine found that eighty two percent of consumers surveyed believed that in-store

purchasing gave them more security when buying expensive items, as they could look at the

product, affirm its quality and determine how it functioned before committing to a purchase.

Lastly, other consumer-related purchase trends show an increased movement towards experience

related procurement. This emphasizes the importance of proper customer service as well as the

enhancement of a store’s contextual elements or the look and feel of the store. To summarize,

electronics retailers should make an effort to provide clean, sleek and modern product

demonstrations or merchandise expositions and establish an amicable atmosphere to elevate the

customer’s experience.

Technological: (Process Improvement, Product Improvement)

Retail uses a variety of technology everyday in order to streamline transactions such as

the point of sales system for instance which is a computerized administration apparatus used to

manage transactions at the end of a customer’s shopping experience. The point of sale system

typically includes hardware components such as a cash register or electronic point-of-sale

terminal and software components that handle inventory management, customer tracking, and

sales data analysis. Not to mention, the retail industry has greatly benefited from the advent of

the internet since it is basically a digital catalog for their products which are either shipped to the

customers’ home or the closest store for pickup. The ERP core software program is used by

many companies to integrate and coordinate information in every area of the business including,

sales marketing, logistics, accounting and staffing in real time. In addition, Enterprise Resource
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planning or ERP allows customers to type in the address of certain store locations and check the

availability of the item in stores. With the advent of new technologies retailers can now build on

the data they have and use it to create more intelligent and AI-enabled services. This means

customers will expect sophisticated levels of personalization from retailers, so recommendation

engines are becoming increasingly important (Marr, 2021). Technology has also made the flow

of information practically seamless meaning it is easier than ever before for consumers to

compare products online escalating the already rigorous competition among respective retailers.

Ecological: (Broad Environment & Natural Environment)

A global trend that is currently sweeping the market with increasing traction is the

environmentally friendly or “green” initiative also known as sustainability. The use of natural

resources is always at the forefront of this movement. As of late, many retail players have

experienced a significant shift in customer preferences and expectations; they now predicate

more transparency from companies. This is due to the fact that sustainability is more than just an

environmental issue; it involves developing an economy that is based on triple bottom-line

values: people, planet, and profit. The main issues concerning the broad environment include,

natural habitat destruction, climate change, and equitable treatment of employees regardless of

their location in the world. Customers expect companies to show their impact on the

environment in public open-to-view documents. To alleviate environmental concerns many

retailers enact common practices such as switching from plastic bags to paper bags,

manufacturing products with recycled materials or setting aside a portion of their returns for a

cause. For instance, a paper company may replant a tree for every ten packs of paper sold, a shoe
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company may fundraise money for animal shelters, and a travel agency may set aside a fund to

help families in less fortunate countries.

Companies pursuing sustainability efforts need to be able to dispense a higher cost

structure as producers that switch to sourcing environmentally friendly materials need to forego

convenience to obtain them. Also, the fabrication of many goods and fossil fuel energy in

general has been linked to greenhouse gas emissions and a disseminating ozone layer. For

example, the mining of coal or oil releases methane gas, a potent hydrocarbon which causes

harmful greenhouse gasses to emerge that absorb infrared radiation and reradiate it back (Niall,

2009). As time goes on more and more players in the European Union and the Unites States are

turning away from coal and oil production, instituting strict governmental restrictions that ban

coal production altogether as an initiative to switch to cleaner energy sources. For example,

England plans to phase out coal-fired power stations by 2024, while Drax, the country’s largest

power station, has pledged to stop using coal by March 2021 (Wood, 2021). Likewise the United

States has closed the KeyStone Pipeline after ten years of protests, legal battles and flip-flopping

executive orders. The KeyStone pipeline increased capacity to process one hundred sixty eight

billion barrels of crude oil locked up under Canada’s boreal forest. The repercussions for these

closures will be rising energy prices; the substituted renewable energy is intermittent and on

average more expensive to maintain. For electronic retailers this means higher energy costs for

lighting as well as heating or cooling the store and charging products in venue demonstrations.

Legal: (Laws, Mandates and Regulations or court decisions which impact profit)

Legality is a huge issue when it comes to the profits being made by retailers and can

impact a company's ability to make money if not looked into properly. When it comes to
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regulations, tariffs have been the front-runner for issues that have made it seemingly terrifying to

determine profit numbers in the coming years. It’s caused stores to have to strategize differently

and for some retailers, they have taken advantage of some of the specialized stores' struggles as

they have brought other offerings that allow for their stores to remain functional. Deglobalization

has added continuous issues in the retail market as globalization has stalled due to the potential

of a global recession in the year 2024 that could cause the free flow of trade, capital, and

technology to come to a standstill preventing certain retailers from exceling and causing stores to

shut down operations in certain areas. They aren't receiving the proper resources to allow

themselves to maintain business in their expanded store fronts. Foreign companies have helped

by large margins to contribute to the US economy and are some of the main reasons retailers in

the United States are so functional. Having to rely on domestic resources will cause retailers to

pay higher costs and could lead to a shortage of supply for those resources. Overall, the barriers

to trade are minimal in the consumer electronics industry which help reduce transportation and

shipping costs from production.

Five Forces Model

Porter's Five Forces is an analytical model that helps marketers and business managers

look at the 'balance of power' in a market between different organizations to analyze the

attractiveness and profitability of an industry sector. The first force according to Porter’s Five

Forces Model which affects overall competitive advantage is the Threat of New Entrants. The

threat of new entrants in the brick and mortar electronic retailing industry is medium. This is due

to the fact that customers are very loyal to existing brands and retail stores on the market. It also

takes a significant amount of time to build a brand image to get consumers into new stores. Not

to mention, strong distribution networks need to be established to keep the retail store fully
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stocked. The industry’s profit margin on average is only 3.8% which is low compared to some

other industries. Admittedly, however the legal requirements for starting a store are not high and

no specific knowledge or skill is required for proper initiation. Moreover, it is possible to start a

retail business on a small scale without requiring massive capital. Customers switching costs are

low as each sale is handled on an individual basis and no long term contracts or commitments

secure sales for the future. Network effects are defined as the occurrence in which people or

participants join a platform, rapidly increasing the value of the platform and the service it offers.

The network effect is not present in this industry as the value of a retail store does not increase

its worth to consumers as more customers utilize its service or purchase its products. In addition,

the technology sector is currently experiencing a lot of direct investment into development and

research of novel software and hardware. As a result many retailers will want to profit on the

expansive growth of the industry and therefore enter the market.

In the brick and mortar electronic retailing industry the Power of Suppliers is high. The

primary suppliers in this industry include electronic manufacturers such as Apple, Samsung, and

Hewlett-Packard. The reason the power of suppliers is high is because they are not reliant upon

brick and mortar retailers to sell their products. Forward integration is a practical alternative for

many electronics manufacturers as the barriers to entry for establishing a new store are low.

Apple for instance has created a brick and mortar wholesale chain to sell and service their own

products and this has allowed them to exert a greater degree of control on their brand. In

addition, suppliers could also sell their products online to forego the retailer entirely. Likewise,

suppliers often lock retailers into long-term supply deals with manufacturers oftentimes these

deals provide goods at a reduced price for a sustained period raising the cost of switching to a

new supplier. To a certain extent the products sold are differentiated giving the supplier even
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further leverage. However, brick and mortar stores still have power since the number of potential

suppliers or manufacturers outnumbers the amount of physical retailers on the market. This

means suppliers have a limited number of brick and mortar retailers to select from when

negotiating.

All in all the Power of Buyers force for business to consumer sales is low in the brick and

mortar electronic retailing industry. Mainly, because there are many customers in the mass

market and each customer usually only buys a single high order item. In addition, it is hard for

the customer to threaten to vertically integrate into the production. The buyer's switching costs

are low. The industry’s products, while not direct substitutes, are largely standardized and there

are numerous other types of lower cost and higher cost devices that a consumer could use to

directly substitute them. For instance, China has started producing new phone brands such as

OnePlus, Oppo, Vivo, and Realme which are beating giants like Samsung and Apple. In essence

these products are direct substitutions for smart phones with the only difference being built in

ads and a cheaper selling price. In addition, more prosperous consumers could substitute physical

retailer laptops with other models found online such as the Dragonfly Futurfön, MSI GT80 Titan

or Asus ROG GX700 (Villas-boas, 2016).

The Threat of Substitutes, is relatively high. E-commerce sites such as Amazon, and Ebay

provide a viable alternative to instore shopping and provide a substantial variety of benefits. The

first advantage is convenience since consumers can shop from home, on the go or even from

halfway around the world to procure the same quality product as in a physical brick and mortar

electronics retailer. Moreover, online stores do not have opening or closing times; they are open
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to customers' inquiries twenty-four hours a day. It is also time saving for the consumer if they are

looking for a specific item. For example, rather than spending hours searching for the product in

different stores they can find and acquire the item in a matter of minutes with a straightforward

internet web-browser search and a couple of clicks to finalize their purchase. Apart from

convenience e-commerce sites also provide customers with lower prices since items sold online

can be brought directly from the manufacturer eliminating retailer mark-up costs. In like manner

a larger stock is available online since the capacity of warehouses and in-store space limits the

amount of inventory accessible in local stores. The next advantage is a larger product register,

some e-commerce sites offer online exclusive products as well as brands no longer prevalent on

the streets. Furthermore online e-commerce sites provide more information and longer product

descriptions than the labels in store as well as product reviews giving the customer a more

accurate depiction of the item itself. Lastly, it is easier to compare the prices and attributes of the

products sold by different online vendors due to the availability of this supplement information.

All things considered, online e-commerce centers provide an attractive price-performance trade-

off to consumers which brick and mortar retailers must be wary of.

When it comes to the prevailing Rivalry Among Existing Competitors for brick and

mortar electronic retailing it is on average pretty high. The biggest rivals in this industry are very

well established, they include retailers such as Walmart, Target, Amazon and Costco. Most

electronic retailers sell "big-ticket" goods in which people spend an extended amount of time

researching before making a purchase. This means that customers spend a lot of time comparing

prices with other retailers. Also, if the device is of the same model, make and condition they are

perfect substitutes meaning the rivalry increases exponentially and stores run the risk of pursuing
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solely price based competition. There is also a deal with commodification between the core

products of electronic retailing. Retailers are starting to notice this weakness in other retailers

and are able to strengthen their departments which is affecting specialized stores who mainly

focus on selling those products.

PESTLE Impact on Porter’s Five Forces Model

The effect that PESTLE will have on Porter's five forces model includes raising the barriers to

entry. The current chip silicon shortages, high interest rate on commercial properties as well as

raising energy prices will make it harder for new brick and mortar electronic retailers to get

established, decreasing the impact of the Threat of New Entrants force. In addition, as physical

retailers goods become more expensive due to supply chain shortages substitute e-commerce

centers will take precedence so the Threat of Substitutes increases. The United States, although

currently grappling with high inflation, has a stronger currency than a myriad of other countries

in the world. When the domestic currency appreciates, goods from abroad become more

affordable. This signifies domestic retailers can leverage their strong currency to buy more

merchandise from international suppliers consequently lowering Porter’s Power of Suppliers.

All things considered, Power of Buyers and Rivalry Among Existing Competitors will remain

largely unaffected.

Internal Analysis

Porter's generic business model framework describes four distinct strategies companies

can pursue; in 1985 he devised the generic strategy model, a visual representation set up as a

graph with four quadrants in his book Competitive Advantage: Creating and Sustaining Superior

Performance. The y-axis of this graph included the scope of the business or the size of its target
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market. The negative region was defined as narrow meaning the company caters to niche

clientele while the positive region was defined as broad meaning the business caters to the mass

market. In our analysis we found Best Buy catered to a broader customer base in the mass

market. The x-axis of this graph defines how focused the company is on differentiating or

providing quality products. The negative region is defined as cost-leadership while the positive

region is defined as differentiation or quality leadership.

That being said, Best Buy is both a differentiator and quality leader when taking its

services and products into account. The generic business market strategy Best Buy follows is

simply called a differentiation strategy. This strategy is evident in Best Buy’s business model

because although they do offer a price matching policy it requires the customer to actively seek

out the alternative price. In addition, it offers an extended electronics assortment to a broad scope

of consumers both budget conscious as well as more high-end upscale consumers.When it comes

to price strategies there are two a company can implement: everyday low pricing (EDLP) and

high/low pricing. An everyday low pricing strategy incorporates no promotions into its business

model because prices are already appraised lower than its competitors. Whereas a high/low

pricing strategy means a company relies on discounts and sales promotions to generate revenue.

Best Buy utilizes the last-mentioned: high/low pricing.

The resource based view is a model that sees resources as the key to distinguished

performance. Resources can be either tangible or intangible. By definition a resource must be a

source of competitive advantage that contributes to the perceived customer value of the

enterprise as a whole and is serviceable in a variety of markets. In addition, it must also be

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difficult for competition to imitate. Best Buy’s valuable resource is convenience and emanates

from having established considerable market share in the United States. Namely, seventy percent

of residents can access a store within fifteen minutes of their lodgings. Furthermore, another

accompanying competence includes the interplay of technology related services to augment its

main retail strategic business unit. For instance, Best Buy developer is a related subsidiary

business unit which has an extensive application programming interface for databases that allows

developers to query products, stores, categories, and more. Social Complexity describes the

different social and business systems in which businesses interact and is a source of competitive

advantage. This emerges when two or more individual systems are combined; the interaction

between the different technology services and branches that a Best Buy runs creates too many

permutations to be understood with any accuracy by imitators (Rothaermel, 2019).

VRIO Resource Framework

Valuable: Firstly, Best Buy’s value comes from its ability to provide differentiated

support and services for their stores and offer a diverse selection of products at a variety of price

points. For instance, for customers simply perusing Best Buy has the competitive advantage of

an extended selection compared to other retailers selling similar products such as Costco or

Walmart which do not specialize in electronics. Additionally, they provide on-site service visits

for business locations, in-store services for everyday customers, and in-home services for those

who are unable to come in store. Moreover, a highly knowledgeable salesforce allows Bestbuy to

charge a premium price. In addition, the vertically integrated Geek Squad company gives the

firm a competitive advantage over other electronic retailers such as Walmart, Amazon, or Apple.
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All together, Best Buy's services have a high consumer satisfaction rate; they set themselves

apart by providing high expertise and quality service.

Rare: Best Buy’s business model is unique in that it offers repair services within its retail

stores. While admittedly, there are a few device rehabilitation services that are located within

retail stores, on average they are far and few between. For example, the only other competitor

that offers a similar service in its electronics section is Target. In essence, all other businesses

separate the sale and refurbishment of microelectronics. This means that they either specialize in

electronic retailing, or device restoration. The multifarious composite in-store service offerings

of Best Buy such as product advising, device repair and simple everyday retailing, distinguishes

its business model from other similar retailers competing in the market

Hard to Imitate: Best Buy has been around a long time this means they have had time to

hone their skills with integration of other companies such as Geek Squad as well as develop top

notch employee training. This means they have developed path dependence which is the

dependence of value creation based on the path of previous decisions of research investment,

rather than simply on favorable conditions. Consequently, other firms will experience time

compression diseconomies, if they attempt to imitate Geek Squad or any of its other in-home

consulting services. While other firms can attempt to compress resources and labor into a shorter

period of time the push will not be as effective as when the firm spreads out its efforts and

investments over a longer time. In addition, over the years they have also been able to build up a

considerable loyal customer base. It also has intellectual protection for the eight of the

company's products it wholesales, preventing other firms from copying and redistricting legally.
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Organized to Capitalize on Benefits: Best Buy has all of the latest technology and

enterprise resource systems in place to coordinate and streamline the services it provides in real

time. In this regard regular everyday sales functions are made more efficient so less effort is

needed by employees to handle mechanistic day to day operations. This is evident in its supply

chain, human resource department as well as its brick and mortar vocation. As a result this frees

up time for management to focus on long-term strategic commitments or decisions which could

impact the chainstore on a larger scale.

Value Chain Activities - (Advantages vs Disadvantages)

Value chain activities include a company-wide inspection of all processes, from the raw

resource to the final product to the after-sale customer service. For the most part the majority of

goods Best Buy markets are produced by independent subsidiaries from profuse electronic

manufacturers. For instance Apple phones and computers, items sold frequently in the firm’s

store are manufactured by Foxconn, a Taiwanese electronics company in China. As a result solid

relationships with suppliers is crucial to take part in proper receiving, storing, and delivering the

product. As mentioned above in the Power of Suppliers section in the Porter’s Five Forces

analysis Best Buy has significant leverage at this stage of the value chain as it gets to set the

desired requirements needed to be met by the wholesaler of the product.

When it comes to the storage and logistics portion of the Value Chain activities, Best Buy

outsources this division to another company called Bastian Solutions to create a more efficient

warehouse operating system as well as to create broader delivery provisions. In the recent past

Best Buy has faced corporate challenges with other companies who had consolidated their
 23

supply chains to be more modern much earlier into their logistics program such as the e-

commerce giant Amazon. In order to capitalize on their new strategy which required deployment

of advanced automation across multiple sites in a very short time frame they decided to partner

with Bastian Solutions. Together the companies integrated automated storage, retrieval

technology, conveyor and warehouse software to best serve each facility. Also, as part of their

supply chain revitalization initiative Best Buy decided to redesign its regional distribution

centers and created metro e-commerce centers.

Some advantages of the new automated storage and retrieval system include storage

density since the new Autostore system provided by Bastian Solutions is ultra-dense with four

times the storage capacity of manual storage. In addition, natural slotting improves the flow of

goods through the warehouse. With this system the similar merchandise is stored in bins,

“popular” bins stay at the top of the facility whereas other bins needed less frequently “sink''

meaning that merchandise is delivered quickly to ports decreasing lead time as less digging is

required to obtain the most frequently needed bins (Grady, 2020). Other advantages include

greater flexibility and ergonomics; it provides a higher-quality work environment for Best Buy’s

workers. The only disadvantage from this partnership is that BestBuy is reliant upon another

company to store and deliver its goods; this means that if Bastian Solutions forecloses Best Buy

will be unable to provide its stores with merchandise.

Technology permeates almost every aspect of Best Buy's value chain and the human

resource department is no exception. Best Buy has interwoven digital technology to help assist

the human resource process. Since bureaucratic and administrative tasks are handed over to
 24

software systems the human resource department can spend more time on the personal aspects of

their roles which relate more directly to helping employees. In the modern workplace many

human resource employees are so saturated with busy work that they have very little time left to

devote to speaking and interacting with the actual people they're supposed to be responsible for

(WBR Insights, n.d.). Modern technology allows administrative tasks to easily be handled by

technology greatly easing this disparity. For example, the informative software system can vet

candidates in the first stage of the employment process. When enquiring about positions job

seekers can get details about the role and can even request application packs. Reducing the

amount of time the human resources staff must spend answering the phone or emails to provide

basic information is likely to be greeted with much appreciation.

It's not just the process of hiring new staff which can benefit from the implementation of

digital technology. Best Buy also uses this technology to give employees more ways to manage

their career development and reach out to their superiors. Its online platforms can be used by

employees to track, share, and meet their career goals. The platform also includes gamification

such as achievement badges or leaderboards which can help foster a sense of friendly

competition which motivates everyone to reach their potential. Chris Taylor, the current head of

the human resource department for Best Buy spearheaded the change and when interviewed

about the novel stratagem the company has taken he responded: "We've completely re-imagined

how we approach and execute projects to adopt new ways of doing business. Work is self-driven

in an environment of accountability, with team coaches there to help staff members along the

way. This is at the heart of Best Buy's agile methodology."

 25

The next value chain activities Best Buy must also engage are marketing and sales

promotion. This is a crucial step to make prospective customers believe that they are investing in

the right products. In the past the corporation has shown vivid efforts in the way of marketing by

investing a great deal of money on: advertisement, salesforce employment, promotional

campaigns, finding the right pricing strategy, and enhancing relationship management with all

stakeholders of the advertising team. On average, Best Buy has spent over a hundred million on

advertising on over two hundred and fifty different media formats in the last year. The most

prevalent formats used were digital print and premium national television ad units. The company

also partners with Media Radar to assist their marketing department and advertising sales teams

(Augusta, 2022). In essence, Media Radar helps Best Buy make key marketing decisions. It is an

award-winning advertising intelligence platform used by sizable corporations that need to

produce promotional media for the mass market; it also offers long term advertising plans and

counseling services. The main advantage Best Buy receives from partnering with the company

Media Radar is being able to focus more wholly on their core competency: providing a wide

variety of technology and services. When it comes to sales promotion of products in stores,

knowledgeable employees combine marketing and expert service to help customers find the right

product. This however doesn’t happen by chance. Sales training at Best Buy continues to receive

strong financial backing because of its direct connection to driving sales and improving the

customer experience. On aggregate in 2022, employees participated in millions of training hours

in classrooms or online. Sales and Solutions Essentials (SSE) is a four-day training class that

equips all new sales employees with skills and behaviors to successfully deliver a differentiated

experience to every customer (Freifeld, 2019). The course is divided into four distinct segments
 26

each covering the main product categories sold in stores: Computing, Home Theater, Appliances,

and Mobile.

After-sale customer services are vertically integrated into the corporation. Best Buy has a

department solely dedicated to help manage consumers' accounts, orders, purchases, rewards,

product repair, store information and more. In addition, it also offers geek squad and experts who

can deliver, install, protect and repair major household appliances such as refrigerators, washers

dryers, or haul away and recycle old ones. The advantages of having completely vertically

integrated after-sale services include complete control of their daily business functions and

consistent service quality provided to consumer interaction .

Value Chain Analysis

As a whole the company has a modern distribution network that keeps it thriving in the

current digital economy. The firm has achieved a better supply chain by integrating efficient

stock control and advanced expertise. It is important to note that the retailing conglomerate

outsources both its marketing and logistics division but has incorporated its own human resource

department for better functionality. Nevertheless, Best Buy has vertically integrated with

Magnolia Hi-Fi, a manufacturer of high-end in-home theater LED screens, Pacific Sales Kitchen

and Bath Centers which offer upscale brand-name kitchen and home appliances as well as Geek

Squad which provides Best Buy customers with after-sales service support.

Financial Ratio Analysis

Best Buy is currently the leader in the electronics and appliance retailing industry due to

its monumental size. Their biggest competitor is Walmart, a diversified retailer, as they offer
 27

similar products to consumers both online and in brick-and-mortar locations. Walmart has a

significantly wider reach on consumers as they operate in twenty-four countries with over 10,500

stores, compared to Best Buy, which operates in three countries and has just over 1,100 stores.

Although Walmart has a larger product portfolio, they compete with Best Buy in the consumer

electronics market. They have consistently surpassed Best Buy in terms of sales revenue simply

because of their cost leadership strategy. Looking at the financial ratios of both companies for

the years 2019, 2020, and 2021, revealed the following information.

In all three years (2019, 2020, 2021), Best Buy had higher ROA and ROE ratios when

compared to Walmart. This is due to the fact that Walmart has much higher amounts of assets

and stockholder’s equity compared to Best Buy.

Return on assets (ROA) and return on equity (ROE) are important metrics that businesses utilize

to gauge how well they can successfully manage capital. The term return on assets (ROA) and

return on equity (ROE) both refer to a financial ratio that indicates how profitable a company is

in relation to its total assets. Corporate management, analysts, and investors can use ROA and

ROE to determine how efficiently a company uses its assets to generate a profit. The only

discernible difference between the two is ROA accounts for a company’s debt and ROE does

not. Thus, as a company takes on more debt, its ROE would be higher than its ROA.

In terms of liquidity ratios, Best Buy once again had stronger current and quick ratios across all

three years. A stronger current ratio means that Best Buy was able to pay their current liabilities

using only their current assets better than Walmart could. A stronger quick ratio means that Best

Buy was able to pay off their short-term financial obligations.

 28

The total asset turnover ratio measures how efficient a business’s assets are in generating

revenue or sales. This is done by comparing the dollar amount of sales to its total assets as an

annualized percentage. When compared to Walmart, Best Buy outperforms them in asset

turnover across all three years.

Strategy Recommendations

Company's Business Level Strategy

Strengths

The concept of “showrooming” is becoming more prevalent in modern times. This means

that customers are more interested in viewing, testing, playing and learning about the products

than actually purchasing them in stores. This trend is also evident in Best Buy’s S.E.C filings

since sales in their online division are expanding more rapidly each year than their in store sales.

This means that in store inventory can be reduced to only include the most frequently sold items

in store. In addition, more displays and product demonstrations should be established and the

fees charged to vendors raised. This is a similar business strategy that other corporations that sell

expensive big-ticket items that consumers spend more time researching before purchasing such

as IKEA are currently pursuing. It is also advisable that new stores which open reduce square

footage by ten percent to cut the costs of rent and merchandise. The space that would be cut

would be the space in which formerly in store inventory would have been kept. Best Buy should

also make an effort to always keep up with the newest and latest innovations on the market.

Since the industry in which Best Buy is currently competing in: electronic retailing is growing

and receiving a high influx of money for Research and Development, Best Buy should have no

problem finding innovative vendors with innovative products. In a letter to shareholders Best
 29

Buy elucidated: “Our vendors spend billions of dollars developing amazing new technology

products.The successful commercialization of these products increasingly requires the customer

to be able to touch, feel and experience them in real life.” It is recommended that Best Buy keep

its promotions and offer exclusive in-store only sales to keep customers coming back to the store

and reverse the movement towards solely online purchases. This would boost revenue for the

physical stores so they can provide a better experience for the customer when it comes to

displays, in-store advising and Geek Squad. Best Buy obtains its competitive advantage from the

service it provides so the proper quality controls are very important. In addition, consumer-

related purchase trends show an increased movement towards experience related procurement.

This is important because a recent analysis of Best Buy's business model makes evident that they

are currently expanding considerably more into their online division as time passes. Each year

their online division brings in around five percent more revenue than that of the previous year.

Furthermore, their physical presence is being phased out gradually. This emphasizes the

importance of Best Buy's in store services as well as at home help.

Weaknesses

Firstly, the firm should publish an official mission on its website and also consider

placing a framed printout of the statements in all of the managers offices since creating a mission

statement is an inexpensive way to boost employee morale. In addition, Best Buy should also

make a corporate effort to revise their current mission statement or fabricate a new one. Their

current presumed mission statement does not give any mention to the products or services that

they provide nor the market that they compete in. Technologic services are an preeminent aspect
 30

of the firm and also where they hone their core competency. Moreover, their current mission

statement does not allude to values like excellence, corporate citizenship, teamwork or integrity

so it is unclear what drives Best Buy’s actions and decision-making. A mission statement must

include a firm’s philosophy and self-concept so consumers and stakeholders know what the

company’s aspirations are and why it undertakes what it does. On average, mission statements

help unify employees’ efforts in pursuing company goals and show that the company is being

proactive. Likewise, a vision statement is supposed to provide employees with a sense of

winning and a sense of where the company is headed in the future. Employees in visionary

companies feel part of something bigger than themselves. At present time Best Buy does not

supply a vision statement and should make haste to do so and publish it on its website and

display in its corporate offices.

Employee training is innovative and provides much expertise and value to the customer.

However the staff numbers of the individual stores themselves are oftentimes inconsistent. In

order to properly retain staff, enterprises require flexibility, and managers should staff

strategically and this is where profound complications in Best Buy’s retailing model become

evident. For instance, managers often provide preferential treatment to certain employees who

elude formal corporate punishment when they violate employee conduct. Furthermore, managers

often nominate and promote employees based on personal bias and not their efficiency or

readiness for the occupation. As a result, employees are promoted to positions they were not

qualified for creating structural problems in the business. According to Randell, a website

disclosing firm-wide internal concerns, one employee received no raise even though he was

given high marks in evaluation. Moreover, employee working hours are inconsistent and
 31

fluctuate weekly. The workload is also divided unequally among employees, some of which

work unyieldingly to compensate for other more negligent employees in the staff. Although

complaints about this issue have been filed to supervisors they have been largely dismissed by

the firm. While flexibility is important for a store to thrive it does not mean adjusting the rules as

the superior sees fit. For example, certain locations have been reported to not follow protocol and

adjust rules without reason causing derangement in the entire store. It is recommended that Best

Buy decentralize their hierarchy to allow more employees from lower ranking sales positions to

explain their perspective through a bottom-up communication channel to make supervisors

aware if management is following protocol or interposing preferential treatment. It is also

imperative that formalization be implemented into the company. Formalization is the extent to

which employee behavior is steered by explicit and codified rules. These arrangements are

written rules and policies reviewing what to do in certain situations. It is proposed that these

rules and regulations be codified into employee handbooks.

Company's Corporate Level Strategy

Threats

First and Foremost, If not already implemented a functional structure should be

established for Best Buy. A functional structure is a structure in which employees are grouped

into distinct functional areas based on domain expertise. These functional areas often correspond

to distinct stages in the value chain such as manufacturing, R&D, or marketing as well as

supporting areas such as the human source department, finance and accounting. Each department

head reports to the CEO who coordinates and integrates the work of each function. A functional

structure allows for a higher degree of specialization and division of labor as well as deeper
 32

domain expertise. It also allows for efficient bottom-up and top-down communication. An

important aspect to consider because Best Buy will be increasing its bottom-up communication

channel significantly and organizations that implement bottom-up communications often develop

leadership ambiguity muddling the corporate hierarchy and causing disarrangement in

management. By increasing employee potentiality we should be aware of the issues that may

consequently arise from this decision and make resolutions accordingly. A functional structure

will allow the firm to increase bottom-up communications while at the same time also

increasing top-down communications so the corporate hierarchy stays unscathed (Roachmel,

2019). On a side note, Best Buy follows a dominant business strategy that means at the corporate

level at least seventy percent of its revenue is generated from its primary activity. Companies

that pursue this kind of strategy usually employ a functional business strategy.

Since Best Buy’s generic business level strategy is differentiation and its corporate level

structure will be functional, an organic organization should be established consequently. Using a

functional structure in tandem with an organic organization allows the differentiator to nurture

and constantly upgrade their core competencies in R&D, innovation and marketing. Organic

organizations have a low degree of specialization, a flat organizational structure and

decentralized decision making. Of course, organic organizations are correlated with the

following benefits when coupled with a functional corporate structure: fluid flexible information

flow among employees in both horizontal and vertical directions, faster decision making and

higher employee motivation, retention and creativity.

Vertical integration
 33

Best Buy is currently vertically integrated with many minor firms to aid in its core

competency of providing consumers with differentiated products and services. The company

however shows less integration in its value chain which could increase its dependence upon the

vitality of those firms. It is recommended that Best Buy merge with Bastian Solutions to reduce

these liabilities. In addition, it is recommended that at least some type of investment is made into

these firms, especially Bastian Solutions, since this company is reliant upon this company to

stock its stores, a failure which could jeopardize Best Buy's entire supply chain. Also, the

company would save money in the long run since they no longer have to pay royalty fees to the

company. In addition, Best Buy could provide the same storage service to the other firms to earn

extra capital on the side. Likewise, while not mandatory, Best Buy could also merge with Media

Radar to consolidate its marketing operations. The merging of these two companies could help

provide better management oversight and efficiency. However, the company may also make the

strategic decision not to merge with this company for the following reasons. Firstly, it is not

reliant upon the company for the functionality of the physical stores so it does not pose as big of

a risk to its operation as Bastian Solutions per say. Secondly, an outside view of the market may

benefit the company by providing broader provisions and new perspectives to the marketing

department at Best Buy. This in turn would augment their promotional material by making them

resonate with a greater number of prospective customers in the mass market. All things

considered, the greatest liability for the company at the moment is Bastian Solutions.

According to Porter the two forces that impact the company's profitability the most are

threat of substitutes and rivalry among existing competitors. This highlights Best Buy's need to

differentiate and innovate its current products and focus on improving its service sector in order
 34

to thrive. Both the power of buyers and suppliers demonstrate low potentiality for driving down

profit. This increases the attractiveness of the electronic device retailing industry and ultimately

works as an advantage for Best Buy to increase efficiency. Finally, the company as a whole must

work on becoming more adaptive to keep up with the constant innovation in the industry.

Opportunities

Diversification

Best Buy is a corporate stock owned company meaning the ownership structure is

eminently diversified through equity. The current volatility of the stock market makes it lucrative

for Best Buy to increase its private ownership of the firm temporarily by buying back some of its

outstanding shares to return its wealth to its shareholders. Best Buy's Stock was valued at 135.63

USD on November 12, 2021 and dropped to 64.53 USD on October 8, 2022. While buying back

some stock would represent a short-term expense for the company, it would also increase the

total reserves of the company in the long-run since no monthly dividends would need to be paid.

In addition, Best Buy would have access to more capital for investments and expansions in the

future if these assets or IPOS are traded properly. The company could profit greatly by buying

back their own stock while it is undervalued and subsequently selling it on the open market while

it is overvalued. This would allow Best Buy to expedite arbitrage to secure their own financial

security. In order to repurchase the stock Best Buy will conduct a tender offer and to a lesser

extent an open market Buy Back. In a tender offer corporate shareholders receive a form that

requires them to submit a portion of their shares within a certain time frame. The offer states the

number of shares the company wants to repurchase along with a price range of the shares. Once

the company receives all the offers it has the right mix to buy the shares at the lowest cost.
 35

One week after the initial stock buy back has been completed an official announcement should

be made by the company that it plans to conduct an open market buy back. The announcement of

an open market buy back tends to appreciate the price of the stock since it is perceived as a

positive signal by the market. The company then should proceed to purchase stock on the open

market and once the price appreciates over fifteen percent sell the repurchased stock from the

tender offers on the open market (Janssen, 2019). In a perfect market price discrepancies should

instantly be arbitraged away however due to imperfect information short leads occur. According

to Wiley in the journal, market stock leads tend to last fifteen to twenty minutes giving the

company adequate time to take advantage of these market fluctuations. The company should not

sell all of the stock it bought from the tender options but keep some of the shares as reserves as

well.

Geographic Scope

Currently Best Buy operates in three countries: America, Canada and Mexico. Expansion

into new international markets is an option for Best Buy. While extension is not compulsory for

the firm, if implemented correctly it would allow Best Buy to capitalize on economies of scope

and scale to drive down prices while still keeping a highly differentiated product selection

available to consumers. A small-scale approach with a few locations in urban areas is advisable

to help the firm first assess the market before entering it on a larger scale. It is recommended the

firm take two different strategies depending upon if the country has a high or low cultural

distance score relative to the United States. Nations with low cultural distance scores usually

have similar levels of economic development, governmental or market freedom, geographics

features, colonization ties, and often speak the same language. To expand into countries with a

low cultural score it is advised Best Buy follow an international strategy. An international
 36

strategy ranks low on both global integration and local responsiveness since it’s essentially an

extension of a business’ domestic strategy. An international strategy is essentially a strategy in

which a company sells the same products or services in both domestic and foreign markets. It

enables MNE's to leverage their core competencies in foreign markets. The advantages to this

include a standardized brand that is immediately recognizable. The entry method Best Buy

should pursue is a wholly-owned subsidiary, or a company who is owned by the home branch.

For this expansion Best Buy can utilize functional structure.

For countries with a high cultural distance score relative to the U.S score a multi-

domestic strategy is advised. Many countries with high cultural distances scores have different

levels of economic development or other attributes that make them diverge immensely from the

western market. In addition, greater cultural distance increases the uncertainty of conducting

business abroad in order to accommodate for this discrepancy a multidomestic strategy is

required. Multinational Enterprise's pursuing a multidomestic strategy attempt to maximize local

responsiveness hoping that consumers will perceive it as local. This strategy works for

idiosyncratic and individual markets such as Japan, or Saudi Arabia. Over time as Best Buy

diversifies into different product lines and geographies it should implement a multidivisional or

matrix structure. A multidivisional structure or M-Form consists of several disparate SBU’s each

with its own profit-and-loss center that is operated independently from one another. Best Buy

can use the new SBU’s to organize around different businesses and product lines in different

geographical areas.
 37

Countries with lower levels of economic development may need lower quality product

and price accommodations whereas countries with different cultural mindsets may need

corresponding employee training or service arrangements. Last but not least, it is also advised

that Best Buy established a joint venture or a partnership with a local firm that is familiar with

the market to help lessen the risk of entering an foreign market.

Appendix

Financial Analysis
 38

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