Team Live Case Analysis (Core Assessment due Unit 8)
All Park University courses must include a core assessment that measures the course’s Core Learning Outcomes. The purpose of this assessment is to determine if expectations have been met concerning mastery of learning outcomes across all instructional modalities.
For this capstone course, the core assessment is a team project that involves a strategic analysis of a publicly held company to be administered in all sections of MG495. This team project is worth 20 percent of the student’s final grade and will test students’ mastery of the Core Learning Outcomes through a detailed analysis of managerial decisions and actions that help determine the long-term performance of an organization. It includes the environmental scanning (both external and internal), strategy formulation (strategic or long-range planning), strategic implementation, and evaluation and control.
The teams for the core assessment project will consist of 3 – 5 members. Each team must submit the name of their company for the instructor’s approval by midnight on Sunday of unit 1. Each team will have a designated Live Case Analysis Work Area to communicate among members and work on their project
Best Buy
Carl Wilson, Isabel Westley, Abdiel Romero, Joseph Tomlinson
May 9, 2020
Executive Summary
Best Buy has faced many obstacles to become what it is today, the largest electronics retailer in the United States. Whether it’s facing brick and mortar competition like Circuit City, a new online retail giant such as Amazon, or scandals from within and its own CEO. It has stood the test of time and has been in operations for over 50 years starting from a small audio store to a company with over 1,000 physical locations and a growing website that is ever-changing. In this presentation, we will be diving into the history of Best Buy and looking into some of the business aspects of the company to determine some of the hardships and problematic areas that could lie in wake for the company.
Historical Overview
Best Buy was founded in 1966 by Richard M. Schulze. Formerly known as Sound of Music, Mr. Schulze opened the store in St. Paul, Minnesota as a high end audio specialty store. In its first year of operations, the store achieved around 1 million in revenue and profits of about 58,000 dollars. By 1969, Sound of Music had three locations and Mr. Schulze was the sole owner of the company. Sound of Music kept growing and by 1983 had seven stores with a yearly flow of 10 million in revenue. This year also marked the biggest change the company took with the transition from Sound of Music to Best Buy. It also expanded its product line from audio only equipment to appliances and VCR’s in an attempt to grow its target market. In 1989, Best Buy removed commission salespeople and made the stores brightly lit and highly fashionable. This was a giant change to the industry and one that is still present to the day. Fast forward to 2000 and Best Buy made one its biggest acquisitions with the company known as Magnolia Hi-Fi. By 2003, Best Buy had expanded to over 600 stores and Brad Anderson was appointed to CEO stepping in after a very successful run by Richard Schulze. In 2009, Best Buy launched Best Buy Mobile. These small stores strictly sold mobile phones through ATT, Sprint, and Verizon contracts. In 2012, facing huge declines in sales and revenue Hubert Joly was thrown into the fire as Best Buy CEO. He cut expensive costs items and focused on a more customer friendly model. Such as price matching, faster delivery times, and store within a store sections. He also made the tough decision to close the 250 Best Buy mobile locations due to high costs of the stores and the lowering profits associated with the mobile phone business. In 2019, Corie Barry replaced Hubert Joly as CEO. She introduced Total Tech Support to the company as a new way to drive profits for the company. A $199 service program for shoppers that allows them to be covered with Best Buy services and installations at little to no costs for some products.
Analysis of economy and industry
Best Buy’s economy and industry can be best understood by considering macro-environment factors such as the rate of inflation, the company’s savings rate, interest rate, and even the rate of foreign exchange. The overall economic cycle of the company can help it determine its investment strategies regardless of the level of competition in the market and its competitive advantage. Typically, Best Buy has a major economic issue, which originates from its desire to provide luxury products into the market. The luxury products are experiencing the slow recovery of America’s economy. The company’s target customers sometimes consider its products luxuries that should be purchased during an economic boom and this makes the entire business seasonal. Sales can only scale up during holidays or certain seasonal periods leading to intense competition in the market. Therefore, Best Buy should consider the GDP growth of its target market in relation to how it expects to grow linearly in the future.
Again, it will have to consider the interest rates of the country that it intends to invest in and how it will affect the willingness of customers to borrow and invest. Generally, Best Buy operates in strong and efficient financial markets and this will influence how effectively it can raise capital at reasonable prices. Although Best Buy presents strong growth opportunities, the company still experiences significant challenges in its industry. Industry growth is forecast to grow at a rate of 14% based on annual compounding between 2017 and 2023 (Trainer, 2018). In real-time, the growth rate doubles Best Buy’s revenue growth rate recorded in its 2018 financial year.
SWOT analysis of the company
SWOT analysis of Best Buy depicts the various strategies that the company can leverage to exploit the external opportunities, deal with threats, and reinforce its strengths while eradicating its weaknesses.
Strengths
Best Buy has an excellent performance in the new markets because it has built excellent strategies for entering those markets. The ability to successfully enter the new markets supports the organization’s efforts to diversify its organization while building new revenue streams to facilitate the diversification of its economic cycle. Also, it is able to reduce the potential risks in the market in which the company operates. Again, Best Buy’s brand loyalty and reputation are significant strengths that have made its retail platform known. The company’s blue-and-yellow branding develops a strong brand loyalty that is quite similar to many other electronics in the American market; hence, making Best Buy one of the customers’ top priority. For example, many clients seeking to purchase products in the small-scale sector opt for Best Buy’s products. Outstanding levels of brand loyalty give Best Buy the opportunity to offer competitive prices and its services in the global market are taking advantage of those of its competitors. For instance, competitive advantage gives Best Buy significant economies of scale that make it easier to focus predominantly on digital advertising.
Best Buy’s exposure to the US market is a great strength that contributes to the company’s resurgence that makes it easier to sell huge quantities of its international assets. Although the company no longer exists in China and remains in operation in Canada, Mexico, and the US, its presence in the United States market is a stratagem for setting a strong foothold to ensure year-to-year growth. For example, the company’s HDTVs and kitchen appliances facilitated a wider expansion in the US market.
The other key strength is Best Buy’s highly skilled workforce that has been nurtured through its efforts to continuously train employees and investing massive resources to support human resource development. A highly skilled workforce motivates the company to achieve more (Joly, 2016). Again, the company has a strong dealer community and its culture is based on distribution and dealership. Therefore, expertise enables employees to successfully integrate complementary firms based on mergers and acquisition deals that involve the use of advanced technology for building a strong and reliable supply chain (Fineanganofo, Cameron, Higgins, & Enriquez, n.d). Therefore, the company has the capability to satisfy its customers and maintain positive customer relationships; hence, better brand equity.
Weaknesses
Best Buy struggles with its sales growth because same-store sales are in a continuous struggle. Although the company adopted the “Connected Store initiative, it has not realized a significant boost in its service kiosks since it still needs to adopt new technology for increasing the sale of products. Further, Best Buy’s dependence on brick-and-motor business thwarts its long-term strategies of streamlining its operations and can lead to an ultimate shutdown. The shutdown can be linked to the high costs of operating businesses in the stores and the consequent repercussion can be dwindling profit margins (Fineanganofo, Cameron, Higgins, & Enriquez, n.d). Also, Best Buy has a high attrition rate in its workforce. The attrition rate compels the company to spend significantly huge financial resources to train its employees to attain professional expertise (Joly, 2016). Continued training, if coupled with the improper and inefficient financial planning, has resulted in huge expenditures as reflected in the company’s current asset ratio compared to liquid asset ratios. Notably, the profitability ratio of the company and its net contribution percentage has been far below the industry average.
Opportunities
Best Buy has the opportunity to reduce transportation costs and reduce shipping prices that can result in significant challenges to the company’s products. The company has the potential of boosting its profitability and gain a considerable share of the market. There are several new customers from Best Buy’s online channel following its heavy investment into the online platform. The online platform opened up new opportunities and sales for Best Buy and in the near future, the company will reap high profits while serving its customers better. Consequently, it will have the capability to satisfy its customers and better serve their needs because digital technology ensures that the firm relies on the use of big data analytics. Furthermore, Best Buy’s continued training of its workforce ensures that it meets core competencies. Therefore, it can adopt new trends to align its activities with consumer behavior as it opens up new markets. Subsequently, the company can establish new revenue streams for diversifying into new product categories. Also, adopting new technology gives the company an opportunity to use differentiated pricing strategies depending on the prevailing conditions in the market environment. Resultantly, the firm will be capable of maintaining a greater percentage of the most loyal customers and providing them with topnotch services to persuade new potential clients through a range of value-oriented propositions (Fineanganofo, Cameron, Higgins, & Enriquez, n.d). Lastly, Best Buy operates in environments that experience lower inflation rates that support its operations due to the increased stability in the market. For instance, the company can take advantage of the opportunity to offer credit to its loyal clients at relatively lower prices compared to competitors.
Threats
As competitors adopt new technology to support their operations in the market environment, it acts as a disruptor to Best Buy’s strategies and eventually thwarts the company’s long-term ambitions. Best Buy offers highly profitable products. Conversely, the demand for such products is seasonal and it can incur enormous losses during off-peak seasons (Fineanganofo, Cameron, Higgins, & Enriquez, n.d). The company is also operating in different countries that experience currency fluctuations with regard to the value of the dollar, which sometimes declines due to the volatility in the political climate.
Forecast of the economy, industry, and company for next year
Amidst the COVID-19 appearance, the economy has been faced with various hardships. Economists have had a hard time taking a look at the forecast of the economy, labeling it “a virus-driven ice age” being that the “abrupt stop of economic activity from 100 to zero in just a few days” is what has made it extremely difficult to predict what will come in the near future. Therefore, they have evaluated five different scenarios that could be a possibility for the economy in the upcoming months. (Ranasinghe & Carvalho, 2020).
(Ranasinghe & Carvalho, 2020).
It is important to understand the current standing of the economy to be able to get a better understanding of the industries. As we examine Best Buy, we will first take a look at the retail industry in which it falls in. In the mere month of March 2020, U.S. retail sales reached a record drop as many business closures were implemented to control the spread of the coronavirus outbreak. In doing so, the retail industry suffered its worst decline in decades, dropping 8.7% of sales. This has been the biggest decline since 1992, after the government started tracking sales. (n.a., 2020).
While two-thirds of the U.S. economic activity is consumer spending, the estimated 41% rate of decline is estimated to occur. This is still despite the $2.3 trillion fiscal package that processed cash payments to some families. Even though some categories are seeing consumer spending more than others, such as grocery stores, it is still not enough to offset the retrenchment in spending. (n.a., 2020).
Now having a better look at how the economy and industry have been affected, we can now take a look at how the company is handling the economy amidst this pandemic. Taking a look into its current stocks and income statement retrieved from Yahoo! Finance, the following information has been gathered in comparison with last year’s numbers as well:
Best Buy Co., Inc. (BBY)
Income Statement
| Breakdown | TTM | 1/31/2020 | 1/31/2019 |
| Total Revenue | 43,638,000 | 43,638,000 | 42,879,000 |
| Cost of Revenue | 33,590,000 | 33,590,000 | 32,918,000 |
| Gross Profit | 10,048,000 | 10,048,000 | 9,961,000 |
| · Operating Expenses | 7,998,000 | 7,998,000 | 8,015,000 |
| Total Operating Expenses | 7,998,000 | 7,998,000 | 8,015,000 |
| Operating Income or Loss | 2,050,000 | 2,050,000 | 1,946,000 |
| Interest Expense | 64,000 | 64,000 | 73,000 |
| Total Other Income | 7,000 | 7,000 | 15,000 |
| Income Before Tax | 1,993,000 | 1,993,000 | 1,888,000 |
| Income Tax Expense | 452,000 | 452,000 | 424,000 |
| Income from Cont. Expense | 1,541,000 | 1,541,000 | 1,464,000 |
| Net Income | 1,541,000 | 1,541,000 | 1,464,000 |
| Net income available to common shareholders | 1,541,000 | 1,541,000 | 1,464,000 |
| Basic EPS | – | 5.82 | 5.30 |
| Diluted EPS | – | 5.75 | 5.20 |
| Basic Average Shares | – | 264,000 | 276,400 |
| Diluted Average Shares | – | 268,100 | 281,400 |
The global pandemic has negatively impacted the economy and the labor force. As of 19 April 2020, 51,000 employees have been furloughed but continued to receive health benefits. Online sales for Best Buy have increased more than 250% as consumers increased in the demand for items such as freezers, computer monitors, etc. for use during their stay at home order. In addition to the furloughs, the top executives as well as the CEO will also be receiving pay cuts. Best Buy has had to make many changes to accommodate their budget during the pandemic, including having to suspend 401(k) matchers and lowering capital spending and slashing marketing expenses. (Repko, 2020).
Pro-Forma Income Statement and Balance Sheet
Now having a better look at how the economy and industry have been affected, we can now take a look at how the company is handling the economy amidst this pandemic. Taking a look into its current stocks and income statement retrieved from Yahoo! Finance, the following information has been gathered in comparison with last year’s numbers as well:
Best Buy Co., Inc. (BBY)
Income Statement
| BREAKDOWN | TTM | 1/31/2020 | 1/31/2019 | 1/31/2018 | 1/31/2017 |
| TOTAL REVENUE | 43,638,000 | 43,638,000 | 42,879,000 | 42,151,000 | 39,403,000 |
| COST OF REVENUE | 33,590,000 | 33,590,000 | 32,918,000 | 32,275,000 | 29,963,000 |
| GROSS PROFIT | 10,048,000 | 10,048,000 | 9,961,000 | 9,876,000 | 9,440,000 |
| OPERATING EXPENSES | 7,998,000 | 7,998,000 | 8,015,000 | 8,023,000 | 7,547,000 |
| TOTAL OPERATING EXPENSES | 7,998,000 | 7,998,000 | 8,015,000 | 8,023,000 | 7,547,000 |
| OPERATING INCOME OR LOSS | 2,050,000 | 2,050,000 | 1,946,000 | 1,853,000 | 1,893,000 |
| INCOME BEFORE TAX | 1,993,000 | 1,993,000 | 1,888,000 | 1,817,000 | 1,816,000 |
| INCOME TAX EXPENSE | 452,000 | 452,000 | 424,000 | 818,000 | 609,000 |
| INCOME FROM CONT. EXPENSE | 1,541,000 | 1,541,000 | 1,464,000 | 999,000 | 1,207,000 |
| NET INCOME | 1,541,000 | 1,541,000 | 1,464,000 | 1,000,000 | 1,228,000 |
Best Buy Co., Inc. (BBY)
Balance Sheet
| BREAKDOWN | 1/31/2020 | 1/31/2019 | 1/31/2018 | 1/31/2017 |
| CASH AND CASH EQUIVALENTS | 2,229,000 | 1,980,000 | 1,101,000 | 2,240,000 |
| TOTAL CASH | 2,229,000 | 1,980,000 | 3,133,000 | 3,921,000 |
| NET RECEIVABLES | 1,149,000 | 1,015,000 | 1,049,000 | 1,347,000 |
| INVENTORY | 5,174,000 | 5,409,000 | 5,209,000 | 4,864,000 |
| TOTAL CURRENT ASSETS | 8,857,000 | 8,870,000 | 9,829,000 | 10,516,000 |
| GROSS PROPERTY, PLANT AND EQUIPMENT | 11,937,000 | 9,200,000 | 8,700,000 | 8,143,000 |
| ACCUMULATED DEPRECIATION | -6,900,000 | -6,690,000 | -6,279,000 | -5,850,000 |
| NET PROPERTY, PLANT AND EQUIPMENT | 5,037,000 | 2,510,000 | 2,421,000 | 2,293,000 |
| TOTAL NON-CURRENT ASSETS | 6,734,000 | 4,031,000 | 3,220,000 | 3,340,000 |
| TOTAL ASSETS | 15,591,000 | 12,901,000 | 13,049,000 | 13,856,000 |
| CURRENT DEBT | 14,000 | 56,000 | 544,000 | 44,000 |
| ACCOUNTS PAYABLE | 5,288,000 | 5,257,000 | 4,873,000 | 4,984,000 |
| TOTAL CURRENT LIABILITIES | 8,060,000 | 7,513,000 | 7,817,000 | 7,122,000 |
| LONG-TERM DEBT | 1,257,000 | 1,332,000 | 811,000 | 1,321,000 |
| OTHER LONG-TERM LIABILITIES | 657,000 | 750,000 | 809,000 | 704,000 |
| TOTAL NON-CURRENT LIABILITIES | 4,052,000 | 2,082,000 | 1,620,000 | 2,025,000 |
| TOTAL LIABILITIES | 12,112,000 | 9,595,000 | 9,437,000 | 9,147,000 |
| COMMON STOCK | 26,000 | 27,000 | 28,000 | 31,000 |
| RETAINED EARNINGS | 3,158,000 | 2,985,000 | 3,270,000 | 4,399,000 |
| TOTAL STOCKHOLDER’S EQUITY | 3,479,000 | 3,306,000 | 3,612,000 | 4,709,000 |
| TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY | 15,591,000 | 12,901,000 | 13,049,000 | 13,856,000 |
The global pandemic has negatively impacted the economy and the labor force. As of 19 April 2020, 51,000 employees have been furloughed but continued to receive health benefits. Online sales for Best Buy have increased more than 250% as consumers increased in the demand for items such as freezers, computer monitors, etc. for use during their stay at home order. In addition to the furloughs, the top executives as well as the CEO will also be receiving pay cuts. Best Buy has had to make many changes to accommodate their budget during the pandemic, including having to suspend 401(k) matchers and lowering capital spending and slashing marketing expenses. (Repko, 2020).
Recommendations and Conclusions
Best Buy has no-doubt seen a steady level of success. But, with an ever-changing market, the organization must continue to be not only innovative, but very employee consciences. One recommendation for Best Buy would be to continue to grow technologically in an attempt to exploit the online market. Technology is evidently the way of the future in terms of shopping, as is presently occurring due to the pandemic that is currently affecting all markets. Creating a platform that enables consumers the opportunity to shop with ease and convenience could create opportunities for Best Buy to cut into the stronghold that the online retail giant, Amazon currently holds. Organizational leaders must ensure that they are tailoring their organizational design towards the direction that the market is heading.
Another recommendation would be to continue to provide the most up-to-date training available to the company’s store employees. With the advancement of technology, products are becoming more advanced with each new model that is released. This advancement requires product knowledge in order to effectively communicate with customers. This value-added training will not only benefit the company, but also the sales force. As touched on earlier, Best Buy’s sales force, and their expertise is paramount to the success of the company’s in-stores sales. In order to continue this success, the training of new products and technology must be one of the company’s highest priorities.
Best Buy has been a company that represents innovation and growth. Starting from a high-end audio specialty store, and eventually growing into the giant that it is today, the organization has seen success in a very volatile market. The company prides itself on its ability to enter new markets successfully with the help of a detail oriented, and well trained working staff, and leaders, whose exposure in the U.S. market allows the company the opportunity to see huge gains with international assets. Best Buy’s steady success is apparent in the company’s financial records over the last couple of years, possibly creating future investment opportunities. With an ever-changing market, the future for most companies is unclear. But with strong leadership and innovative design, Best Buy can continue to be a successful organization that offers products and services that not only rivals the competition, but also provides high-quality customer service, products at reasonable prices and knowledgeable technical support to its customer base of general consumers. (Best Buy, 2017)
References
Best Buy. (2020, February 8). Retrieved May 5, 2020, from https://www.companieshistory.com/best-buy/
Fineanganofo, O., Cameron, L., Higgins, K., & Enriquez, M. (n.d). SWOT Analysis, Best Buy. http://educationescape.weebly.com/uploads/5/3/0/7/53076187/swotanalyisis__1_.pdf
Joly, R. (2016). Best Buy Fiscal Year 2016 Corporate Responsibility & Sustainability Report. https://corporate.bestbuy.com/wp-content/uploads/2016/06/FY16-Full-Report-FINAL.pdf
Trainer, D. (Jun 7, 2018). Forbes. Best Buy Rising From Ashes To Lead New Retail Paradigm. Forbes Media LLC. https://www.forbes.com/sites/greatspeculations/2018/06/07/best-buy-rising-from-ashes-to-lead-new-retail-paradigm/#2f00daf4b443
n.a. (2020). Best Buy Co., Inc. Yahoo!finance. Retrieved online https://finance.yahoo.com/quote/BBY/financials?p=BBY
n.a. (2020). Coronavirus delivers record blow to retail sales in March. CNBC. Retrieved online from https://www.cnbc.com/2020/04/15/us-retail-sales-march-2020.html
Ranasinghe, D. & Carvalho, R. (2020). Coronavirus: 5 predictions for how the economy might recover. World Economic Forum. Retrieved online from https://www.weforum.org/agenda/2020/04/alphabet-soup-how-will-post-virus-economic-recovery-shape-up/
Repko, M. (2020). Best buy to furlough about 51,000 employees as coronavirus-related sales surge ends. CNBC. Retrieved online from https://www.cnbc.com/2020/04/15/coronavirus-best-buy-to-furlough-about-51000-employees.html
Trainer, D. (Jun 7, 2018). Forbes. Best Buy Rising From Ashes To Lead New Retail Paradigm. Forbes Media LLC. https://www.forbes.com/sites/greatspeculations/2018/06/07/best-buy-rising-from-ashes-to-lead-new-retail-paradigm/#2f00daf4b443
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