EXTERNAL ANALYSIS FOR BEST BUY CO. INC.

Introduction

Best Buy Co., Inc. is a public limited company whose stocks are listed in the New York stock

exchange. It is a specialty retailer of consumer electronics in United States which accounts for

about twenty percent of domestic market retail business in technology based items. It has store

in 24 different locations in United States (USSEC, 2011). Apart from its operations in USA, it

also carries out its operations in Mexico, Turkey and United Kingdom etc. (Boyle, 2006). As of

2010, company along with its various subsidiaries operates more than one thousand and fifty

stores only in domestic markets (USSEC, 2011).

It is a private listed company. The stocks of the company are listed in the New York Stock

Exchange under the symbol BBY. The company was ranked as a company of the year by Forbes

(Tatge, 2006). It was also ranked as a “specialty retailer of the decade” (DSN, 2001). It is

currently ranked at number 45 in the Fortune 1000 companies list (One Source, 2011). It is

among the primary retailers of electronic goods in the United States. During the first quarter of

the fiscal year 2011, it has earned revenues over six hundred million (Best Buy, 2011).

SWOT Analysis

SWOT Matrix

The SWOT analysis of Best Buy Co. Inc. is as follows:Strengths

● Market position

● Networking

● Profitable growth in stores business

● Alliance

Weaknesses

● Limited suppliers

● Lawsuits

● Limited geographic concentration

Opportunities

● Acquisitions

● Expansions

● Expanding the product lines

Threats

● Competition

● slow sales curve

● increased rental prices

StrengthsBest Buy Co. Inc. is the largest consumer electronic goods retailer in USA and accounts

for around twenty percent of the market share in the country. The company enjoys unique market

position and it was ranked at number forty five in the Fortune global 1000 companies as of 2010

(one source, 2011). The company outlets are present in numerous states of United States. It

maintains a strong network which helps it maintain the economies of scale and enhance the

brand image. This strong networking enables the company to serve a wide range of customers to

penetrate the market more effectively (Data monitor, 2007).

Best Buy was regarded as top company for the year in 2004 by Forbes magazine with

respect to its growth rate, profitability and community involvements (Tatge, 2004). The company

also witnessed an increase in customer satisfaction. The company’s score in the American

Customer Satisfaction Index rose by positive point in 2007 (Data monitor, 2007). It also manages

various mobile stores in the United States which is a product of its joint venture with the various

other warehouses. This relationship with the other stores and warehouses has added to the

advantage to the company in helping consumers buy and use its products.

WeaknessesThe company, despite of its market position and profitability, has some weaknesses. The

prime one is the dependence on few numbers of suppliers. By the end of 2007, it maintained

around twenty five largest suppliers that accounted for 3/5th of the purchases of the company

(Data monitor, 2007). Moreover, the company does not maintain long term contracts in black

and white with its major suppliers. This can be a great set-back for the company if any of its

suppliers turned its back to Best Buy.

Best Buy has been the victim of various law suits against its business operations. One of

them is a law suit that alleges it charges customers higher than advertised prices based on the

internal prices of the company. In 2000, two customers charged the company for hiding the

warranty details of a manufacturer in order to sell their own label products. It paid over two

hundred thousand US dollars to settle the issue but remain consistent that it is not doing anything

wrong (Civil Justice Report, 2001). The company is heavily relying upon its domestic (US)

electronics market for revenue generation. The US market is suffering from the slow-down in the

economy which has hit the sales of electronic items as well due to the increased rate of interest

Hence, an over dependence on the US market, in the current market scenario could significantly

affect the company’s revenues. Also due to the lack of geographic presence and expansion, the

growth rate of the company is also very slow (Data monitor, 2007).

OpportunitiesThere are certain opportunities available to the company that will help Best Buy to excel

in the market. First it can make significant acquisitions. It acquired few companies in the recent

years (Data monitor, 2007). This strategic acquisition helped the company to expand and grow

its customer base and the number of brands. Such acquisitions provide opportunities like entering

new markets, developing of new product lines under the company brand names etc. and also

enable the growth potential to the company for future business.

Secondly, it should focus on the international expansion of its business units. The

company is preparing to open large-format stores in the United Kingdom this year (USSEC,

2011). Expansion in new geographies will increase the business opportunities and the market

share of the company. Likewise, it can consider its product line expansion in terms of expanding

electronic equipment market. The growth rate of this market is very high in the world. This

indicates a growing consumer demand for these goods.

Threats

Best Buy has to face fierce competition with three main competitors and the Retail giants

in the domestic markets. Its main competitors are Amazon, Apple Inc. and Wal-Mart stores

(Hoovers, 2011).The electronic distribution industry is very competitive. Large companies like

Wal-Mart are increasing their inventory of consumer products related to electronics and relevant

products. Many of these retailers are offering installation services as well to increase their market

penetration. Increasing competition could increase the pressure on the company’s margins which

could affect the operating results of the company (Data monitor, 2010).

There has been an increase in the prices of rental equipment in United States. If the trend

continues, it may cause the operating expenses of the company to increase. Rising operating

expenses can decrease the company’s operating capabilities and can badly affect the company’s

overall profitability. Due to the fluctuating economy of United States, the studies have found that

there is very slow trend of customer buying practices. This trend will lead to slow sales and

ultimately will affect the market position of the company.

PESTEL AnalysisThe PESTEL analysis contains the analysis of Political, Economic, Social, Technological,

Environmental and Legal environments of a country with reference to a particular object. The

PESTEL analysis of Best Buy Co. Inc. is as follows:

PoliticalThe company is engaged in various activities to promote the promotion of candidates and

political organizations. In United States, direct corporate contribution to the candidates of any

political party and committees is not allowed in some states and at federal level. The companies

can make individual contributions on behalf of these candidates and parties. The company

complies with all the laws related to the political contributions and strives to contribute to the

parties that are interested in the well being of their industry (Best Buy, 2009).

Economic

The company has most of its operations in United States and the economic conditions of the

country are not hidden from anyone. The economic slowdown has no doubt affected the business

operations of Bust Buy Co. and they are facing consumer related challenges at every point in the

market. There have been dramatic and long lasting changes in the behaviors of consumers due to

the economic slowdown in the country. They will need time to adjust themselves to the new

realities. Due to these economic conditions, in 2008, Best Buy Co. asked its employees to

separate from the company on voluntary basis (ecoustics, 2008). This strategy allowed the

company to settle down in the market to some extent. By the end of fiscal year 2008, its revenue

showed remarkable stability and consistency proving the decision of cutting down work force

was right (ecoustics, 2008).

Corporate partnership with CPW has helped the company to perform better in the adverse

conditions of the economy and markets. Early this year, the company has noted a growth rate of

around 30% (CPW, 2011). Their operating income increased to around 4% of its revenue in the

second quarter of fiscal 2011, compared to 2.5% of revenue in the prior-year period.

Social

Best Buy is engaged in effective social and community related initiatives. It has developed

Children’s Foundation that aims to support the local communities via its grant making programs.

It took an initiative to encourage the teens to speak their selves up. The program called “@15”

has a goal to give power to the teens to improve their relationships and educational status at

school, engage in their communities, and skills that can be helpful for them in professional lives

(Best Buy Community Relations, 2011). Apart from these initiatives it is actively engaged in

various other programs like teach @15 awards, @15 scholarships, @15 community grants and

store donations to promote education, community relationship etc. with the help of various

national and international NGO’s.

In order to carry out its community related programs it is partnered with various other

foundations. These partners includes Admission Possible, AFI ScreenNation™, America Scores,

American Red Cross Society, Ashoka’s Youth Venture, Boys and Girls Clubs of America,

Communities in Schools, Dollars for Schools, DonorsChoose.Org, DoSomething.org, Genesys

works, GoNorth!, GRAMMY Foundation, j. k. livin foundation, KIPP, MercyCorps, MOUSE,

NCLR, National Urban League, NYLC, PACER Center’s Teens against Bullying, Project Girl,

RACE- are we so different, Room to Read, Scholarship America, Search Institute and various

others (Best Buy Partners, 2011).

TechnologicalThe company is highly equipped with the latest gadgets and the technology it requires to

facilitate its customer base. The future proofs program initiated by the company allows the

customers to select the technology as per their requirements and keeps them updated with the

latest updates on the technology they like. Moreover it has been using website encryption

technology to ensure secure transactions with the customers. They are also using technologies

like click stream on the websites to keep the anonymous track of their visitors’ preferences and

likes. This technology helps them to develop a better, more secure shopping experience and

helps Best Buy to understand how visitors use their Web site (Best Buy Privacy Policy, 2011).

EnvironmentalThe company was regarded as one of those corporations who were involved in unethical

deforestation in Canada (Greenpeace, 2007). Since then, Best Buy launched a program called

Greener together to increase the energy efficiency in its products and to reduce the level of waste

by using recyclable packaging and disposing system. In 2009, Fortune magazine reported that

Best Buy started a campaign called Best Buy wants your electronic junk. It started offering free

recycling of gadgets large and small, more than twenty million pounds of junk items that were

recycled by the company. This helped to enhance the green reputation of the company and was

used as a strategic way to get customers into stores (Marc, 2009).

LegalIn 2005, one lawsuit was filed against the company in the US district court in California.

The company was alleged for discriminating against the women employees specially African-

American and Latino employees. It was charged to deny the good sales position and promotions

due to their ethnicity but the company denied this fact. The company agreed to change its

corporate and personal policies as well as procedures to improve its employee relationships. The

company is keen to enhance equal employment opportunities at its stores nationwide (Associated

Press, 2011). Moreover, it tries to comply with all the rules, regulations and laws of the federal,

state and local governments of the regions it operates in.

Porter’s five forces analysisRivalry among established competitions

The extent of rivalry among the already established competitors and the Best Buy Co.

Inc. is very high in the retail business. Its main competitors are Amazon, Apple Inc. and Wal-

Mart store. All of these companies have given cut throat competition in the market. The success

of a company depends on the products it offers in terms of its quality and the economic pricings.

The more quality at economic pricing structure are well appreciated by the customers. Wal-Mart

has an effective strategy of offering goods at very low prices. This strategy is killing the profit

margin of other competitors in the markets.

Bargaining power of suppliers

The bargaining power of suppliers is medium to high in the case of retail business of

technology based products. Best Buy obtains its merchandize from limited number of suppliers

which makes it vulnerable to the moods and requirements of those suppliers. The suppliers have

every bit of power to obtain their desired profits from Best Buy Inc. If Best Buy engages in the

wide range of supplier networking system then it would no more remain a subject to supplier’s

bargaining power.

The bargaining power of buyers

The bargaining power of buyers is high in the case of Best Buy. The customer needs and

wants are derived by the quality of products and the prices offered and these needs and wants are

subject to change overtime. The Best Buy is using customer centric model which has weaken its

ability to deal with the customers. This model has given subsequent amount of power to the

buyers and empowered them to demand products at their preferred prices. If not complied, the

customers tend to switch to the other retailer. Complying with the demands of the customers can

increase the cost of doing business to Best Buy (Gulati, 2010).

The threat of substitute products or services

Today, people seek entertainment and electronic gadgets essential to carry out their

everyday life works and business. Almost everyone has at least one television, computer, mobile

phone etc. these things are not likely to be replaced with any other gadgets or related products. If

they want to replace it, they will replace with the up to date technology. So the likelihood of

people to replace the products offered by Best Buy with the substitute products is very low.

The threat of the entry of new competitors

The industry imposes certain barriers to the entry of the new companies in the markets.

This means that the level of threat of new entrants is relatively low in the industry. There are

varying reasons to the low rate of entry. Among them is the entry barriers imposed by the

industry. The new entrants will have to comply with the governmental regulations in order to

make their entry in the markets. Then the existing players are protected by the number of barriers

which makes it difficult for the new entrants to give hard time to them. Among them are: entry

restrictions, tariff rates, high capital requirement, distribution channels etc. These barriers limit

them to compete against the existing market players (Kwok, Dornbach-Bender and Lange,

2009).

RecommendationsThis study provided brief overview on the external environment analysis of Best Buy Co.

Inc. The findings of the study suggested that Best Buy Co. Inc. should focus on the following

factors in order to excel its business and social image in the world:

1. Expand, expand and expand. Best buy should consider geographical concentration. They

have the right set of strategies, right people and the amount needed for expansion. All

they have to do is to start their operations in other regions as well. For the developing

markets like China, India etc. are highly beneficial.

2. Lease the rental areas to improve the current liabilities. Leasing will decrease the monthly

expenses of the company.

3. Innovate yourself to effectively and efficiently deal with the competition

4. Devise effective Corporate Social Responsibility strategies to take part in the community

development. This will benefit the company in the sense of improved corporate image

and societal involvement will lead to positive promotion of the company.

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