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Best Buy Co., Inc. – Case Solution

After hurdling Best Buy's two main problems which are the declining comps and margins, CEO Hubert Joly is faced with the problem of coming up with and putting into action a strategic plan. The plan must conform so that it would enable BBY to create a sustainable competitive advantage. Additionally, it must gain the support and coordination of all of the company's main stakeholders who are its customers, employees, vendors, investors, and even the community. This "Best Buy Co., Inc." case study also presented an overview of Circuit City, Walmart, Target, Apple, and Amazon.com, all of which are BBY's main competitors.

​Marne L. Arthaud-Day; Frank T. Rothaermel Harvard Business Review ( MH0038-PDF-ENG ) January 14, 2016

Case questions answered:

Given that hubert joly was able to reverse the trends for the poor-performing best buy co., inc. in 3 years, what strategy should the electronic retailer pursue in order to compete with its high-performing “online” & “clicks & bricks” rivals and ensure sustainable growth.

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Best Buy Co., Inc. Case Answers

Summary and problem statement – best buy co., inc..

“Sound of Music” was founded by James Wheeler and Richard Schulze in 1966 and was later renamed Best Buy Co., Inc. in 1983.

The firm started as an audio specialty store and grew to become one of the largest consumer-electronics companies in the US. Growth for the firm was mainly through global expansion and acquisitions of smaller product-service-based firms.

Best Buy reached $1 billion in sales in 1992 and was one of the top 10 performing stocks from 1990 to 2000(Forbes).

Also, Best Buy made its international debut in Canada and continued international expansion in China, the UK, Turkey, etc., by partnering or acquiring and/or opening stores under the Best Buy brand name.

However, due to the birth of online retailing, technology advancements, and poor leadership within the company, Best Buy (BB) experienced a significant downfall. Thus, it closed down most of its international stores or consolidated stores under its brand name.

A new CEO, Hubert Joly, was hired in 2012 to combat the downfall and suggested a “Renew Blue” strategy to turn around the situation.

The strategy had two phases: the first one was to stabilize the downward trend of the firm, and Joly was successful in doing the same in a span of 3 years. However, the second phase, i.e., the path forward, required a new strategy.

EXTERNAL ANALYSIS

The PEST Analysis, Technological: Improvements in technology are becoming increasingly rapid, and technology is becoming cheaper and cheaper. The continuous evolution of technology and decreasing prices led manufacturers to cannibalize their products.

Physical Environment: Sustainability has become a major tool for companies to market their products/services in the consumer electronics industry. By being more environment-friendly, firms are increasing customer awareness and differentiating themselves.

Socio-cultural & Economic Factors: Showrooming is increasing, which adds to the threat of physical stores in the consumer retail industry. Customers buy more electronics in the fourth quarter than in three-quarters combined.

Also, most customers expect value-added services (repair, installation, assistance for usage) for the products that they buy. The US civilian unemployment rate greatly reduced in 2015 after the economic recession in 2009.

Industry analysis [Consumer Electronics]

The consumer-electronic retail industry in the US has firms that use either “bricks-and-mortar” stores or “clicks & bricks” platforms or “Online” platforms to sell their products & services.

The industry is highly seasonal and cyclical. The US took a hit on the CAGR during the recession, i.e., in 2009, but started recovering and grew by 1.5 % from 2010 to 2014. The projections for the future look average, which is not that enticing for a new entrant.

Porter’s Six Forces for Best Buy Co., Inc.

The threat of New Entrants: [Low] A physical store can be opened by a new firm if it has capital, a warehouse, and an effective supply chain. However, it is difficult to enter the online electronic retailer market as customers would be hesitant to share their information, and competition is intense.

Also, based on industry projections, there are top Fortune companies in the market, which makes it even more unfavorable.

Bargaining Power of Suppliers:[Medium] Electronic product manufacturers are suppliers for the products, e.g., Sony, Samsung, LG, etc. There are a few major suppliers that retailers have to depend on. However, retailer giants and leaders can opt for private labels, too, which reduces supply power.

Bargaining Power of Buyers: [High] Buyers for electronic products are individuals and small businesses, and they are very price-sensitive and have no switching costs.

Industry Rivalry: [High] There was a high price war between existing competitors and competitors who used different channels to sell their products online and in-store.

The Threat of Substitutes and Complimentary Products: There are no substitutes for electronic retail. However, within the industry, an electronic product can be bought through various channels, e.g., in a physical store or online.

So, “online” selling of a product is a substitute for a physical store. There are a number of complementary products/services that come along with electronic goods.

Installation support, extended warranty, and on-site assistance can be some of the complementary services that can help firms generate additional revenues.

Overall Industry Attractiveness: Overall, considering the expected growth within the industry, the opportunities available in developing countries, the rise of online sales, and existing competition, the overall industry attractiveness is Low to Medium.

Past and Current Competitors:

Circuit city.

Founded in 1949, it had “big-box” stores to sell electronic products. A high percentage of revenues for the firm came from TV sales.

When the housing market weakened and TV sales declined, Circuit City did not adapt to the changing landscape and, thus, couldn’t sustain itself in the market as it had high competition from Walmart and Best Buy Co., Inc.

Also, key staff was fired by the firm’s CEO at the time of the crisis, which even worsened the situation and eventually led to bankruptcy for Circuit City. Its competitors capitalized on the open market share.

Walmart is the world’s largest retailer and has both an in-store and online presence. It used the Cost Leadership strategy [Exhibit 1] to sell its products.

Post-Circuit City’s collapse, it expanded rapidly into the consumer electronics segment.

Strengths : Superior capabilities in Logistics. A great relationship with suppliers. The strong online presence and global presence

Weaknesses : Poor sales led to a reduction in floor space that was dedicated to electronics.

Started as an online book retailer and gradually entered the consumer electronics market. It is the largest online retailer, with no physical stores, and had a Cost Leadership strategy [Exhibit 1] to ensure its lead over its competitors.

Strengths : Third largest consumer electronics retailer. 2nd most valuable retail brand in 2015. The strong global presence and logistic network. There is no sales tax in states where the firm is not physically present.

Weaknesses : Struggling with privately-owned tablet and smartphone sales.

Has its own retail stores for selling Apple products and has the highest individual market share in the global electronics retail sector. The business-level strategy for Apple was focused on differentiation [Exhibit 1].

Strengths : Significant investment in designing retail stores and staffing the outlets. Experienced in electronic retail.

Weaknesses : Earnings per share & market value decreased significantly in 2015. The potential loss of market shares to its competitors.

It is the second-largest discount retailer in the US, with 1790+ physical stores. By partnering with Amazon’s Enterprise solutions, it enhances its grip on the online market.

The firm had a focused differentiation strategy [Exhibit 1] as it catered to middle and high-class clients with its extended service offerings.

Strengths : Provided customized service for its focus group. Focus on products that require a limited footprint, in turn saving space.

Weaknesses : Struggled with sales, and thus, it tried switching to cost leadership, which drove away one of its segments. History of data breaches leading to undermined customer trust.

Key Success Factors

Price is an essential differentiating factor as electronic customers are highly price-sensitive. Online presence is a necessity and an easy way to minimize operating costs.

Value-added services and innovation of new technology can help prosper in this industry. [Exhibit 2] shortlists a few competencies to be successful in the industry.

Internal Analysis

Resources & Capabilities: Hubert Joly, CEO of Best Buy Co., Inc., has been able to…

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• Harvard Business School →
• Faculty & Research →
• March 2016 (Revised May 2018)
• HBS Case Collection

Reinventing Best Buy

• Format: Print
• | Language: English
• | Pages: 38

Related Work

• November 2017
• Faculty Research
• Reinventing Best Buy  By: John R. Wells and Gabriel Ellsworth

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The Heroic Rise Of Best Buy’s Omnichannel Customer-Centricity Model

The journey that Best Buy has traveled towards success has indeed been a heroic one – and I do mean ‘heroic’ in the literary sense of the word.The electronics retailer has fought its way through an obstacle-laden, enemy-guarded pathway to prosperity, which, as anyone in corporate business will tell you, is comparable to any hero’s journey – from Prometheus to Batman to LeBron James – in no uncertain terms.

Indeed, many challenges have been thrown down along Best Buy’s voyage, rivals have attempted to out maneuver the retailer so they may win the day themselves, allies have been formed along the way, as indeed have new enemies. But, time and time again, the electronics chain has dug deep, drawn on its wits, its steely resolve and its covetable customer-centric skillsets to ensure that it pulled through. Indeed, these are all inevitable occurrences of a successful retailer’s heroic journey, and, thankfully for Best Buy, in the end have manifest in what is perhaps the most important survival trait of all triumphant heroes – the ability to grow (and if Universal Pictures haven’t already bought the movie rights, then I’m tempted to place a bid myself!).

The Birth Of Omnichannel

It’s no secret that at the turn of the millennium, at a time when ecommerce first began its rapid growth, Best Buy stores were struggling as consumer preference for buying electronic goods online started to increase. As is the case with all great heroic journeys, the odds at this point in time seemed stacked against Best Buy’s success.

However, digging deep, the company turned to what was then a revolutionary customer-centric approach , and began fighting back.

Today, Best Buy is the largest multi-channel consumer electronics retailer in the world – but long before such a thing we now call ‘omnichannel’ was an industry buzzword, Best Buy had already started to focus on a strategy that would revamp its customer experience across all the channels its customers use.

In ‘ The History of Omnichannel ’ – a blog series for RSR Research – author Nikki Baird goes so far as to bestow on Best Buy the accolade of being the company that gave birth to omnichannel initiatives.

“Omnichannel starts way back in 2003,” Baird writes. “And one of the reasons why it’s important to go back that far is because I think a lot of people forget or lose sight of the fact that omnichannel didn’t begin as omnichannel, or even cross-channel. It began as Customer Centricity. And the retailer who should get credit for putting Customer Centricity on the map is Best Buy.”

Baird explains that at the time Best Buy was struggling – unable, as it was, through a lack of resources, to beat out its competitors like Walmart through lower prices. And so the retailer decided that it would focus its efforts elsewhere –namely, on providing its customers with a better experience. In hindsight, it’s truly remarkable to consider just how ahead of its time Best Buy was, as now, in 2016, the customer experience is in fact the most important way that retailers attempt to differentiate.

The new strategy was, however, a turning point on Best Buy’s journey. As Baird explains, the tactic focused on helping customers “build their own path to purchase by assembling from the various product and service offerings that Best Buy offered. And they viewed that path to purchase as everything from researching products to post-sales service and support.”

The Growth Continues

The assumption for Best Buy back in 2003 was that customers would be willing to pay a little more for a better service. And it’s one that paid off – but that’s not the end of our hero’s story.

In 2012, more revolutionary moves were on the cards. Hubert Joley – the man who was previously responsible for growing Carlson Wagonlit Travel sales from $8 billion to $25 billion in just four years – took over as CEO. He issued a company manifesto called “Renew Blue” to revamp Best Buy, which involved a promise to improve sales through omnichannel strategies. Since taking over, the company’s stock share nearly doubled to $30 per share in just two years.

"The strategy is very simple,” Joley told The New York Times in 2012. “We believe that price-competitiveness is table stakes. The way we want to win is around the advice, convenience, service."

Over the past four years, Best Buy’s strategy has been refined and refined again in order to drive traffic to its website and, in turn, improve online sales. It’s been effective– domestic internet sales grew 24% in the first quarter of 2016 compared to the same period a year ago, outpacing Amazon. 

(Image source: The Motley Fool )

The retailer has achieved this triumphant feat through the 2015 launch of new apps, features and sales perks. These include:

·          Blue Assist:  Users of the mobile app can now shake their device or push a button to get live help via chat about potential purchases.

·          Touch ID login:  iPhone and iPad users can login to their Best Buy accounts using their fingerprint.

·          Geek Squad app:  The new and improved application allows customers to schedule an appointment and check the status of a repair.

·          Same-day delivery:  This pilot program was launched in 13 cities and allows for same-day delivery of online orders of products that are available in-store.

Victorious In Customer Service

Since the beginning of the fight back, Best Buy has been keenly focused on the customer experience. As a market leader in the sale of electronic goods, the store is a haven for tech junkies who come in droves to appreciate the wide assortment of goods at (now) competitive prices. But Joly believes that it’s the unique in-store experience that Best Buy provides that keeps the footfall strong in the Internet Age.

"We've always believed that as a result of these trends in consumer behavior, the store experience needed to be so much better," Joly said . "When the customer gets to the store, she has done a lot of research and she's much more educated than maybe a few years ago. And so it's maybe that in some cases we see fewer trips to the store, because so much time has been spent before the store. And so the focus in the store is on the customer experience. We've invested significantly in the physical experience in the stores, and candidly, it is so helpful. You cannot use your senses online to see the difference in picture quality of the TV or the sound quality of a headphone. You really have to go to the store."

To Be Continued…

During fiscal 2016, Best Buy grew its domestic online revenue by 13% overall.

"This performance is the direct result of the execution of our Renew Blue strategy and the hard work, dedication and customer focus on the part of all of our associates,” says Joly.

"Our purpose, from the customer's standpoint, is to build a company that does a unique job of helping customers learn about and enjoy the latest technologies.”

Looking ahead to fiscal 2017, Joly has outlined his new priorities to complement its existing Renew Blue strategy, which, as ever, is customer-focused to the core. "We are investing to be the leading technology expert, who makes it easy to learn about and confidently enjoy the best tech," said Joly.

Indeed, since 2003, Best Buy has been one of the very best examples of customer-centric business practices, simply by making the shopping experience – both online and offline – informative and interactive. Thirteen years ago, the store pioneered the concept of customer-centricity, but along this heroic journey, Best Buy has grown to become one of the most inspirational retailers that continues to venture new ground with innovative omnichannel strategies. The sequels to this saga are already writing themselves. 

About John Waldron: John Waldron is a technology and business writer for markITwrite digital content agency, based in Cornwall, UK. He writes regularly across all aspects of marketing and tech, including SEO, social media, FinTech, IoT, apps and software development.

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Reinventing Best Buy

By: John R. Wells, Gabriel Ellsworth

On March 1, 2017, Best Buy Company, Inc., North America's largest retailer of consumer electronics and appliances, announced a third year of comparable-store sales increases and a 20.8% increase in…

• Length: 38 page(s)
• Publication Date: Mar 31, 2016
• Discipline: Strategy
• Product #: 716455-PDF-ENG

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On March 1, 2017, Best Buy Company, Inc., North America's largest retailer of consumer electronics and appliances, announced a third year of comparable-store sales increases and a 20.8% increase in domestic comparable online sales. These results were in marked contrast to four years of declining comparable-store sales from 2010 through 2013. The stock price rose 17% in March, and on April 20, 2017, it surpassed $50 for the first time since January 2008. When CEO Hubert Joly took over in September 2012, Best Buy was losing share to Amazon.com , which was encouraging consumers to view products at Best Buy and other physical stores and then buy them for a lower price online, a practice known as "showrooming." Undaunted, Joly had encouraged the practice, convinced that it presented an opportunity to sell to customers as long as Best Buy's prices were competitive. Joly had committed the company to a multi-channel strategy in North America and exited struggling international operations. Operating margins had increased as a result, but growth was still proving elusive. In early 2017, Joly announced that his "Renew Blue" turnaround effort was complete and that he was now intent on creating the New Blue. Would the new strategy be enough to stop Amazon's advances?

Learning Objectives

After a brief overview of Best Buy's history from 1966 to 2012, we focus on Hubert Joly's efforts to turn the company around with the "Renew Blue" plan. In early 2017, Joly declared that the turnaround effort was complete and launched the new strategy, "Best Buy 2020: Building the New Blue." We close in early 2018, one year into the Best Buy 2020 strategy. Students will learn about the challenges of operating a big-box business in categories vulnerable to competition from online retailers. They will evaluate the success of the Renew Blue turnaround and consider the logic of the new strategy announced in

• This case provides an opportunity to examine a turnaround strategy.

Mar 31, 2016 (Revised: May 4, 2018)

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Harvard Business School

716455-PDF-ENG

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Case Studies

Best buy: a focus on delivering solutions and sustainability, june 3, 2011, the challenge.

In an industry facing growing concerns about e-waste, the “rapid obsolescence” of products, and continued supply chain human rights issues, the senior leaders at Best Buy aim to transform the company’s business model from one based on selling only products to one that focuses on delivering “digital connections”—those technologies and services that help “connect customers to people, knowledge, ideas, and fun.” Recognizing that sustainability is key to that future, Best Buy partnered with BSR to turn that vision into a practical strategy aligned with the company’s other key priorities.

Our Strategy

Our three-phase approach allowed Best Buy to set a clear direction for its sustainability objectives:

1. Assessment

Given Best Buy’s rapid growth in sales and its move into new services and businesses, we began by conducting interviews with 40 Best Buy executives and more than 20 external sustainability experts and stakeholders. We used this information to examine Best Buy’s business direction, management perspectives on sustainability, and current gaps in the company’s sustainability-related activities. Next, we mapped near-term trends affecting the consumer electronics industry, such as new regulations and the increasing costs of input materials. We also reviewed outside perspectives on Best Buy’s role in developing more sustainable products and the opportunities associated with the company’s desire to transition from products to solutions.

2. Materiality

We analyzed more than 60 sustainability issues—from digital privacy, to access to technology, to product safety, to transportation—based on how they affect Best Buy’s business and based on their importance to consumers, communities, governments, NGOs, and others. We presented the results to Best Buy’s Sustainability Team and Advisory Group, which used the presentation to agree on four priority areas: Product Stewardship, Sustainability Solutions, Access, and Inspired Workplace.

3. Strategy Development

Once Best Buy's senior leaders validated BSR’s conclusions, BSR and the sustainability team defined goals for each area:

• Product Stewardship: to lead the industry from product design to end-of-use solutions
• Sustainability Solutions: to provide products and services that allow customers to lead more sustainable lives
• Access: to build business models that enable people who don’t have it today to access all the benefits of the connected world
• Inspired Workplace: to become the preferred place of work because of sustainability efforts

We also helped Best Buy develop specific targets for each area, and we proposed a sustainability governance structure that creates clear leadership and accountability within the company and a structured review process that incorporates external input.

By nature, strategy projects set the direction for changes that come into practice fully over the medium to long term. Best Buy has made significant progress in establishing its sustainability strategy and a foundation for progress. To begin implementing this strategy, company leaders have started to develop relationships with consumer products manufacturers that are focused on sustainability and are key to the achievement of Best Buy’s sustainability goals.

• Consumer Products

Let’s talk about how BSR can help you to transform your business and achieve your sustainability goals .

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