BEST BUY
Making Life Fun & Easy!
Tiago Alves Andrew Bornstein Mae Brana Grace Tan Meredith Walters
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
TABLE OF CONTENTS
BUSINESS SUMMARY..............................................................................................................................................2 VISION STATEMENT & CORPORATE VALUES .............................................................................................................2 RANKINGS .................................................................................................................................................................2 MARKET SHARE ........................................................................................................................................................3 STOCK CHART – 5 YEAR PERFORMANCE ...................................................................................................................3 FINANCIAL HIGHLIGHTS ............................................................................................................................................4 HISTORY .....................................................................................................................................................................5 KEY EXECUTIVES....................................................................................................................................................6 STRATEGY .................................................................................................................................................................7 CUSTOMER CENTRICITY ............................................................................................................................................7 VALUE-ADDED SERVICES BUSINESS ..........................................................................................................................9 SUPPLY CHAIN AND IT SYSTEMS ...............................................................................................................................9 NEW STORE OPENINGS ............................................................................................................................................ 10 MERGERS & ACQUISITIONS .............................................................................................................................. 10 EMPLOYEES ............................................................................................................................................................ 11 KEY COMPETITORS.............................................................................................................................................. 12 5-YEAR PERFORMANCE VS KEY COMPETITORS ....................................................................................................... 13 APPENDIX ................................................................................................................................................................ 14
1
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
Business Summary
Best Buy is a specialty retailer of consumer electronics, home-office products, entertainment software, appliances and related services in a superstore format. It operates retail stores and commercial Web sites in the U.S., Canada and China, under the brand names Best Buy (BestBuy.com and BestBuyCanada.ca), Future Shop (FutureShop.ca), Magnolia Audio Video (MagnoliaAV.com) and Geek Squad (GeekSquad.com and GeekSquad.ca). As of Feb 25 2006, Best Buy operated 742 Best Buy stores, 20 Magnolia Audio Video stores and 12 Geek Squad stores in the U.S.; and 118 Future Shop stores, 44 Best Buy stores and five Geek Squad stores in Canada. Best Buy operates two reportable segments: Domestic and International. The Domestic segment is comprised of all U.S. store and online operations, including Best Buy, Magnolia Audio Video and Geek Squad. Magnolia Audio Video stores offer high-end audio and video products, and services. Geek Squad offers residential and commercial in-home computer repair and support. The International segment is comprised of all Canadian store and online operations, including Future Shop, Best Buy and Geek Squad. The International segment offers products and services similar to those offered by the Domestic segment. However, Canadian Best Buy stores do not carry appliances. Additional Facts & Figures 1. Each retail location has an average of 125 store employees 2. Each store varies in size from 20,000 to 45,000 Square foot 3. Best Buy leases the majority if its store locations
Vision Statement & Corporate Values
Vision Statement Make Life Fun and Easy! Corporate Values: Having fun while being the best Learn from challenge and change Show respect, humility and integrity Unleash the power of our people
Rankings
Year Rank Title 2006 14 America's Top 2000 Brands 2006 13 US Top 150 Chain Retail Stores 2005 13 Top 100 US Retailers 2004 8 U.S. Top 10 Retailers Source Brandweek DSN Retailing Today Chain Drug Review Brandweek Criteria
by US media spending by sales, earnings, no. of stores by sales, earnings, no. of stores by sales, media expenditures, consumer perceptions, and equity
2
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
Market Share
U.S. Top 10 Consumer Electronics Retailers, 2000
2000 Market 1999 Rank Company Share Rank 1 Best Buy 14.1% 1 2 Wal-Mart + Sam's Club 12.2% 5 3 Circuit City 10.3% 2 4 CompUSA 6.1% 4 5 Dell Computer 5.7% 6 6 Kmart 5.3% 12 7 Gateway 4.8% 3 8 RadioShack 4.8% 8 9 Target 4.2% 9 10 Sears 3.8% 10 Source: Retail Merchandiser, 42 (2): 32(1), February 2002
Stock Chart – 5 Year Performance
3
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
Financial Highlights
4
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
History
1966 -- Richard Schulze and business partner open the Sound of Music store in St. Paul, Minnesota. 1969 -- Sound of Music stock first traded over the counter as publicly- held company. 1970 -- Sound of Music hits the $1 million mark in annual revenues. 1979 -- Sound of Music expands into video products; first suppliers of video and laser disc equipment include Panasonic, Magnavox, Sony and Sharp. 1983 -- Sound of Music‘s board of directors approves a new corporate name: Best Buy Co., Inc.; Best Buy opens first superstore in Burnsville, Minnesota, featuring expanded selling space, a wide assortment of discounted brand-name goods, central service, and warehouse distribution; stores begin selling appliances and VCRs. 1984 -- Consumer Electronics Monthly magazine names Best Buy to its top-10 list of “Consumer Retailers of the Year.” Richard Schulze announces in NARDA News: ‗We‘ve taken the stance that we won‘t be undersold on any item.‖ 1985 -- Best Buy‘s initial public offering on the Nasdaq raises $8 million; Best Buy expands the superstore format outside the Twin Cities and opens stores in St. Cloud, Moorhead, and Rochester, Minnesota. 1986 -- Stores begin offering CD’s and an expanded line of photo- equipment. 1988 -- Best Buy stores begin selling PCs. 1989 --– Best Buy unveils a revolutionary ―grab-and-go‖ store format – Concept 2 -- that offers customers pressure-free, non-commissioned shopping in a warehouse-style environment; Best Buy‘s brand logo changes to the familiar yellow tag; the new ―head-heart- hands‖ approach increases in-store sales, profits and customer satisfaction. 1993 -- Best Buy becomes the nation’s second -largest consumer electronics retailer when Highland closes its remaining stores. 1995 -- Best Buy becomes the nation‘s top retailer of PCs to home users; Best Buy implements
5
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
the Standard Operating Platform (SOP), developed to support and manage every aspect of the company‘s business; the Answer Center kiosk is nominated for the Computerworld Smithsonian Award. 1997 -- Best Buy becomes the first national retailer to sell DVD hardware and software. 1998 -- Best Buy begins selling high-definition TV. 2000 -- Best Buy enters the online retailing business by launching Bestbuy.com; Fortune names Best Buy one of the top 10 performing stocks since 1990; Best Buy debuts in the New York City market, the last untapped major market in the continental U.S.; Best Buy acquires Magnolia Hi-Fi (renamed Magnolia Audio Video in 2003), a retailer of high-end consumer electronics, based in Seattle. 2001 -- Best Buy acquires Musicland, a mall -based retailer for music and entertainment software. 2002 -- Best Buy opens first Canadian Best Buy store in Toronto, Canada; Best Buy and the Geek Squad join forces; Best Buy ranks #1 on the TWICE top 100 CE retailers list for 2002; Schulze steps down as CEO in June and is replaced by Brad Anderson. 2003 -- U.S. Best Buy stores surpass the 600 mark; Best Buy initiates its first-ever quarterly cash dividend to shareholders; Best Buy divests itself of Musicland. 2004 -- Forbes magazine names Best Buy “Company of the Year.”
Key Executives
Name
Richard M. Schultz Bradbury H. Anderson Allen U. Lenzmeier Brian J. Dunn Darren R. Jackson
Title
Chairman CEO, Vice-Chairman Vice-Chairman COO, President CFO, Executive VP
Age Started
65 56 62 49 41 1966 1973 1984 1985 2000
Annual Comp Bonus Etc
$100,000 $1,120,372 $821,626 $485,444 $514,136 $11,683 $1,219,627 $967,098 $549,150 $588,388
Total
$111,683 $2,339,999 $1,788,724 $1,034,594 $1,102,524
Founder, Chairman
Richard M. Schulze, 65, is a founder of Best Buy. He has been an officer and director from our inception in 1966 and currently is Chairman of the Board. Effective in June 2002, he relinquished the duties of Chief Executive Officer.
CEO, Vice-Chairman
Bradbury H. Anderson, 56, has been a director since August 1986 and is currently our Vice Chairman and Chief Executive Officer. He assumed the responsibility of Chief Executive Officer in June 2002, having previously served as President and Chief Operating Officer since April 1991. He has been employed in various capacities with BBY since 1973.
Vice-Chairman
Allen U. Lenzmeier, 62, has been a director since February 2001 and is currently Vice Chairman, serving on a part-time basis to support international expansion. Prior to his promotion
6
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
to his current position, he served in various capacities since joining BBY in 1984, including as President and Chief Operating Officer from 2002 to 2004, and as President of Best Buy Retail Stores from 2001 to 2002.
COO, President
Brian J. Dunn was named President and Chief Operating Officer in February 2006. Prior to his promotion to his current position, he served as President - Retail, North America since December 2004. Mr. Dunn joined BBY in 1985 and has held positions as Executive Vice President, Senior Vice President, Regional Vice President, regional manager, district manager and store manager.
CFO, Executive Vice-President
Darren R. Jackson was named Executive Vice President - Finance and Chief Financial Officer in April 2002. Mr. Jackson joined BBY in 2000 as Senior Vice President - Finance and Treasurer and was promoted to Chief Financial Officer in 2001. Prior to that, Mr. Jackson served as chief financial officer of the Full-Line Store Division at Nordstrom, Inc., a department store chain, from 1998 to 2000 and as chief financial officer of Carson Pirie Scott & Co. Inc., a department store chain, from 1996 to 1998. A certified public accountant, Jackson has 17 years of experience in the retail industry.
Strategy
Best Buy says its goal is to achieve a ―7-percent operating income [growth] rate…We expect the gain to come from improved capabilities in our supply chain and information technology systems; leverage of our investments in Canada; and organic growth fueled by new store openings, customer centricity work and the expansion of our services business.‖1
Customer Centricity
In 2002, Best Buy adopted the strategy of ―customer centricity‖ as a way to differentiate itself and fuel organic, sustainable growth. Here‘s how it works: Track customer behavior Best Buy started by gathering huge amounts of customer data. ―Its 15-plus terabyte database houses information about more than 75 million households and is informed by more than seven years of transaction and interaction data.‖ Best Buy uses this data to figure out which of its customers are most profitable. It found, for example, that 31% of customers drive 80% of revenues.2 [Read more here] Drop least profitable customers Using these data, management dropped its least profitable customers. ―Weeding out the costly [customers], it‘s dropped affiliate agreements with some bargain-
1 2
Best Buy Annual Report 2006, CEO‘s Letter to Shareholders The Importance of Being Analytical. Jeff Zabin, Brandweek, July 24, 2006: pg. 21
7
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters oriented web sites such as Fatwallet.com, culled less profitable names from its mailing lists, and tightened policies to discourage abusive returns. The company‘s Reward Zone, launched in 2003, broke loyalty-program norms by charging customers $9.99 to join and aimed recruitment more at profitable customers than trying to maximize participation.‖3 [Read more here] Identify target customers and anticipate their needs Best Buy then identified five customer types it wanted to target based on their profitability, and it is in the process of reconfiguring stores to appeal to them: ―Barry is an affluent tech enthusiast; Jill, a busy suburban mom; Buzz, a young gadget fiend; Ray, a price-conscious family guy; and Mr. Storefront owns a small business… Best Buy‘s researchers comb through reams of sales and demographic data to determine whether a particular location should be tailored to, say, Ray or Buzz. Nearly 40% of the 300 stores that have been redone aim at Barry—in them you‘ll find a separate department of home-theater systems, expert salesmen, and specialists in mobile electronics. Jill stores feature personal shopping assistants (PSAs) who know how to steer a homemaker to the right digital camera for her family. Buzz stores have broad assortments of videogames. Stores can target more than one segment... ‗Centrizing‘ a store is a big investment—a typical Barry department alone requires as much as $600,000 for lighting and fixtures.‖4 [Read more here] Give employees the capability to meet customer needs Finally, Best Buy trains and empowers employees to better meet its customers‘ needs. ―Best Buy also invests in schooling employees in financial metrics such as return on invested capital so that they can gauge for themselves the effectiveness of merchandising displays.‖ It allows employees large discretion in making stores more appealing to their particular customers and constantly asks them for new ideas. Such efforts helped lower employee turnover from 81% in 2005 to 69% in 2006 5 [Read more here]
Expansions to “centricity” In the first few dozen stores segmented, samestore sales grew at three times the rate of regular stores. Based on the success of these first few dozen stores, Best Buy tried to switch 154 stores to centricity in three months in the third quarter of 2005. ―Instead of jumping as it had in previous quarters, same-store sales growth at the renovated stores was only slightly better than the chainwide average (5.4% vs. 3.3%)… The poor results persuaded [Best Buy CEO Brad Anderson] to freeze centricity rollouts for the fourth quarter. (They resumed in March.)‖6 In April 2006, Best Buy announced that it would
3 4
Why Some Marketers Turn Away Customers. Jack Neff, Advertising Age, Feb. 14, 2005: pg. 1 Best Buy’s Giant Gamble. Matthew Boyle, Fortune, April 3, 2006: pg. 68 5 Best Buy’s Giant Gamble. Matthew Boyle, Fortune, April 3, 2006: pg. 68 6 Ibid
8
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters be reorganizing and restructuring its corporate headquarters and store-level operations to ―eliminate redundancies that resulted when the customer centricity initiative was layered over existing operations during its launch.‖ Three hundred corporate employees were fired as part of the reorganization.7 [Read more here]
Value-added Services Business
Best Buy has expanded into service offerings with Geek Squad and Best Buy for Business consultants. In 2002, Best Buy bought Geek Squad, a ―24-hour, seven-day-aweek, technical support and repair ‗task force.‘ They charge a flat rate depending on the service and fix computers regardless of where they were bought.‖8 [Read more here] In fall of 2006, Best Buy began expanding and marketing its business IT consulting unit—known as Best Buy for Business. ―The 1,350 specialists who work for Best Buy for Business sell plenty of computers and gadgets, but they also offer a wide range of value-added services, from installation of Voice over Internet Protocol (VoIP) technology to set-up and maintenance of computer hardware.‖9 [Read more here]
Supply Chain and IT Systems
Best Buy is transitioning from a traditional, ―push model‖ to merchandise stores to a ―pull‖ strategy. Following the lead of the food industry, Best Buy tracks customer behavior in stores and uses this information to tailor its supply chain and replenishment processes to support that behavior and fulfill inventory based on customer needs.10 [Read more here] Its integrated business intelligence system allows internal users, external partners, and supply chain members to perform trending analysis on sales, inventory, advertising, pricing, and all forms of financial metrics. As a result, on-shelf availability has grown from the mid-80 percent up to 93 percent.11 [Read more here] Best Buy is also among the few companies running pilot programs of radio-frequency identification, or RFID, chips to help it better manage its inventory and make customer checkout more convenient.12 [Read more here]
7 8
Best Buy Consolidates Centricity. Alan Wolf, Twice, April 10, 2006: pg. 3 The March of the Geek Squad. Lauren Foster, Financial Times, Nov. 24, 2004 9 Best Buy Thinks Small on IT. Chris Serres, Knight Ridder Tribune Business News, Feb. 17, 2007: pg. 1 10 A Point of Differentiation. Deena M Amato-McCoy, Chain Store Age, Jan 2007: pg. 26 11 Feeding Best Buy. Devendra Mishra, Dealerscope, Nov. 2006, pg. 82 12 Best Buy Foresees Using RFID to Track Inventory. Kris Hudson, Wall Street Journal, April 4, 2007
9
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
New Store Openings
Best Buy is pursuing a cautious growth strategy in China. In 2006, it purchased a stake in Chinese specialty retailer Five Star. It plans ambitious expansion for Five Star but will take it slowly with stores operating under its own banner in China. It has opened just one Best Buy store in Shanghai and will only open one or two more in the next year or so. ―To ease its way into the market, Best Buy plans to use Five Star stores as test labs for new merchandising strategies and programs that focus on improved customer service…It‘s also going to use its first store in Shanghai to test merchandise not carried in typical consumer electronic stores. The store will carry products geared to meet local demand, including mp3 players and cell phones.‖13 [Read more here] ―Based on the first month of sales, the Shanghai outlet is destined to rank among Best Buy‘s top 10 stores within the year…[Best Buy] is seeking to capture a major chunk of the $100 billion consumer electronics market in China…That‘s compared with the $150 billion consumer electronics market in the United States.‖14 [Read more here]
Mergers & Acquisitions
Industry analysts expressed concerns about Best Buy‘s buying spree between 2000 and 2001.15 [Read more here] However, it has since become evident that Best Buy‘s M&A strategy is disciplined, slow paced, and well thought out. Great pains appear to have been taken to ensure that recent acquisitions complementary products, services and cultures. o Best Buy acquired Pacific Sales Kitchen and Bath Centers, the nation's 10th largest white goods dealer, in Jan 2006 for $410 million16 [Read more here] o Best Buy acquired Geek Squad, Inc. for $3 million in 2002 o Best Buy acquired Future Shop Ltd, Canada's largest consumer electronics retailer for $377 million in 2001 o Best Buy acquired Musicland Stores Corp. for $685 million in February 200117 [Read more here] o Best Buy Co., Inc. acquired Magnolia Hi-Fi, Inc., a Seattle operator of 13 electronics stores catering to affluent customers, for $87 million in Dec 2000 The most recent acquisition of Best Buy was broadband voice, data and IT service provider Speakeasy for approximately $97 million in March of 2007. The Seattle-based
13 14
Best Buy Takes Cautious Approach to China Market. Anonymous, Retailling Today, Jan. 8, 200, pg. 14 Best Buy Has Big Plans for China. Gita Sitaramiah, Knight Ridder Tribute Business News, Jan. 26, 2007, pg. 1 15 Best Buy-ing Spree Continues Despite Concerns. Greg Masters. Retail Merchandiser. New York: Jan 2001.Vol. 41, Iss. 1; pg. 9, 1 pgs 16 Best Buy Acquiring Pacific Sales. Alan Wolf. TWICE. New York: Jan 16, 2006.Vol. 21, Iss. 2; pg. 52, 1 pgs 17 Musicland Purchase A Misstep. Greg Masters, Pete Hisey. Retail Merchandiser. New York: Mar 2003. Vol. 43. Iss. 3; pg. 16.
10
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters Speakeasy had calendar year 2006 revenue of $80 million and employs about 300 people. In 2006, it had more than 40,000 customers. Best Buy bought Speakeasy as part of a strategy to expand its service offerings and offer VoIP through its Best Buy for Business consultants to small business customers. "We have a high regard for Speakeasy's employees, their culture and their valued relationships with customers and vendors," Jackson said in a release. "They have a strong customer service-oriented approach, which is an excellent fit with Best Buy's culture and direction."18 [Read more here]
Employees
More than 90,000 people work at Best Buy, from distribution managers to store managers, product specialists to technicians. The company‘s growth has created a wealth of career opportunities in stores and at corporate headquarters. According to the Best Buy Careers site: “We offer employees exciting work in a fun, dynamic environment that encourages learning and growth.” Best Buy is currently at the forefront of corporate culture reinvention, by reinventing how people work. Through a homegrown concept called the "Results Only Work Environment," or ROWE, the retail giant has embarked on a journey that ultimately will result in a total corporate culture shift. In a ROWE, employees are free to work when and where they want, as long as the job gets done. Meeting attendance is optional. All that matters are results. Managers are responsible for establishing processes and setting goals; employees are responsible for meeting them. To date, some 2,600 Best Buy corporate employees, or about 60%, have transitioned to ROWE. The rest will be on board by year's end. The company reports that productivity for ROWE teams has increased an average of 33%. In addition, there has been: * A significant drop in voluntary turnover. * Improved manager performance. * Greater employee engagement. * An increase in customer satisfaction.19 [Read more here]
18
Best Buy Buys Speakeasy to Buoy Small-Business Services. John Laposky. TWICE. New York: Apr 9, 2007.Vol. 22, Iss. 8; pg. 22 19 Don’t Call it Flex: Best Buy puts work-life balance on new axis. Lynn Gresham. Employee Benefit Advisor. March 1, 2007.
11
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
Key Competitors
Revenues Operating Net Income Company Ticker (Billion) Margin (mil) Best Buy Inc BBY $35.93 5.56% $1,380.00 Circuit City Stores, Inc. CC $12.43 1.08% ($13.69) RadioShack Corp. RSH $4.78 4.95% $73.40 Source: Yahoo Finance, accessed April 23rd 2007 EBITDA (mil) $2,490.0 $344.39 $382.90 Diluted Market Cap No. of EPS (Billion) Employees $2.79 $23.50 128,000 ($0.07) $3.31 46,007 $0.54 $3.87 40,000
Circuit City is the most similar of the main competitors in that it once strove to be a ―category killer‖ of all electronics and home entertainment. While Best Buy is certainly still a category killer, it has diligently began to diversify its offering by acquiring service providers such as The Geek Squad. Circuit City on the other hand appears to be having difficulty meeting earnings projections, let alone expanding their offerings. Fourth quarter results reported by the nation's two largest electronics chains showed Best Buy increasing its lead over its smaller rival, with profit up 18 percent, while Circuit City lost money.20 [Read more here] On the other hand, Circuit City has taken several questionable human resource steps including changing from commission-based pay to flat hourly rates in 2003, and laying off 3,400 of its best-paid employees, or about 8% of its total workforce.21 [Read more here] "One company's in transition, and the other's executing," said Pali Research analyst Stacey Widlitz. "Best Buy is certainly able to navigate a difficult environment much better than Circuit City."22 [Read more here] In addition to traditional competitors such as Circuit City, BBY also faces increasing price pressures from non-specialists such as Wal-Mart and Target, which have expanded their electrical offerings.23 [Read more here] However, specialty retailers tend to do a better job of training its employees on high-tech products than other large general retailers. Best Buy, in particular, has succeeded in taking their customers to impossible places.24 [Read more here]
20
Best Buy 4Q Profit Up On Strong Sales, Store Openings While Circuit City Loss Widens. FinancialWire. Forest Hills: Apr 5, 2007. pg. 1 21 For Circuit City Staff, Good Pay Is A Bad Thing. Abigail Goldman, Molly Selvin. Los Angeles Times. Los Angeles, Calif.: Mar 29, 2007. pg. C.1 22 Best Buy’s Strategy Pays Off as Circuit City Falters. Mary Ellen Lloyd. Wall Street Journal. (Eastern edition). New York, N.Y.: Apr 5, 2007. pg. C.6 23 Wal-Mart aims to dominate consumer electronics. Maria Halkias. Knight Ridder Tribune Business News. Washington: Dec 15, 2005. pg. 1 24 Best Buy Service Trumps Circuit City. May Wong. Associated Press Online. April 7, 2007.
12
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
5-Year Performance vs Key Competitors
13
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
Appendix
The Importance of Being Analytical
Jeff Zabin. Brandweek. New York: Jul 24, 2006.Vol. 47, Iss. 28; pg. 21, 1 pgs A JOURNEY of a thousand miles begins with a single step, or so goes the ancient Chinese proverb. For Best Buy, the first step in its journey toward customer-centricity happened when CEO Brad Anderson stepped into one of his goo-plus stores to pick up a portable DVD player and a battery pack for it. It was five years ago, and Anderson wanted to play a DVD during an upcoming flight to Europe. He selected the player he wanted-only to learn that Best Buy didn't carry a battery pack for his model. Anderson wasn't just disappointed as a customer (his cinematic enjoyment was destined to end abruptly somewhere over the Atlantic), but concerned as a chief executive. As he saw it, the problem stemmed from the company's systematic failure to take a customer-centric approach: Not just selling a product a customer wanted, but anticipating the full range of subsequent activities involving that product. Today, the customer-centric approach sits at the very heart of Best Buy's growth strategy, and it goes well beyond merely informing what inventory gets stocked, and in which stores. Indeed, that elusive battery pack sparked a transformation that has ultimately ignited change across multiple facets of Best Buy's internal IT and customer-facing operations. But while much has been written about the big picture initiatives, scant attention has been paid to the critical role of customer analytics. To understand the impetus behind Best Buy's approach, it helps to mention Vilfredo Pareto. In his study of global wealth distribution, the 19th-century Italian economist observed that "a minority of input produces the majority of results." Pareto's maxim-or what marketers commonly refer to as the 80/20 Rule-speaks to the fact that most companies derive the vast majority of their revenues and profits from a small percentage of customers. In the case of Best Buy, approximately 31% of customers drive 80% of revenues. Even more striking is the fact that a mere 7% of customers-call them "Best Customers"-drive approximately 43% of the company's overall sales volume. So valuable are these individuals that it would take approximately 39 "Uncommitted Customers," which account for 12% of all customers, to replace the lost lifetime value of a single "Best Customer." Implementing customer centricity starts by taking a unified view of these customer relationships. This means overlaying data from across multiple brands, formats, channels and geographies with third-party and publicly available data to create multidimensional customer profiles. The key is to then translate the data into actionable insights. When it comes to capturing and integrating customer data, Best Buy is practically in a class by itself. Its 15-plus terabyte database houses information about more than 75 million households and is informed by more than seven years of transaction and interaction data. One memorable result of this is the clever naming system that Best Buy has developed to categorize its core customers. There's Buzz (the young technology buff), Jill (the suburban soccer mom), Barry (the wealthy professional guy) and Ray (the family man). The idea behind the naming convention is simple: Give each customer profile a distinct face, and it will help employees interact more productively with people who walk into the stores. Visiting
14
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
a store to buy a digital camera, a "Jill" customer, for example, will not care about megapixels or how data is stored; she just wants an easy way to take pictures. Best Buy's customer insights team deploys various modeling techniques to score individual customers in terms of their interests, lifestyles and passions. I laving discerned this information, the company can anticipate-and actively drive-their next likely purchases. The Peacock solution, developed by my firm, is one such tool the company has recently brought to bear in its efforts to better understand customer purchase sequences. It reveals relationships between the product combinations that customers buy, as well as the context in which they buy them. The insights team has built thousands of product combinations around transactional and behavioral correlations, and its behaviorally-adjusted lifetime value model may well be the most sophisticated of its kind. "There's a uniqueness to how our customers experience our brand and how we look at them," said Matt Smith, senior marketing director of customer insights. Nonetheless, competitors are paying close attention. Before they attempt to replicate Best Buy's strategy, however, they might wish to consider another ancient proverb: To see heaven, you have to be yourself. [Return to Handout]
Why Some Marketers Turn Away Customers
Jack Neff. Advertising Age. (Midwest region edition). Chicago: Feb 14, 2005.Vol. 76, Iss. 7; p1 MIKE SEIDENMAN WAS A LOYAL DELTA CUSTOMER. THE FAIRFIELD, OHIO, SALES rep had achieved Platinum Medallion status, the highest level in the airline's Skymiles frequent- flier program. But he did so by earning 100,000 miles a year at the lowest fares available, bypassing high-priced flights in a Cincinnati hub Delta dominates for cheaper flights in nearby Dayton and racking up perks with short-hop connections. Two years ago, Delta sent him and possibly thousands like him packing for other airlines as it changed the rules of Skymiles, making it harder to get free upgrades. Delta is one of a growing number of marketers punishing penny-pinching brand loyalists and instead embracing more profitable consumers in response to brutal competition from hyperefficient discounters. Retailers have started tracking driver's license numbers and refusing refunds to frequent returners, joining banks and insurers that have instituted steep fees on lessprofitable accounts or refused to renew policies of homeowners who make as few as one or two claims. Regardless of industry, targeting high-value customers and trying to upsell less-profitable ones is more likely to be effective than overdy redlining unprofitable ones, said Kelly Hlavinka, director-consulting services at Frequency Marketing, an agency that created the Reward Zone loyalty program for electronics retailer Best Buy. "It is controversial to redline customers. But done correctly, it really is simply about saying I have a limited pool of money, and I need as a business person to spend that money where I can get the most return."
15
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
To find those customers, Best Buy hired Larry Seiden, a professor at Columbia University's Graduate School of Business and author of "Angel Customers and Demon Customers." Weeding out the costly devils, it's dropped affiliate agreements with some bargain-oriented Web sites such as Fatwallet.com, culled less profitable names from its mailing list and tightened policies to discourage abusive returns. But it's the incentives for Best Buy's angelic topspenders that are paying off the most. The company's Reward Zone, launched in 2003, broke loyalty-program norms by charging consumers $9.99 to join and aimed recruitment more at profitable customers than trying to maximize participation. Reward Zone members account for only about 30 % of transactions today at the chain, but spend $844 a year, compared to about $400 for other customers. Data generated by the program is helping Best Buy tailor test stores toward various highvalue consumer segments. SUPERMARKETS NEXT While Best Buy's same-store sales last month missed targets, rising 2.5% vs. the projected low-end of 3% for the quarter, comps in the chain's 67 stores that have been revamped toward high-value consumer segments were double the overall rate, said CEO Brad Anderson in a call with analysts. Supermarkets may be next. For years, food and drug retailers have been compiling data from frequentshopper cards but doing little with it, said Scott Klein, CEO of Information Resources Inc. But IRI recently signed a deal with a major retailer to mine shopper data to help it target marketing toward the most profitable customers. He expects more to follow soon. Larry Aronson, a former Procter & Gamble Co. and Revlon executive who markets a similar analytic service via his firm, Cartwheel, said frequent-shopper cards initially paid out. Little marketing or analytic savvy was required because about 30% of consumers never use them and retailers pocket the discounts earmarked for them, Mr. Aronson said. After the first year, however, such windfalls disappear, requiring retailers to get more creative to get a return on investment. "If you've got a customer spending $4,000 a year, the notion of spending $150 to directly market to them is not terrible," he said, but is considerably more than what lowmargin food and drug retailers normally spend. P&G'S LESSON As far as the devils go, "retailers are less likely to overtly drive [unprofitable] consumers away," he said. "But if they're looking at discontinuing one of two items, and one is favored by their better shoppers and another by cherry pickers, when they make the choice, they de facto start that process." But turning away the parsimonious customer has been less successful for package-goods marketer P&G, as it learned a decade ago. As part of its value-pricing movement, P&G pulled back on coupon and trade-promotion spending while boosting ad spending and cutting list prices in the early 1990s. "Coupon spending is highly inefficient," said former P&G Chairman-CEO Durk Jager, who
16
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
spearheaded the valuepricing movement. "The cost per net extra case [for couponing] is about twice the net sales coupons generate, or about eight to 10 times its profit contribution. Put another way, you can throw a case in the Ohio River and still be better off. I indeed believe we should spend our money on the loyal consumer and not on the 'promiscuous' ones like coupon clippers." But competitors largely didn't follow suit. A 2001 study published in the Journal of Marketing across 24 categories found P&G cut coupon spending 54.3% and trade promotion 15.7% while increasing ad spending 20.7% between 1990 and 1996. The net effect was to raise P&G's prices 20.4% and cut its market share 18% without a measurable increase in brand loyalty, the study concluded. When P&G competitors did join it in testing coupon-free marketing in upstate New York in 1996, they faced antitrust litigation, which they ultimately settled by distributing $2 coupons to affected consumers. Under Mr. Jager's successor, A.G. Lafley, P&G has loosened reins on coupon spending-hiking coupon distribution 42% in the past two years and 15.8% last year, according to TNS Media Intelligence's Marx Promotion Intelligence, while boosting ad spending similarly. But it's doing so differently, via its P&G Brandsaver coupon insert, a 10-time-a-year program that pools the coupon buy across all P&G brands and makes newspaper coupons more cost-effective. P&G research found that coupons, despite their appeal to price shoppers, ranked just behind TV and ahead of magazines among its media impressions with consumers, said one former promotion executive. Jay Woffington, a former P&G brand manager who's now president of Bridge Worldwide, Cincinnati, agency for the online version of Brandsaver, said he still encounters P&G marketers concerned online offers will draw price-focused shoppers from bargain-hunter sites. "My argument is: So what?" he said. "I don't know if there really are any unprofitable consumers [in package-goods]. " "I remember [former P&G Chairman-CEO] Ed Artzt saying 'Never give a consumer a reason to leave your franchise,'" said Amanda Kelly, who heads the HomeBasics relationshipmarketing program for rival Unilever. "It may be different in a service industry, but when it comes to us, there are no undesirable consumers. There are undesirable marketing tactics. If we can't make money selling a product, that's not the consumer's fault." The goal of HomeBasics is to pool Unilever marketing resources across multiple brands to reach some of the highest-value consumers with direct-mail and online messages aimed at getting them to increase their spending, Ms. Kelly said. Also key are how the programs are communicated. It's not so much the strategy as the term "devil consumers," which popped up in The Wall Street Journal coverage of the Best Buy initiative, that could cause trouble, said Pete Blackshaw, chief marketing officer of Imelliseek, which tracks consumer opinions online. "There's a very real cost to pissing off consumers you consider to be lower value," he said, "and there's a lot of evidence of the price shoppers making a lot of noise on the Internet. "
17
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
Just ask Delta. In December 2002, the airline changed its Skymiles program to give passengers using its cheapest fares only a quarter of the miles toward upgrades and other top perks that first-class passengers got. SAVETHESKYMILES Before that, all miles were equal, and that was a problem for Delta. "We were spending a heck of a lot of energy and resources on delivering benefits to customers who weren't even covering the costs of delivering the transportation," said Rob Borden, director-loyalty marketing at the time in a 2004 interview with Colloquy, a magazine published by loyaltymarketing agency Frequency Marketing, Milford, Ohio. Delta's solution sparked an uproar. Earlier changes already had prompted disaffected members to start a Web site, SaveSkymiles.com. The December 2002 changes sparked a louder revolt. Some passengers filed a class-action lawsuit and SaveSkymiles raised money to buy ads in US-A Today criticizing Delta. Delta's changes were aimed to increase revenue and earnings, but ultimately they didn't do much of either. Its passenger revenue was flat in 2003, despite the beginning of a postSept. 11 recovery for the industry. While revenue rose 5.9% in 2004 after Delta restored some flights cut in 2002, that wasn't enough to make up for surging fuel costs. Delta was pushed to the brink of bankruptcy, which was averted via new labor contracts late last year. Mr. Borden left Delta in June and declined to comment for this article. And earlier this month, Delta reversed much of the prior changes to Skymiles as it also instituted a simpler, more egalitarian fare structure. Essentially, first-class passengers get 150% as many points toward upgrades and other perks as customers paying the lowest fares now, vs. 400% before. The recent changes simplify the program and cut costs as part of "Delta's corporate transformation to improve the overall customer experience and address the majority of our customers' biggest concerns," said Jeff Robertson, the new managing director of Skyrniles, in a statement. "We will continue to provide richer benefits to high-revenue customers while making our program more attainable for customers who purchase lower fares." But Mr. Seidenman no longer cares. Once an activist in SaveSkymiles.com, he's now a Northwest frequent flyer with full perks. "Delta made me open my eyes and see that there was an equal or better product out there," he said. [Return to Handout]
Best Buy’s Giant Gamble
Matthew Boyle. Fortune. New York: Apr 3, 2006.Vol. 153, Iss. 6; pg. 68, 5 pgs Brad Anderson's consumer electronics superstore rules the market. So why is he messing with his business model? Wander around the executive suite at the Minneapolis headquarters of Best Buy, and near the CEO's office you'll encounter a strange tableau. It's a mock "retail hospital"-including a row of truncated beds in which effigies of stricken retailers like Kmart and Woolworth, the
18
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
old five-and-dime, lie with their corporate logos propped up on pillows and with their abysmal financial results displayed on bedside charts. Declares a sign nearby: THIS IS WHERE COMPANIES GO WHEN THEIR STRATEGIES GET SICK. Keeping Best Buy out of those beds-and staying a jump ahead of scary rivals like Wal-Mart and Costco-is the challenge that Brad Anderson, Best Buy's jolly gambler of a CEO, wants his people to focus on. The $30-billion-a-year company has ruled consumer electronics retailing for ten years by popularizing the superstore. Today its yellow-tag logo adorns more than 930 spacious, shrewdly located stores amply stocked with the latest flat-panel TVs, game consoles and discs, home-computing gear, and appliances. Best Buy accounted for fully 17% of the consumer electronics market in the U.S. and Canada last year. For investors the payoff has been big: Throughout the 1990s Best Buy's earnings per share grew faster than Microsoft's, and its shareholder returns bested Intel's. But the mock hospital is a reminder that in the volatile, low-margin retailing realm, complacency brings doom. Because of that awareness, Anderson has been willing to roll the dice again and again throughout a legendary retailing career, junking perfectly good business models in favor of high-risk innovations. "When most of us say, 'Well, I'm more comfortable where I'm at,' " says CFO Darren Jackson, "Brad pushes us around the next corner." Anderson now is out to blow up Best Buy's entire success formula-by shifting the company's focus from pushing gadgets to catering to customers. Known internally as customercentricity, the plan is so far-reaching and risky that last year, when Best Buy announced that clumsy execution had hurt third-quarter results and that same-store sales growth had been sluggish, its stock price plunged 12%, to $44, in a single day. Analysts also fretted that the company might be juggling too much-Best Buy is preparing to open its first stores in China, seeding U.S. cities with technology boutiques, and recruiting techies by the thousands to expand its Geek Squad service business. Though a post-holiday surge has brought the share price above $57-most analysts now recommend the stock-Anderson's great transformation has only begun. "Whether we're doing it in the right way is a highly challengeable premise," he says. And he knows the risks: If the strategy fails, Best Buy could end up a consumer electronics also-ran, like those retailers in the mock hospital. Brad Andersen does not look like a gambler. At 56, he has warm blue eyes, a hearty laugh, and an easygoing, self-deprecating manner. The son of a Lutheran pastor in Minneapolis, he started at Best Buy when it was a struggling regional chain called Sound of Music, way back in 1973. Business during that oil-crisis year was so slow that it took Anderson two weeks to make his first sale, a set of Bose 901 speakers he had to drive 70 miles to install for the customer. The measly commission hardly paid for the gas. But to Anderson that was better than losing the deal: "It was so frustrating to be unsuccessful that I didn't care that it wasn't a rational commitment of time," he recalls. The company expanded and Anderson worked his way up, becoming founder Dick Schulze's right-hand man in 1981. In the 1980s boom, the two opened superstores and gradually built Best Buy into a Midwestern power. But unlike the long parade of regional players that blossomed and died-from Crazy Eddie to Highland-Best Buy changed and grew. Its most controversial innovation came in 1989, when Best Buy stopped paying commissions to its sales staff and instead put them on salary. Among manufacturers like Toshiba and Hitachi that depended on salespeople to push premium-priced items, the move went over "like a fart in church," a former Best Buy executive recalls. But customers liked the no-pressure atmosphere in Best Buy stores, and over-all revenues grew at a 25%-a-year clip, enabling Best Buy to far outpace its rivals.
19
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
The Schulze and Anderson approach set Best Buy on the path of a 12-year expansion. It entered markets like Chicago, Philadelphia, and Boston and became the biggest seller of home PCs in 1995, just in time for the Internet boom. In 1996 it surpassed Circuit City to become the nation's top consumer electronics retailer. But Best Buy's big gambles did not always pay off. Hoping to wield more influence in the music industry, the company paid $696 million to acquire Musicland, a mall-based retailer of CDs, in early 2001. The timing could not have been worse-Internet downloads soon crippled CD sales, and the acquisition became a financial drag. Schulze had long planned to have Anderson succeed him. But when Anderson became CEO in June 2002 (Schulze became chairman), economic shock waves from 9/11 had sapped demand across the industry, and sluggish sales, combined with a write-off of Musicland's goodwill, sent Best Buy's stock plunging. Worse for Best Buy, Wal-Mart and Costco were ramping up their consumer electronics offerings. Direct seller Dell was gaining market share too. Anderson moved quickly to stave off the mass merchants. That October, Best Buy bought Geek Squad, a Minneapolis startup that specialized in repairing and installing PCs. Though it had just $3 million in revenues and 50 employees, Anderson knew that digital devices and home networks were growing in complexity and that the technical services market had huge potential. (Best Buy today pegs the small-business and home services market at more than $20 billion a year.) Better still, Anderson figured, Wal-Mart and its ilk were never going to provide the help many customers would need. Within a year Best Buy had Geek Squad "precincts" in more than 20 stores; by 2005 the geeks had set up shop in all Best Buys. Anderson faced another huge challenge as CEO: Wall Street had come to expect growth of 20% a year. But having saturated North America, Best Buy could no longer rely entirely on adding new stores. To the consternation of his management team, the new CEO would disappear for weeks at a time, going to conferences outside the electronics industry in search of ideas. Anderson also invited big thinkers to Minneapolis. Among them was Larry Selden, a professor at Columbia's business school, who laid out a theory about where most businesses go wrong. Selden argued that, in their hunger for sales, companies are often oblivious to the fact that not all customers are profitable ones. Some are very lucrative to deal with, while others cost more to sell to than the business is worth. Selden called the first group angel customers and the second demons. By catering to the angels, he argued, companies can reward customers, employees, and shareholders alike. (Selden is co-author, with FORTUNE'S Geoffrey Colvin, of the 2003 bookAngel Customers & Demon Customers.) Selden's philosophy was just what Anderson had been looking for. In late 2002 he started preaching the gospel of centricity to upper management. In short, here's how it works: Figure out which customers make you the most money, segment them carefully, then realign your stores and empower employees to target those favored shoppers with products and services that will encourage them to spend more and come back often. By the summer of 2003, Best Buy was already testing the concept in a few dozen stores. To see centricity in action, let's meet Barry, Jill, Buzz, Ray, and a person we'll call Mr. Storefront. They're archetypes of the lucrative angel groups Best Buy covets: Barry is an affluent tech enthusiast; Jill, a busy suburban mom; Buzz, a young gadget fiend; Ray, a price-conscious family guy; and Mr. Storefront owns a small business. Other segments interest Best Buy too, like young single women (Carrie) and empty-nesters (Helen and Charlie), but for now the company is focusing its redesigns on the core five.
20
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
Best Buy's researchers comb through reams of sales and demographic data to determine whether a particular location should be tailored to, say, Ray or Buzz. Nearly 40% of the 300 stores that have been redone aim at Barry-in them you'll find a separate department of home-theater systems, expert salesmen, and specialists in mobile electronics. Jill stores feature personal shopping assistants (PSAs) who know how to steer a homemaker to the right digital camera for her family. Buzz stores have broad assortments of videogames. Stores can target more than one segment-Jill and Barry departments often share a locationand a handful of Best Buys, like the one in the Dallas suburb of Frisco, have all five segments going at once. "Centrizing" a store is a big investment-a typical Barry department alone requires as much as $600,000 for lighting and fixtures. Best Buy also invests in schooling employees in financial metrics such as return on invested capital so that they can gauge for themselves the effectiveness of merchandising displays. (Recent example: Buzz departments have an area where kids can try out Dance Pads, a videogame accessory you activate with your feet.) Specialized salespeople, such as PSAs and home-theater experts, get additional training that may last weeks. When centricity works, it can pay off in unusual ways. Reagan Dobbs, 20, is a lanky, goateed salesman at the Best Buy in Grapevine, Texas, under the flight path of the Dallas/Fort Worth airport. The store was redone in July (it's a Jill/Barry combo store), and Dobbs learned centricity's principles in two weekend workshops. It didn't take him long to decide his store was neglecting at least one customer need. Megachurchcs are a hot phenomenon in the Dallas metroplex, yet Best Buy's assortment of contemporary Christian music was anemic. So Dobbs visited churches, learned which bands the faithful liked, and came up with a proposal for a much broader assortment of Christian rock and folk. His bosses had him take the plan all the way to headquarters. Sales of contemporary Christian in the Grapevine store have risen from 2% of music sales to 6% since November, and the idea is being taken up by Best Buy stores across the region. Just as important, empowering people like Dobbs has helped lower Best Buy's employee turnover from 81% last year to 69% now. That doesn't make the shift to centricity any less risky, however. Emboldened by the results from the first few dozen stores it segmented, where samestore sales grew at three times the rate of regular stores, Best Buy stepped on the accelerator in last year's third quarter, ended Nov. 30. In just three months it switched 154 stores to centricity-three times the number converted before. "There was an impression that we could do no wrong," says Anderson. It turned out to be wishful thinking. With its earlier conversions Best Buy had carefully laid the groundwork; it then tinkered ceaselessly to get the mix of products and employees just right. Once that investment paid off, Anderson and his executives assumed subsequent stores could just flip a switch and convert to centricity. "When we gave the operating manual to the stores for the fall," he says ruefully, "it was four inches thick." Adds executive vice president John Walden, Anderson's point man for centricity: "The way we deployed was too confusing." Instead of jumping as it had in previous quarters, same-store sales growth at the renovated stores was only slightly better than the chainwide average (5.4% vs. 3.3%). When Anderson faced Wall Street analysts on Dec. 13, he tried lamely to rationalize that transformations aren't always smooth. The analysts didn't buy it, and Best Buy's market cap slid almost $3 billion that day. "It wasn't one of the highlights of my career," Anderson says.
21
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
The poor results persuaded him to freeze centricity rollouts for the fourth quarter. (They resumed in March.) Some analysts also complained that too many projects were competing for Best Buy's attention. Ramping up the Geek Squad was at the top of the list. A bulwark against the likes of WalMart, the business has cashed in on consumers' desire to protect their PCs from nasty viruses and to create wireless home networks. The geeks can do this at your home, in a Best Buy store, over the phone, or online. Last year, as consumer demand for flat-screen TVs exploded in the U.S., the need for techies to help with installations soared. That put pressure on Best Buy to recruit. Having added almost 10,000 technicians to its ranks last year, the Geek Squad now is more of a Geek Swarm-it numbers over 12,000. In fiscal 2007 (beginning Feb. 26), it should earn $280 million in operating profits on just over $1 billion in sales, says Piper Jaffray analyst Mitchell Kaiser. "I like that Best Buy has all these balls in the air, but they are not all going to work," says Morgan Stanley analyst Greg Melich. Some, like retail investor Howard Davidowitz, fear that Anderson's revolutionizing is a bridge too far: "If they were doing everything without centricity, I would be optimistic." But with centricity now in 40% of U.S. stores (it will extend to all in two years) and shaping all decisions-each segment has its own finance manager at headquarters-the commitment is made. "We will not back down from this," says Schulze. The confidence to gamble comes in part from Best Buy's balance sheet, which is among the strongest in retail and includes a war chest of over $3 billion in cash. "This is a rich company," says CSFB analyst Gary Baiter. That not only allows Anderson to invest heavily in centricity and the Geek Squad, but also made the third-quarter shock easier to stomach. Besides, Anderson loves risk. Remember Best Buy's controversial 1989 shift to a salaried work force? Chief operating officer Brian Dunn, then a store manager, recalls pleading with Anderson not to do it-he was sure major suppliers would pull their wares. "Think about the next 15 years, not the next five," Anderson told Dunn. Anderson was right, of course, and the move accelerated Best Buy's ascent. Now the stakes are higher, but radical innovation still represents Anderson's best bet to stay among retail's elite. [Return to Handout]
Best Buy Consolidates 'Centricity'
Alan Wolf. TWICE. New York: Apr 10, 2006.Vol. 21, Iss. 8; pg. 3, 2 pgs Best Buy plans to reduce its operations to a single customer centricity operating model by the end of its current fiscal year in a "reorganization and restructuring" designed to enhance efficiencies and reduce costs. In a conference call, president/COO Brian Dunn said the new structure would span from corporate headquarters to store-level operations, and would help eliminate redundancies that resulted when the customer centricity initiative was layered over existing operations during its launch. The changes were felt first at headquarters, here, where 300 of the campus' 4,200 employees received pink slips last week. Dunn had indicated that "corporate and field
22
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
leadership structures" would be affected first during the current quarter, as management seeks to trim some $300 million in expenses over the next 12 months. During the conference call, chief financial officer Darren Jackson acknowledged that Best Buy would face one-time severance and reorganization costs during its 2008 fiscal first quarter. "We're taking out fixed costs," he said. The effort reflects the higher cost of customer centric store operations - a point not lost on Wall Street - and the company's goal of achieving 7 percent operating margins within the decade. Elsewhere during the call, which followed the release of Best Buy's fourth quarter earnings (see p. 1), the company announced plans to open upward of 80 new flagship stores this year, add 200 Magnolia Home Theater in-store shops for a total of 300, and offer Best Buy for Business services at 120 more locations. Separately, the company closed one of its three eq-lifehealth-and-wellness concept stores due to poor performance. Best Buy said it plans to open China's first Best Buy-branded store in the Xu Jia Hui area of Shanghai, the city's premier shopping district. The 86,000-square-foot store will occupy four floors of the Jiang Shan Building, and is expected to open later this year. [Return to Handout]
The March of the Geek Squad
LAUREN FOSTER. Financial Times. London (UK): Nov 24, 2004. pg. 13 The Geek Squad, now patrolling nearly 700 Best Buy stores across the US and Canada, has good news for the technically challenged: "We can fix any computer - any time - any place." The computer-fixing technicians, who drive "Geek Mobiles" to their house calls, are Best Buy's 24-hour, seven-day-a-week, technical support and repair "task force". They charge a flat rate depending on the service and fix computers regardless of where they were bought. Dressed in short-sleeved white shirts with clip-on black ties and badges, the "agents" are dispatched to people's homes to do everything from removing viruses to installing wireless networks. But the Geek Squad is more than a posse of techies who take being a geek to extreme levels. It is also at the core of Best Buy's strategy to extend its dominance of the consumer electronics market into services. Many large retailers - including Home Depot, Costco, Staples and Petsmart - are turning to services to bolster their sales and earnings growth and gain a competitive edge against discounters, which compete mainly on price. Best Buy, the biggest US consumer electronics retailer, faces fierce competition from its rivals - notably Circuit City and Sears, Roebuck as well as from warehouse clubs, Wal-Mart, the world's largest retailer, and Dell, the largest personal computer maker.
23
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
"One way for a retailer to differentiate itself from the Wal- Marts of this world is to provide excellent services, which has never been a part of the Wal-Mart offering," says Darrell Rigby, head of the global retail practice at Bain & Company. "The push to commoditisation by the discounters is destroying differentiation. (Offering services) is a good opportunity for retailers to differentiate from each other." The move into services does not assure success, however. Mr Rigby says that most product companies struggle to make the service move pay off. "They underestimate the capabilities that are required to provide good services," he says. "There seems to be an assumption that people who know how to provide products will also be able to provide good service the evidence is that this is just not true." Moreover, the organisational structures established to provide services are often flawed. "Either they give services too much independence and don't tie in with core products or they smother services with oversight by the products department who don't understand what is required to grow the services," says Mr Rigby. Even so, retailers that work to understand their customers' needs can be - and have been successful. At Best Buy, which was struggling with very low rates of satisfaction with computer products, it became clear that future growth lay in providing solutions, not just products. "In many cases, we didn't have the solution to the kinds of problems people had when they used the products," says Brad Anderson, Best Buy's chief executive. "At that point in time, we couldn't see a path to being able to provide - in a business with very little margin on the product - a solution. If there was ever a big single threat to the company, that was it. So we were looking for a solution to that dilemma." As it happened, Robert Stephens, founder and chief inspector of the Geek Squad, was busy building his business in Minneapolis, Best Buy's home town. "Within the first six months of starting Geek Squad, I knew it was going to work because the demand was just so huge," he says. "It was the basics: thank you for showing up on time, thank you for not talking down to me, thank you for not smelling bad." One of his first customers was Best Buy, he says, which would hire them for technical support while filming television commercials for computers. Over the years, Best Buy's employees started defecting to the Geek Squad. Mr Stephens later told the company: "Your customers are coming to us for services that they are willing to pay for and a lot of your employees are coming to work for us. They like Best Buy but they are seeking more of a challenge." Best Buy struck on an idea: why not place highly trained Geek Squad "agents" in the stores and have them repair computers on site? Two years ago, it bought the Geek Squad - which was started in 1994 - after working behind the scenes with the company since 2000. The Geek Squad acquisition ties in well with the company's new "customer centricity" initiative, which involves identifying different customer segments, researching their lifestyles and their shopping needs and having welltrained employees focus on specific customers rather than just product categories. "We're in
24
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
this journey of moving from a product-centric to a customer-centric company," says Mr Anderson. Last month, Best Buy completed the roll-out of Geek Squad "precincts" to all of its 675 north American stores. While Mr Anderson does not speculate on how much the Geek Squad will add to the bottom line, he says the benefits are already filtering down. "The core financial engines of the company haven't changed, but we have learned enough in terms of some of the work we have done here to begin to do enough small things better. That it is part of the reason that the income growth continues to be so robust," he says. "We'll see more transformative change starting next year that will be significant to the financial engine of the company." In this financial year, Best Buy's sales grew 17 per cent to Dollars 24.5bn (Pounds 13bn) while net income rose to Dollars 705m from Dollars 99m the year before, when the company recorded a loss for its Musicland division. In the 2002 financial year, the company earned Dollars 570m. Geek Squad agents are divided into three groups: there are 5,500 counter-intelligence agents who work behind the counters at "precincts" inside Best Buy stores; 820 double agents who mainly make house calls but also help out at the stores; and a handful of special agents who focus on small businesses with more complex networks that need help with their servers and firewalls. The Geek Squad also runs a dedicated, 24-hour call centre. This structure, says Mr Stephens, creates a career path for Best Buy employees. "This is how we will attract and retain the best talent," he says. Having Best Buy's pool of nearly 100,000 employees to choose from is a big advantage, he says, because it gives the company access to a diverse workforce. "The talent isn't just coming from the computer bench within the store, it's coming from (places such as) the media department and the appliances areas." Mr Rigby says Best Buy's ability to attract, train and retain very high quality employees will be vital to their success. Geek Squad agents are selected based on their aptitude - their ability to solve problems they have never seen - and enthusiasm for technology. Training is divided into three areas: technical, clerical and behavioural. Mr Stephens says his contribution to the art of service is that one cannot make people care: either they do or they do not. The point is to pick the right people from the start. "It is too inefficient and too risky spending money on training." That said, he does believe in "inspirational" training. "I try to give the agents a sense of purpose," he says. "We're not curing cancer here and we're not ensuring world peace, but we are fixing the computers of the people who will." RETAILERS AS SERVICE PROVIDERS: WHAT DISTINGUISHES THE WINNERS? According to Bain & Co, the consultancy, there are four principles that mark out the successful retailer-turned-service provider: * They use services to complement strong products not fix weak ones. "Statistics show that companies that launch services to turn round underperforming products are three times more likely to fail," says Darrell Rigby, head of the firm's global retail practice.
25
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
* They avoid aiming too high or too low: they understand their customers' needs. "Sometimes it is easy to get caught up in a service whirlwind and imagine all sorts of services that would wow customers," says Mr Rigby. "The challenge is not to wow the customer but to have the customers pay you more than the cost of pricing those services." * They do not assume that product capabilities transfer easily to the service sector. Instead, they understand that the services business requires different talents, management processes and cultures. "Often product companies need to bring in experienced outsiders or develop partnerships to make services succeed," says Mr Rigby. * They give services room to breathe but integrate them appropriately with the product side of the business. "Striking the right balance in those linkages is tricky, but essential to success," he says. [Return to Handout]
Best Buy thinks small on IT
Chris Serres. Knight Ridder Tribune Business News. Washington: Feb 17, 2007. pg. 1 David Koeller has an office cubicle somewhere deep in Best Buy Co. Incorporated's headquarters in Richfield. But there are days when he can't remember precisely where it is. The 28-year-old business technology consultant spends 60 to 70 hours a week on the road, racing from one appointment to the next. His office is his car, a green BMW, and his recordkeeping system is a laptop computer in the back seat and a smart phone on his belt. "This is my life," he says, as he shifts gears. Koeller is part of a small but growing army of Best Buy employees who have traded in their day jobs for the opportunity to be full- time IT consultants. Instead of sitting behind desks or standing at sales counters in a Best Buy store, they rove from one small business to the next, selling computer hardware and services in much the same way that a small-town financial planner might sell insurance. For much of the past three years, these information technology specialists have operated in the shadows of Best Buy's retail stores, receiving limited attention and resources from the corporation. But last fall, that started to change. Best Buy began advertising the unit -- known as Best Buy for Business -- on radio, billboards, gas pumps and buses in the Twin Cities and several other major urban markets. Now, Best Buy says it wants to expand the concept, in some form, to all 813 of its stores in the United States. The goal is to build a network of IT specialists as big as, if not bigger than, its Geek Squad, a Best Buy computer troubleshooting service that employs about 12,000 people nationwide. "It's one of the key growth initiatives of the company. There's no two ways about that," said David Hemler, vice president of sales and operations for Best Buy for Business. "It's about serving a market of millions of people and millions of companies that historically have not been served well by technology."
26
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
Focusing on small businesses The expansion into IT consulting is part of an aggressive effort by the retailer to diversify beyond selling gadgets in stores to higher-margin services, from computer troubleshooting to installing big-screen televisions. Those extra services have become critical at a time when Wal-Mart Stores Inc. and other discount chains are slashing prices on flat-panel TVs and other electronic items. The 1,350 specialists who work for Best Buy for Business sell plenty of computers and gadgets, but they also offer a wide range of value-added services, from installation of Voice over Internet Protocol (VoIP) technology to set-up and maintenance of computer hardware. The goal is to cross-sell multiple products and services to the same customer, increasing sales and profits. For now, Best Buy is focusing its efforts on small businesses with fewer than 100 employees -- a category that is underserved, if not outright ignored, by large consulting firms and hardware companies. "The IBMs of the world won't be spending time serving businesses of that size," said Ron Daugherty, owner of Daugherty Business Solutions, a St. Louis-based IT consulting firm that has an office in Minneapolis. "Your typical small business ends up with independent contractors, small shops and students. ... The service is inconsistent and just about anything can happen." To avoid surprises, Best Buy charges individual fees for its services and products. Consultants itemize every expense and print them out on forms for clients. If someone doesn't want a service or a product, it's crossed off the list. All on-site consultations are free. Greg Flanagan, co-owner of Edina Paint Co., was skeptical when a Best Buy for Business specialist first approached him in a store in Richfield. Flanagan said he went to the store to buy the Quicken financial management software for his computer and had no intention of discussing his painting business with anyone. "My first thought was, 'Great, all they want to do is sell me more stuff,' " he said. But after his first meeting with Koeller, the IT consultant, Flanagan changed his mind. He was surprised to learn that he could install a printer and a laptop in his truck that would save him the time and money of sending bills back to his office. Flanagan ultimately agreed to buy more than $6,000 in hardware, software and equipment, which he hopes will help him create a paperless office. "He opened up a whole new world for us," Flanagan said. The business consulting posts are held in high esteem by many Best Buy employees, who view them as a step up from selling hardware on a sales floor. "It's a change of scenery," said Lance Winkelman, a business technology professional in the Richfield store. "There is a certain monotony to coming into the same store every day."
27
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
The work, however, is not for the fainthearted. Koeller and other Best Buy for Business consultants spend their days hustling between appointments, often making pit stops at Best Buy stores to type up proposals. And they have very little control over their schedules. Employees in Best Buy stores send them their assignments by e-mail. Whenever Koeller gets a new assignment, the smart phone attached to his belt buzzes. There are other challenges. The consultants are careful not to tread on others' turf when they meet with clients. Generally, they try to set up meetings with the business owners and any IT specialists they already have on staff. Often, they have to meet people in their homes after work and on weekends, which makes for a long workweek. The IT consultants that work in the field, meeting with business owners, make more than $60,000 a year in salaries and bonuses. Those in the store earn an hourly wage, making much less. When asked why he puts in so many hours for a salaried position, Koeller answered, without hesitation: "Pride." [Return to Handout]
A Point of Differentiation
Deena M Amato-McCoy. Chain Store Age. New York: Jan 2007.Vol. 83, Iss. 1; pg. 26 The retail landscape continues to consolidate, and more chains continue to blend pieces of their competitors' businesses into their own selling strategies. While this saturated marketplace gives consumers many more options to buy merchandise, including electronics, it makes it tough for chains to stand out. Eager to differentiate itself in this competitive landscape, Richfield, Minn.-based Best Buy Co. is transitioning to a consumer-centric merchandising strategy that fulfills store shelves based on consumer demand. However, a traditional "push" replenishment strategy could not support this approach. As CEO of Best Buy International and CIO, Best Buy Co., Robert A. Willett is charged with revamping Best Buy's supply chain and sourcing efforts to efficiently replenish stores using consumer-driven assortments. Willett chatted with senior editor Deena M. Amato-McCoy about how the process is evolving. Chain Store Age: What are your main responsibilities? Robert A. Willett: This Canadian-based business, which also operates the 24-hour computer support group the Geek Squad, had 150-plus stores at the end of 2006. A store is also scheduled to open in Shanghai, China, by the end of our fiscal year, which ends next month. CSA: How did you make your move to Best Buy?
28
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
Willett: I worked for global management-consulting firm Accenture for a number of years, where I was the global managing partner for the retail practice. [He was also group chief executive of food retail business.] While a consultant, I developed a relationship with Best Buy almost 10 years ago when the company became a client of mine. Best Buy asked me to join the team in December 2003. CSA: What was your role in creating the supply chain and merchandising "pull model" that Best Buy has become known for? Willett: We knew we couldn't beat companies like Dell and Wal-Mart based on price alone, so we needed a point of differentiation. We chose to differentiate ourselves around customer centricity and a superior customer experience. However, we also realized that using a "push model" to merchandise our stores was no longer adequate for the customer-centric strategy we wanted to pursue. By applying worldwide best practices and my knowledge of the food industry, we developed a strategy based on the food industry's supply chain. Since the food industry's supply chain is the retail industry's most responsive supply chain, we wanted to build our supply chain to mimic these processes. This meant we needed to understand what was selling in our stores and forecast demand to efficiently procure and replenish merchandise. We were ready to tap a pull model that merchandises stores based on locale and demand. These methods also enabled us to tailor assortments based on what our shoppers want vs. what we think they want. CSA: What were the challenges in getting this strategy off the ground? Willett: Our previous supply chain and push model did a good job of replenishing stores. However, we were ready for supply chain optimization. And if we wanted to pursue a consumer-centric merchandising strategy-one that could be tailored based on individuals or specific locations-we needed to optimize all replenishment activities. The first step was to learn how the customer behaves in each store. Then we needed to tailor our supply chain and replenishment processes to support that behavior and fulfill inventory based on their needs. While it was a complete transition of how we used to fulfill merchandise, we used forecasting and analysis to make the transition successful. CSA: Best Buy has also changed its sourcing operations. Can you talk about the company's new sourcing strategies? Willett: We've made a concerted effort to develop a proficient and locally based sourcing base in China, so we needed the right tools to support this. By deploying a Web-based collaboration tool from Eqos, Best Buy gained a single data repository that gathers all of the requirements it needs for merchandise outsourced from offshore vendors, including those in Asia. Retailers often struggle with trying to build their own software to handle these projects. Then they either can't deliver the product on time or it cannot support the cost or scope of
29
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
the project. I used Eqos while working for Accenture and knew this solution would help us scale our project, focus on what our customers need and meet those needs. CSA: How are these efforts helping Best Buy take cost and time out of the fulfillment process, and how are you passing these savings on to your customers? Willett: Since adding the process approximately two years ago, we have improved our gross margins and improved levels of sourcing in Asia. By using collaborative forecasting tools, we have also broken down internal silos. The process has definitely improved the value of productivity in-house, and we are surpassing our customers' expectations. We are still a long way from completing the strategy. In fact, we are still heavily in the technology investment stage and will be for another 12 months or so. CSA: Besides listening to your customers' needs, Best Buy also takes its associates into consideration. How have they embraced these changes? Willett: Very well. My job is to be the leader. In this role, I am only facilitating the activities necessary to create a positive outcome. The real value of a project like this comes from all of the participating members within the organization, not just one person. Best Buy will be the first to admit that our strategy is still not perfect. While we are still at a very embryonic stage, our goal is to deliver one of the best store experiences in the world. CSA: So what is Best Buy's next step? Willett: I would say we are only halfway through our journey. And as we take this journey, we constantly take a step back and determine whether our ideas and strategies are the same today as when we started. We also revamp our strategies based on the changes in the marketplace. The world is changing so fast, and the marketplace is converging all the time. The customer has many more choices today, so we need to stay ahead of the game through innovation. [Return to Handout]
Feeding Best Buy
Devendra Mishra. Dealerscope. Philadelphia: Nov 2006.Vol. 48, Iss. 12; pg. 82 In 2004, Best Buy announced its strategic intent to bring about a cultural transformation of the company by launching a program called "Consumer Centricity." As Brad Anderson, the company's vice chairman and CEO put it, "This enables us to engage more deeply with customers by empowering employees to deliver tailored products, solutions and services to customers through our stores, Web sites, call centers and in-home services."
30
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
In short, Best Buy was proposing to turn the typical retail information flow on its head, from "top-down to bottom-up" where consumer demand would ultimately drive its operations and supply chain-from the factories halfway around the world, to the stockroom and to the cash register. Best Buy epitomizes a paradigm shift that is making its way across the nation's retail scene. Demand-driven supply networks (DDSN) as they are known, are based upon the premise that a well-oiled supply chain built upon providing maximum customer value and performance will correlate with enterprise profitability and market share leadership. When you add this to a supply chain that promotes vendor/supplier collaboration, you improve both sales and profits. Today, Best Buy's consumer electronics supply chain initiative is built upon these four cornerstones: 1) consumer centricity, 2) performance measurement, 3) information systems, and 4) RFID technology. Best Buys supply chain management objectives are no longer just reducing costs and inventory in the pipeline. They're also about increasing sales and profitability through the reduction of stock-outs, improved execution of promotional merchandising, reduction of product theft, management over the entire product life cycle and ensuring information synchronicity. Bob Willett, ClO of Best Buy and CEO of Best Buy International, will update the CE industry on his company's progress in establishing a new paradigm for a demand-driven supply chain in a keynote address at the Consumer Electronics Supply Chain Academy (CESCA) Jan. 10 at the International CES in Las Vegas. Best Buy is two years into a three-and-a-half-year plan on revamping its supply chain systems. Incorporating state-of-the-art IT technology has been Willett's primary objective. In 2004, the company outsourced all of its IT operations to Accenture Ltd., the global management firm that employed him for 10 years as global managing partner focused on the retail industry. In 2002, Willett had just retired from Accenture when he was asked by Best Buy to become a special director to the company's board of directors on issues relating to operational efficiency and excellence. As part of Best Buy's strategic review of all operations, Willett was asked to join the management team as executive vice president, operations, responsible for supply chain, IT and business transformation. Best Buy has installed an integrated business intelligence system that provides internal users, external partners and supply chain members with visibility into its business performance. Using MicroStrategy Web, Best Buy's business and vendor performance application allows its users to view performance data, perform trending analysis on sales, inventory, advertising, pricing and all forms of financial metrics-like revenue and operating margin-via a Web interface. By quickly identifying and remedying problem areas, the application facilitates increased efficiency in Best Buy's overall business process. As data volumes grow multi-directionally, the need to have a common portal architecture between retailer and suppliers becomes paramount. Best Buy has installed OatSystems, Inc.'s OatXpress software to manage RFID reader internal data flow and OatAxiom software to filter data for suppliers that will be retrievable via a Web portal.
31
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
This past June, Best Buy brought together many of its leading consumer electronics manufacturers to discuss its progress in incorporating RFID technology in its operations. "We wanted to get their perception," Willett says, adding that the reaction from most of the participants was "who's going to pay for it?" Best Buy believes that the adoption costs should be shared, and that the costs will eventually more than pay for themselves. Willett noted that PC manufacturers "can see a lot of the benefits" to Best Buy's RFID plan, although "everyone knows it will come." Unlike Wal-Mart, Best Buy has not issued any kind of compliance mandate to its product suppliers, he adds. According to Willett, RFID las already helped Best Buy post improvements in sourcing product offerings, price calibration and optimization, product forecasting, and on-shelf availability, which has soared from the mid-80 percent up to 93 percent, and with promotional availability even higher. Other RFID applications automatically send a replenishment signal to a supplier after a product is scanned at the point of sale, or track a product through its warranty, return, and repair cycle. Readers from ADT/Tyco capture RFlD data. The bottom line is that RFID is targeted to go beyond the factory to warehouse connection. [Sidebar] Best Buy's consumer electronics supply chain initiative is built upon four cornerstones:1) consumer centricity2) performance measurement3) information systems, and4) RFID technology. [Return to Handout]
Best Buy Foresees Using RFID to Track Inventory
Kris Hudson. Wall Street Journal. (Eastern edition). New York, N.Y.: Apr 4, 2007. pg. n/a Electronics retailer Best Buy Co. foresees a day when most of its merchandise will be tagged with radio-frequency identification, or RFID, chips to help it better manage its inventory, but that day won't come this year and perhaps not next. Rather, the adoption of RFID technology by retailers might proceed at a pace similar to the decades it took to realize the dramatic benefits of container shipping, said Robert Willett, Best Buy's chief information officer and chief executive of the retailer's international operations. It even took 22 years for society to perfect and embrace something as relatively simple as the toaster, he added. "I wouldn't want to say specifically, but I think [widespread adoption] is in the foreseeable future," Mr. Willett said March 27 after delivering a keynote speech at the fifth annual RFID World conference in the Dallas suburb of Grapevine, Texas. "It's not weeks or months, but it is years. The industry has to come together and coalesce around a particular technology, a particular hardware." RFID chips implanted in or on a product can contain detailed information including not only the product's price and basic characteristics, but also its assembly date, its factory of origin
32
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
and its physical location, among other data. The chips can transmit the information by radio waves to electronic readers, allowing for products embedded with the chips to be scanned remotely and in bulk. For the giant retailers experimenting with the technology, including Best Buy and Wal-Mart Stores Inc., RFID holds the promise of ultra- efficient inventory management and perhaps elimination of the checkout line by remotely scanning shopper's purchases. "The first store that removes checkouts all together will be the consumer champion forever and ever," Mr. Willett told an audience of several hundred at the conference. "The charging capability is there to do it. The tracking capability is there to do it." First, retailers such as Best Buy will conduct numerous pilot programs to determine the benefits and costs of RFID. Last year, Best Buy conducted a pilot program monitoring RFID tracking of DVDs, CDs and games in five of its 1,170 stores. For those product categories in those stores, the test showed an 18.7% increase in sales, a 41.1% increase in units sold and a 10.8% increase in margins, Mr. Willett said. Best Buy plans to start additional pilots in its stores this year, expanding the number of product categories involved. It is conducting RFID tests in several of its warehouses in partnership with suppliers that cumulatively represent 80% of the merchandise it sells. All told, the retailer has spent several million dollars on RFID research in recent years and plans to spend "in the single digits of millions" this year, Mr. Willett said in an interview. Yet doubts continue to dog RFID efforts. While many Wal-Mart suppliers praise the technology's potential, some grouse that it might never generate enough gains in inventory management to offset the cost of implementing it. As well, the general public still has a latent fear of remote monitoring -- a fear Mr. Willett described as "black box mythology" -which retailers and technologists must attempt to dispel for RFID to go mainstream. "RFID is going to take time, but it is going to get there," Mr. Willett said. "And Best Buy is a major player." Best Buy is expected to report its results today for its latest fiscal year, which ended in February. The retailer has forecast per- share earnings of $2.70 to $2.80. [Return to Handout]
Best Buy takes cautious approach to China market
Anonymous. Retailing Today. New York: Jan 8, 2007.Vol. 46, Iss. 1; pg. 14, 1 pgs Up until last June, Best Buy's international presence was limited to its Future Shop and Best Buy stores in Canada. But now the chain has moved into China and has big plans for 2007. Best Buy entered China last summer when it purchased a stake in the 131-store Five Star chain, one of the largest specialty retailers in the country. And it's scheduled to open its first outlet in the economic hub of Shanghai in January to start a gradual expansion of stores under its own banner.
33
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
During a Dec. 12, 2006, earnings call with analysts, Best Buy International ceo Robert Willett said the company has ambitious expansion plans for Five Star but will take it slow with Best Buy. "We're planning to open 20 to 22 Five Star stores this year," said Willett. "And we're going to open one or two Best Buy stores in the next 12 to 18 months, depending on what we learn from the first store." That approach in China is similar to the dual-brand strategy it used hi Canada, where it acquired the homegrown Future Shop to ease its transition into the country. McMillan/Doolittle Consulting partner Neil Stern said the two-pronged approach in China is "a pretty smart way to work a transitional strategy" as opposed to just "jumping into the bigbox format." During an interview last year with Retailing Today, Best Buy ceo Brad Anderson said the chain would take a slow approach to organic growth in China despite the massive size of the market. "The advice we've gotten is to move slower than we would elsewhere," said Anderson. "Given the market opportunities in China, we would have the luxury of being able to move quite rapidly so we're going to have to be careful not to over-indulge." Even though it opened a sourcing office in Shanghai two years ago, Best Buy knows it still has a lot to learn about the market and its vagaries. One notable difference is that consumer electronic brands lease space in many stores and staff them with their people instead of relying on sales reps from the store. Traditional retail in China also tends to focus more on selling a product and getting a customer out the door rather than providing them with information and assistance. To ease its way into the market, Best Buy plans to use Five Star stores as test labs for new merchandising strategies and programs that focus on improved customer service. It's also going to use its first store in Shanghai to test merchandise not carried in typical consumer electronic stores. The store will carry products geared to meet local demand, including mp3 players and cell phones. And while it's been relatively lowkey about its move into China, Best Buy decided to publicize its Shanghai opening last month in a novel way with courtside digital ads at an NBA game between the Minnesota Timberwolves and Houston Rockets. The ads targeted the large audience of Chinese fans tuning in on international broadcasts to watch Houston's star player Yao Ming, a national sports icon in China. [Return to Handout]
Best Buy has big plans for China
Gita Sitaramiah. Knight Ridder Tribune Business News. Washington: Jan 26, 2007. pg. 1 The Shanghai branch of Best Buy is celebrating its "official" grand opening ceremony today and already the Richfield- based company is planning more stores in China. Best Buy executives are so pleased with their first Asia-based Best Buy store's performance since doors opened that they announced Thursday that another one or two stores will open in the next year or so in China.
34
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
Based on the first month of sales, the Shanghai outlet is destined to rank among Best Buy's top 10 stores within the year, said Allen Lenzmeier, vice chairman of the company, during a Shanghai news conference. He declined to reveal sales data. The No. 1 consumer electronics retailer in the U.S. is seeking to capture a major chunk of the $100 billion consumer electronics market in China, said Mitch Kaiser, an analyst with Piper Jaffray Cos. in Minneapolis. That's compared with the $150 billion consumer electronics market in the United States. Best Buy is "the best in consumer electronics retailing," said Kaiser. "It certainly makes sense for them to go after that market." Best Buy's expansion in China also is good news for Minnesota. "Best Buy's growth in China translates to more jobs here," said Tony Lorusso, executive director of the Minnesota Trade Office. "Somebody at the headquarters has to manage those relationships." Economists predict that China will overtake the United States as the world's largest economy this century. Since China relaxed most restrictions on foreign retailers a couple of years ago, more American chains are opening locations to take advantage of the buying power of the estimated 200 million middle-class residents in China. Wal-Mart, Toys "R" Us, Home Depot, Tiffany & Co., McDonald's, 7- Eleven, Starbucks and KFC are among the American retailers that have opened branches there already. Mollie Young, a brand specialist and president of Minneapolis- based Nametag International, said her clients see big potential in China and other Asian countries. "They're looking at Asia with such a high level of enthusiasm and saying, 'How do I get there?' and 'How fast do I get there?' " she said. "It's where it's at." Other Minnesota companies with a Chinese presence include 3M, Hormel, Cargill and Medtronic. Best Buy opened the four-floor, 80,000-square-foot Shanghai store last month in Xujiahui, a major shopping district. Future locations haven't been determined, said Susan Bush, Best Buy's spokeswoman. Last May, Best Buy agreed to buy a majority stake in Jiangsu Five Star Appliance, China's fourth-largest electronics retailer, for $180 million to enter the world's fastest-growing major market. Best Buy representatives believe they offer a novel customer experience for Chinese customers at the Shanghai branch. That store had to make some accommodations such as more home appliances displayed than American stores because the Chinese tend to buy their own refrigerators and washing machines when they move into a home, Bush said. The release of national data showing existing-home sales declined Thursday took its toll on the retail sector, Kaiser said. Best Buy stock fell to $49.88 per share at market close Thursday, a 48-cent drop from a day earlier. [Return to Handout]
35
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
Best Buy-ing Spree Continues Despite Concerns
Greg Masters. Retail Merchandiser. New York: Jan 2001.Vol. 41, Iss. 1; pg. 9, 1 pgs Best Buy Co. intends to make a few buys of its own. Last month, it announced it had agreed to acquire Minneapolis-based Musicland Stores Corporation for $685 million and Seattlebased Magnolia Hi-Fi for $87 million. The Minneapolis-based chain also said it is expanding beyond the U.S. by opening 65 stores throughout Canada over the next three years. Currently, the company has more than 400 stores in 41 states. Best Buy specializes in consumer electronics, personal computers, entertainment software and appliances. Richard M. Schulze, Best Buy founder, chairman and CEO, says certain geographic areas and store formats currently lack Best Buy's type of product mix. The deals would move the retailer into different types of markets. "The acquisitions allow us to deliver digital entertainment technologies to consumer segments not currently served by Best Buy's store format, particularly in rural areas, malls and the early technology adopters. International expansion allows us to build on our domestic success in becoming a worldwide leader in technology and entertainment products." Schulze will lead the combined operations as chairman and CEO. Musicland CEO Jack Eugster will join Best Buy's board of directors, and Musicland senior officers will remain with the combined companies. Best Buy senior vice president Kevin Freeland will be named president of Musicland. The Musicland deal would include assumption of $260 million in debt. Musicland Group, established in 1956, reported revenues of $1.89 billion and earnings of $58.4 million for the fiscal year ended Dec. 31, 1999. Seattle-based Magnolia, founded in 1954, is a private chain of 13 high-end audio , and video stores. Revenues were nearly $100 million for 1999. Jim Tweten will continue as Magnolia's president, reporting to Best Buy's president and COO Brad Anderson. Not everyone is enthusiastic about Best Buy's plans. Analysts at UBS Warburg believe Best Buy is gobbling up too much at the wrong time and have downgraded the stock to "hold." Its report states, "While Best Buy needs new initiatives to spur growth beyond the next few years, we are displeased with both the timing and magnitude of the strategic push." seeing continued weakness in the category and a slowdown in consumer spending, UBS Warburg also warns that the magnitude of Best Buy's expansion is "a daunting task for any retailer." Further, the report says Best Buy's merchandise mix is ill-suited to the smaller regional mall stores preferred by Musicland. Best Buy itself generally operates in large strip centers. The report also predicts music sales will migrate online at a fast rate. Another analyst, Maggie Gilliam, of Gilliam & Co., agrees. "Best Buy is taking on an awful lot. Small stores are very tricky to operate successfully, particularly for any company whose experience is confined to the luxury of large stores, whose model is very different."
36
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
She says Best Buy is "stepping into the fire" of the recorded music business in light of the industry changes in appliance distribution. And she warns that Best Buy "appears to be setting itself up to lock horns with RadioShack, which is a pro at operating small stores selling high value-added product, that doesn't use price as a come on, with a profit formula that includes substantial ongoing revenue from residuals." San Francisco-based Montgomery securities, which follows Musicland, notes that Internet concerns have obscured some of Musicland's positive steps. Developments include "successful repositioning and general EPS improvement over the past year and a half," says one report. "Until we see a shift in investor sentiment, we believe valuation multiple pressures will remain." At Best Buy itself, third quarter results, announced in mid-December, show a drop of 27 percent compared to last year. "Market conditions changed significantly during the third quarter. The combination of slowing consumer spending and a more promotional environment reduced profits," explained Schulze, adding that market share gains have positioned the company to weather a downturn. [Return to Handout]
Best Buy Acquiring Pacific Sales
Alan Wolf. TWICE. New York: Jan 16, 2006.Vol. 21, Iss. 2; pg. 52, 1 pgs Best Buy is buying Pacific Sales Kitchen and Bath Centers, the nation's 10th largest white goods dealer. The $410 million deal is expected to close this month. According to Brian Dunn, Best Buy's president/COO, effective Feb. 26, the chain plans to use Pacific's premium home improvement format to "capitalize on the rapidly growing highend segment of the U.S. appliance market." The move would mirror H.H. Gregg's launch earlier this year of Fine Lines, a freestanding, premium majap boutique for high-end builders, re-modelers, kitchen designers and their well-heeled customers. It could also represent a white goods version of Best Buy's premium ?/V strategy, in which the chain acquired high-end specialist Magnolia Audio Video and is using the franchise within its own stores as Magnolia Home Theater shops. Pacific Sales, based here, operates 14 kitchen and bath stores in Southern California. The privately held business, which also carries A/V products, plumbing fixtures, hardware and home furnishings, is expected to generate $320 million in sales this year. White-goods revenues were $201 million in 2004, according to TWICE's Top 100 Appliance Retailers report (June 20, 2005), which landed Pacific at the No. 10 spot. Best Buy said it plans to operate the chain as a wholly owned, indirect subsidiary, and would expand the number of stores. Banc of America analyst David Strasser, whose company advised Pacific on the acquisition, believes that Best Buy will likely roll out core Pacific stores with a greater retail consumer focus-as opposed to the current focus on interior designers -and will eventually integrate the concept and product selection with Magnolia Home Theater to develop a high-end, full
37
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
service home store. Best Buy may also integrate some of these products into its own flagship stores, he said. [Return to Handout]
Musicland Purchase A Misstep
Greg Masters, Pete Hisey. Retail Merchandiser. New York: Mar 2003. Vol. 43. Iss. 3; pg. 16. Best Buy's $685 million purchase in February 2001 of the Musicland chain-which includes the Sam Goody, Media Play and Suncoast chains-was hailed at the time as a smart strategic move to acquire a new demographic: the mall-based shopper, particularly women and 1525-year-olds. No one could have predicted the plunge music sales would take over the ensuing year. While fingers can be pointed at the $20 cost of a new CD as a reason for falling music sales, other explanations lie in listeners turning to Internet retailers and the rampant illegal downloading of music. Danielle Fox, an analyst with NY-based J.P. Morgan, says the acquisition of Musicland was intended to help the chain gain share in the music market, but this clearly has not worked out. "Best Buy needs to rethink and focus on its core business, the superstore," she advises. Geoff Wissman, vp at Columbus, OH-based Retail Forward, agrees that Best Buy justified the purchase with a new customer demographic that it couldn't get to its superstores. The other issue, he says, is that Musicland is tied to malls and the outlook for malls is not good. "Shopping is moving away from malls and moving to more convenient locations with easier egress. It's some of the same reasons we see department stores really getting hammered in recent years. It's just not the place to be if you want to be a growth company on Wall Street." David Campbell Jr., analyst at Davenport & Co., doesn't think Best Buy anticipated the extent to which mall traffic would decline. "There's not a whole lot they can do about plummeting music sales," he says. "They are rationalizing their Musicland division. I think they'd probably like to shut down the whole thing if they could, but unfortunately are locked into some leases." Best Buy has already shuttered 160 Musicland stores (140 Sam Goody and 20 Suncoast stores). It's likely that it will announce some more closings. Wissman says they probably would be doing their shareholders a disservice if they're not thinking about a potential exit strategy for that business. "They're stuck in some leases. One option they have is to spin it off. If they did that they would surely lose a significant amount of money in terms of ROI, but then from an accounting perspective it would be a one-time charge. Cash flow is not really a big issue for them. Then they could move forward. They're going to lose some dollars over it." New store plans for Musicland for fiscal 2004 are on hold and the company has put further announcements off until April. Within the company, a sort of turf war has broken out. Musicland devotees hold that the company has not yet remodeled the bulk of its stores and moved its new assortment in. Additionally, sales of DVD software and hardware have been strong at many locations, as have sales in the video game segment.
38
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
But the dropoff in music sales has been so dramatic that the company will have to find new businesses to make up for those lost sales. Most Best Buy businesses, relying on bulky products like big-screen televisions and high-ticket, high-tech products, don't lend themselves to a mall environment. [Return to Handout]
Best Buy Buys Speakeasy To Buoy Small-Business Services
John Laposky. TWICE. New York: Apr 9, 2007.Vol. 22, Iss. 8; pg. 22 MINNEAPOLIS - Best Buy has agreed to acquire broadband voice, data and IT service provider Speakeasy for approximately $97 million. The retailer anticipates a closing date for the transaction in the first quarter of its 2008 fiscal year when Speakeasy will operate as a wholly owned subsidiary of Best Buy and be part of the chain's Best Buy For Business stable of services. The Seattle-based Speakeasy had calendar year 2006 revenue of $80 million and employs about 300 people. In 2006, it had more than 40,000 customers, according to a Best Buy release. "Best Buy For Business is all about helping small businesses grow or operate more efficiently through technology. By joining forces with Speakeasy, a company with a true passion for helping entrepreneurs run their businesses, we are making technology more accessible to small businesses by creating a single source for their IT needs," said Darren Jackson, Best Buy executive VP and chief financial officer. "With Speakeasy in our portfolio, we are better equipped to provide our small-business customers with one-stop shopping for all of their technology needs. Our goal is to provide small businesses with the resources they need so that they can focus squarely on their customers instead of on technology." Speakeasy opened in Seattle in 1994 as one of the nation's first Internet cafes and now offers a full range of voice and data solutions to small businesses, including business-class broadband and VoIP. Speakeasy's services are available in most metropolitan areas within the 48 contiguous United States. Speakeasy CEO Bruce Chatterley will continue in his current role upon the close of the acquisition and will report to David Hemler, VP, who has oversight for Best Buy For Business. The entire Speakeasy executive team will remain with the company. "We have a high regard for Speakeasy's employees, their culture and their valued relationships with customers and vendors," Jackson said in a release. "They have a strong customer service-oriented approach, which is an excellent fit with Best Buy's culture and direction." "This is an exciting new chapter for Speakeasy," said Chatterley. "By joining with Best Buy For Business, we aim to become the champion for small business IT and communications solutions, simplifying technology, making it accessible, and improving business performance." Best Buy For Business services are available through locations within 281 Best Buy stores in the United States, via the and by phone.
39
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
The acquisition comes a month after Best Buy announced its brick-and-mortar base by 90 additional flagship stores in the next 12 months. At that time, president/COO Brian Dunn explained the decision. "We are intensely focused on driving the earnings growth of Best Buy," said Dunn. "We are allocating our capital to extend our growth runway, build business capabilities and enter new markets and customer segments. We continue to find prime new store locations, allowing us to attract new customers, to serve our current customers better and to grow our market share profitably." [Return to Handout]
Don't call it flex: Best Buy puts work-life balance on new axis
Lynn Gresham. Employee Benefit Advisor. March 1, 2007. At Best Buy's corporate campus in Minneapolis, employees ignore regular office hours, don't show up for meetings and are frequently absent without leave. Management couldn't be happier. Best Buy is reinventing how people work. Through a homegrown concept called the "Results Only Work Environment," or ROWE, the retail giant has embarked on a journey that ultimately will result in a total corporate culture shift. In a ROWE, employees are free to work when and where they want, as long as the job gets done. Meeting attendance is optional. All that matters are results. Managers are responsible for establishing processes and setting goals; employees are responsible for meeting them. To date, some 2,600 Best Buy corporate employees, or about 60%, have transitioned to ROWE. The rest will be on board by year's end. The company reports that productivity for ROWE teams has increased an average of 33%. In addition, there has been: * A significant drop in voluntary turnover. * Improved manager performance. * Greater employee engagement. * An increase in customer satisfaction. ROWE is the brainchild of two former Best Buy employees - Cali Ressler, who worked in HR on work-life issues, and Jody Thompson, who managed large-scale change within the company. "ROWE is a paradigm shift," explains Thompson. "In this new environment, every person views work in a different way and operates against this new belief." Can't we all just be adults? Best Buy's journey to a results-only work environment began five years ago when it implemented a flexible work environment as a pilot program for 300 employees. "After the pilot," says Ressler, "Jody and I realized that one of the problems with flexible work was that we were still operating around a traditional work mentality. It was time to change the
40
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
game. To do this, we needed to change the basic foundation on which work is based. That is how the ROWE concept was born." Flexible work schedules are "a con game," she insists. "Companies implement these flexible work arrangements hoping it will finally shut people up about their work-life balance issues'. [However,] once you opt to work a schedule outside of the norm,' you are immediately stigmatized." People quickly find out that "flexible schedule" is an oxymoron, Ressler continues. "A schedule is a very confined sense of time and place - where and when work needs to happen. The definition of flexible' can be subjective as well. The employee's definition is I want complete control over how I spend my time.' But the company's definition might be You can make those decisions for yourself between 8 a.m. and 10 a.m., but you need to be here between 10 and 2.' It doesn't work. "With ROWE, there is one definition - you can do whatever you want, whenever you want, as long as the work gets done. The focus is on performance, and only performance." Managers determine outcomes for every position and work with employees to determine how performace will be measured. "We've found you can do this in any position," says Thompson. In fact, Best Buy is now testing a version of ROWE in its retail stores and should have results in about 12 months. Rethinking communication Dawn Paulson, a promotion manager for BestBuy.com, says her 20-person team migrated to ROWE in December 2005. "We've been on this journey just over a year now," she says. "When I first learned about it, I was very excited. I'd heard from other departments about how great it was." There were also naysayers. "Some people definitely had concerns," Paulson recalls. "We did have to get through some of what we call sludge' - people saying things like Oh, my team can't do that' and That person is really taking advantage of ROWE this week.' We had to help them get over that." Paulson also notes that people must learn a new way of communicating to make ROWE work. "When the program was rolled out, people felt they had to show they were working, so the amount of e-mail was overwhelming. However, as we saw that we didn't have to keep proving ourselves, we were able to examine how we were communicating as a team and find ways to streamline it." Paulson credits ROWE with enabling her to achieve a work-life balance even when she had to fill in for two women on maternity leave - her boss and a co-worker. "Knowing that I could say I'm maxed out and need to come back to this later' helped me work through the craziness of covering for two people at our busiest time of the year," she recalls. For managers, ROWE can be frightening at first.
41
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
"They have to look at work and how it gets done in a new way," says Thompson. "Instead of measuring time, they only look at results. It takes six to nine months to take a group from a traditional work environment to a results-only one. They have to learn to trust people without the 8:00-5:00 parameters." Spreading the gospel Thompson and Ressler now are the principals of CultureRx, a wholly-owned subsidiary of Best Buy created to develop and market the ROWE concept. CultureRx, which will be spun off this year as a separate company, is in discussions with several Fortune 100 companies about launching ROWE pilot projects. In addition, CultureRx will hold its first public workshop on ROWE this month in Minneapolis. (Visit CultureRx.com for details). Although every company will respond to ROWE differently, the core tenets are unchanging and "non-negotiable," says Ressler. "What we've developed and copyrighted is the strategy that helps an organization overcome inertia and move forward." The strategy is based on three things: the power of time, the judgments that people make about time in the work environment and how work needs to happen. Power of engagement The CultureRx approach may be radical, but it's right on target for today's employees, says Patrick Kulesa, global research director for ISR, an HR research and consulting firm. "There's a real need for a flexible program such as this that eliminates stress and engages workers," he observes. ISR takes the emotional temperature of 400,000 U.S. employees annually and has found that stress is increasing. In 2006, 31% said they find it difficult to balance work and personal responsibilities, compared to 25% in 2005. Forty-three percent now think their workload is excessive, up from 39%, and 46% are bothered by excessive pressure on the job, up from 41%. "Our data clearly show concerns around stress, workload and work-life balance. This goes to the heart of what ROWE is addressing," says Kulesa. But while employers need to be more flexible, they also should beware of letting employees become detached. With traditional telework, "there are some risks that workers will feel less connected to the company," Kulesa cautions. The goal should be to keep stress low and engagement high. "We have evidence showing companies that have taken care of their employees' stress and engaged them in their work enjoy the biggest financial benefits," says Kulesa. In contrast, companies that just get one of those right - for example, they engage employees, but stress them out - don't realize optimal results. "Best Buy is [reporting] increased engagement for ROWE participants. That bodes well for their future financial performance based on our research," Kulesa says. Best Buy also is finding that ROWE programs help employers recruit, according to Ressler. "Job candidates are putting work environment considerations over compensation. People at Best Buy will pass up a promotion if the area isn't a ROWE. What we're experiencing is the wave of the future. This is what people will be looking for.
42
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
"We believe ROWE will take care of the collision between the industrial workforce of the [1950s] and the technology age," she concludes. "It will align things so that people can do work the way it needs to happen today." "We need answers in this space," agrees Kulesa. "ROWE is a step in the right direction. One size won't fit all, but the spirit of Best Buy's program can be embraced." Company Snapshot Best Buy Co. is the leading consumer electronics outlet in North America, operating a chain of 940 stores in the U.S. and Canada and employing more than 90,000 people. The company offers a wide variety of electronic equipment, movies, music, computers and appliances. In addition to selling products, the stores offer installation and maintenance services, technical support and subscriptions for cell phone and Internet services. Covering an average of about 42,000 sq. ft., the big box stores are located in 49 states and five Canadian provinces. In addition to the Best Buy brand, the company operates under the names Geek Squad, Magnolia Audio Video (20 stores in the U.S.) and Future Shop (about 120 locations in Canada). Sources: Best Buy and Hoovers.com (c) 2007 Employee Benefit Adviser and SourceMedia, Inc. All Rights Reserved.
[Return to Handout]
Best Buy 4Q Profit Up On Strong Sales, Store Openings While Circuit City Loss Widens
FinancialWire. Forest Hills: Apr 5, 2007. pg. 1 Everyone knew Circuit City was having a bad fourth quarter. Which made Best Buy's good one a little bit of a surprise. The results reported by the nation's two largest electronics chains on Wednesday showed Best Buy increasing its lead over its smaller rival, with profit up 18 percent, while Circuit City lost money. While Best Buy profits from its operations outside the U.S., including China, and a major push into selling installation and advice in addition to TVs and iPods, Circuit City is closing Canadian stores and replacing 3,400 workers with cheaper help. "I think Best Buy is just executing on all fronts. They're clearly the winner in this space, and pulling away," said Joseph Feldman, who covers electronics retailers at independent research firm Telsey Advisory Group. Both have their challenges. Price competition is fierce for their most important product, high-end TVs. And sales of compact discs have been falling. But initiatives Best Buy started a few years ago, such as its international operation, its Geek Squad tech support service, and store sections that cater to big-spending customers, are helping offset profit pressures in its core electronics business. Meanwhile Circuit City has said it will close 62 company-owned stores in Canada. And its layoff of 3,400 of its most experienced (and expensive) sales workers announced last week have left some analysts wondering whether it is losing its best sales people just when it most needs them. There are bright spots Circuit City expects revenue in its home-installation service called "firedog" to double to $400 million this year, and it expects to open 40 or more U.S. stores this year, not counting relocations.
43
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
Feldman said the cost-cutting initiatives and new stores should all help Circuit City's bottom line, eventually. He made a rough estimate that the layoffs alone could save as much as $35 million if Circuit City saves $5 per hour per worker. "Even if it's half of that, $17 million, $20 million dollars could be a lot. Every little bit does add up," he said. Circuit City Chief Executive Philip J. Schoonover ran Best Buy's efforts to focus on its most profitable customers before jumping to Circuit City in 2004. He was named CEO at Circuit City in March 2006. Best Buy CEO and Vice Chairman Brad Anderson has known Schoonover for years. "What he's taken on is a very difficult job to begin with. This has historically been a real difficult industry for retailers," Anderson said. "Circuit's a gigantic company, it's a $10 billion-plus enterprise, and one of the largest competitors in our business," he said. "We also have learned, including from our own experience, that because you're down one day doesn't mean you're down forever. There's nothing like being challenged to focus on making an organization more competitive. We're very aware of the threat they bring to the market." Circuit City Stores Inc.'s $12.2 million quarterly loss stemmed from restructuring charges, although store closings and slower-than-expected sales growth also hurt. The Richmond, Va.-based company said it lost 7 cents per share compared with a profit of $141.4 million, or 81 cents a share, a year ago. The quarter included pretax charges of $144.6 million, including an impairment charge of $92 million at the company's international unit, $21.4 million in store-closing charges, and $21.3 million in other restructuring costs. Without those Circuit City would have earned $51.1 million, or 68 cents a share. On that basis analysts surveyed by Thomson Financial expected 63 cents per share. Sales rose 1 percent to $3.93 billion, but missed analysts' $4.04 billion estimate. Sales at stores open at least a year slipped half a percent. Chief Financial Officer Michael E. Foss told analysts that Circuit City expects fiscal 2008 revenue to grow 5 percent to 8 percent with comparable-store sales rising 3 percent to 5 percent. But he expects a pre-tax loss of $40 million to $50 million in the first half of the year because of continued restructuring costs. While Circuit City blamed TV and computer volatility for its troubles, Bank of America analyst David Strasser wrote in a note that "we believe competitive pressure from BBY is a big part of the issue." Richfield-based Best Buy Co. Inc. earned $763 million, or $1.55 per share, during the quarter that ended March 3, up from $644 million, or $1.29 per share, in the three months ended Feb. 25, 2006. Revenue rose 21 percent to $12.9 billion from $10.69 billion a year ago, driven by store openings and a quarter that was a week longer than last year's. Analysts surveyed by Thomson Financial were expecting earnings of $1.52 per share on revenue of $12.67 billion. Best Buy's revenue grew faster than its profit meaning Best Buy profited slightly less from each dollar in sales than it did last year. The company said that was because of growth in areas that carry lower profit margins, such as video game consoles, online sales, and its Five Star electronics retail stores in China. Best Buy also said margins were pressured by tough price competition in home theater, music and movies.
44
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
The company said margins would have been worse if not for gift card "breakage," or cards that don't get redeemed. That added up to $23 million for the first three quarters of the year. Best Buy said it plans to spend $800 million to $850 million this year on new stores and other initiatives, in addition to spending for acquisitions such as the $97 million purchase of Internet provider Speakeasy announced last week. Best Buy's comparable-store sales gain a key retail barometer was 5.9 percent, driven mostly by a strong increase at stores outside the U.S. Sales grew 4.8 percent at U.S. stores open at least 14 months, down from 7.4 percent growth during last year's fourth quarter. Best Buy said the comparable store sales gain was driven by an increase in the average sale made to each customer. Best Buy has already made moves into China, and on Wednesday it said it might open test stores in Mexico and Turkey within the next year and a half, said Bob Willett, who runs Best Buy's international operations. "We believe that international expansion is one of the key ways we will meet the growth goals of the company," he said. He said China operations would contribute more than $1 billion in revenue this year "and be modestly profitable a bit of a feat during the rapid growth phase for any business, particularly in an environment of such rapid change," he said. Best Buy also announced that it would carry Apple computers in 200 stores by this fall. Best Buy said it expects to earn $3.10 to $3.25 per share during the current fiscal year on revenue of about $39 billion, which would be an increase of 9 percent. Analysts were expecting earnings of $3.18 per share on revenue of $39.8 billion. For the full year, Best Buy earned $1.38 billion, or $2.79 per share, up from $1.14 billion, or $2.27 per share, during the previous year. Revenue of $35.93 billion rose 16.5 percent from $30.85 billion a year ago. Circuit City said its full-year loss was $11.8 million, or 7 cents a share, compared to a profit of $139.7 million, or 77 cents a share, in the previous year. Sales rose to $12.43 billion from $11.51 billion a year ago. Best Buy shares dropped $1.24, or 2.5 percent, to close at $47.89 on the New York Stock Exchange. They have traded in a 52-week range of $43.51 to $59.50. Circuit City shares fell 7 cents to close at $18.21 on the NYSE, up slightly off a recent low for the past year of $17.02. [Return to Handout]
For Circuit City staff, good pay is a bad thing
Abigail Goldman, Molly Selvin. Los Angeles Times. Los Angeles, Calif.: Mar 29, 2007. pg. C.1 Circuit City Stores Inc. has a message for some of its best-paid employees: Work for less or work somewhere else.
45
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
The electronics retailer on Wednesday laid off 3,400 people who earned "well above" the local market rate for the sort of jobs they held at its stores. In 11 weeks they'll be able to apply for their old positions -- which will come with lower hourly wages. The move put Richmond, Va.-based Circuit City, which has more than 40,000 employees in the United States, at the forefront of a new way of controlling labor costs in the service industry. Employers determine the prevailing market wages for particular jobs in various geographic regions and then find ways to make sure that their workers' salaries stay within that range. Wal-Mart Stores Inc., for example, last summer capped the pay of its veterans at levels consistent with competitors' top wages. Wal- Mart didn't lay off those who earned above a certain amount but did stop giving them raises, saying that would encourage them to advance through the ranks to higher-paying positions. Circuit City is being more aggressive about it, said Peter Doeringer, a professor of labor economics at Boston University. "What's unusual is to say we're doing this deliberate swapping of high for low." Company spokesman Bill Cimino said Circuit City wanted to be honest with its sales associates so they would understand the reason for the layoffs. "It had nothing to do with their skills or whether they were a good worker or not," Cimino said. "It was a function of their salary relative to the market." Circuit City expects to reap $110 million in savings in the next year, partly as a result of the layoffs and other changes announced Wednesday, including the outsourcing of about 130 information technology jobs to IBM Corp. The company's stock rose 31 cents to $19.23. Circuit City shares have fallen 21% over the last 12 months. ot everyone on Wall Street is sure the layoffs will pay off. The highest-paid employees can be some of the best and most experienced, and if Circuit City's customer service suffers, so may the company's fortunes against Best Buy Inc., whose reputation for high-quality help has helped make it the industry leader. "I question whether Circuit City's move is going to do them any good at all," said Van Baker, a media and consumer electronics analyst with Gartner Inc. in San Jose. "One of the things they're doing is getting cheaper employees who are likely to be not as well equipped to address consumer questions." Warren Bennis, who teaches leadership at the USC Marshall School of Business, agreed, calling the move "demeaning and counterproductive." Circuit City's Cimino said that higher-paid employees weren't necessarily the most productive. He also noted that only 8% of the workforce was affected.
46
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
Among those who lost their jobs Wednesday were 321 people who worked in the Los Angeles area's 44 stores. A total of 621 workers at 90 stores in California were laid off. Circuit City wouldn't give details about what it paid its nonunion workforce or the prevailing market rates, noting that they widely vary across the country. Analyst Richard Weinhart with BMO Capital Markets in New York estimated that people who work in consumer electronics stores earned $8 to $13 an hour. The company said it expected "greater sales volatility" during the first half of the fiscal year partly because of the layoffs. In a note to clients, Goldman Sachs analyst Matthew Fassler said that after Circuit City's last major pay change in 2003, when it went from commission-based pay to flat hourly rates, Best Buy's sales in stores open at least a year gained significantly while Circuit City's fell. On Wednesday, customers walking by a Circuit City store in Santa Monica with a "Now Hiring" sign in the window expressed dismay. "To me it's a slap in the face," said Kenrich Nyvett, a parking lot manager in Santa Monica who went to Circuit City for DVDs. "I don't feel like it's something good," the 46-year-old Los Angeles resident said. But "everybody needs a job these days." [Return to Handout]
Best Buy Strategy Pays Off as Circuit City Falters
Mary Ellen Lloyd. Wall Street Journal. (Eastern edition). New York, N.Y.: Apr 5, 2007. pg. C.6 Best Buy Co.'s and Circuit City Stores Inc.'s divergent fourth- quarter results are a reflection of where each company is strategically. Both of the leading U.S. consumer-electronics retailers continue to face pressure on profits from plummeting flat-screen-TV prices this year. But Best Buy's rapid expansion in recent years and its better grip on retailing basics have helped it offset the impact of TV price wars. Meanwhile, its smaller rival's turnaround efforts have boosted costs without yet showing a similar increase in sales. "One company's in transition, and the other's executing," said Pali Research analyst Stacey Widlitz. "Best Buy is certainly able to navigate a difficult environment much better than Circuit City." Best Buy saw a 21% revenue rise in the quarter ended March 3. Sales at stores and Web sites open for at least 14 months increased 5.9%.
47
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
The Richfield, Minn., chain, which has 1,170 stores in the U.S., Canada and China, plans to open 130 new stores in the current fiscal year and pursue acquisitions. It is also expanding its relationship with Apple Inc. and plans to offer Apple computers in 200 of its stores by fall. Meanwhile, Circuit City, of Richmond, Va., swung to a loss in its quarter ended Feb. 28, hurt by $144.6 million in pretax charges tied to restructuring steps announced over the past two months. Revenue rose 1.2%, while same-store sales were nearly flat. It plans to open half as many stores as Best Buy, boosting its current portfolio of about 650 U.S. stores, while closing underperforming stores and considering a sale of its 510-store chain in Canada. Last week, among other cost-cutting measures, Circuit City said it would lay off 3,400 workers, or 8% of its total work force, who were paid "well above the market-based salary range" for their positions. The company said it would hire people at lower pay to refill the positions. Yesterday, a group of terminated workers in California filed a lawsuit against the company, alleging that the layoffs disproportionately impact older workers and amount to age discrimination under state law. Jim Babb, a Circuit City spokesman, said the company doesn't comment on litigation. In 4 p.m. New York Stock Exchange composite trading, Circuit City shares were down seven cents to $18.21, while Best Buy's fell $1.24 to $47.89 as investors worried about further profit-margin pressures. Ms. Widlitz and other analysts say Best Buy has better store locations and moves quicker on new products, services and partnerships. To boost sales of higher-margin accessories or services, the stores make sure employees ask customers if they need a TV stand or installation with their flat-screen-TV purchase. Circuit City, by comparison, didn't have the sophisticated pricing and supply-chain technology to help it adapt last year when competitors started dropping flat-screen-TV prices ahead of the holidays, said SunTrust Robinson Humphrey analyst David Magee. "That whole process went more effectively [at Best Buy] than at Circuit City, which is at a much earlier stage of its turnaround," Mr. Magee said. Best Buy said it gained "significant" market share, including for flat-panel TVs, gaming products and notebook computers, last year. Circuit City, meanwhile, said it didn't give up market share, as measured by units. New technology is supposed to give retailers several years of help on margins before prices fall, but nearly everyone in the industry was surprised by how quickly flat-screen-TV prices fell in 2006. Both chains said they expect price declines to moderate this year but expressed caution about the first half and provided profit outlooks dependent on a strong second half. Other consumer-electronics retailers are also battling a tough environment. Tweeter Home Entertainment Group Inc., RadioShack Corp. and CompUSA are among retailers that have announced store closings recently.
48
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
[Return to Handout]
Wal-Mart aims to dominate consumer electronics
Maria Halkias. Knight Ridder Tribune Business News. Washington: Dec 15, 2005. pg. 1
When Wal-Mart wants to dominate a merchandise category, it usually gets its way. And the world's largest retailer is showing that it wants to be No. 1 in consumer electronics. It has remodeled the electronics departments in about a third of its U.S. stores to accommodate big-screen plasma TVs, rows of digital cameras and satellite radio displays. It has bumped up its breadth of brands including Canon cameras, Toshiba notebooks and Sony camcorders. And it has started offering warranties on some products and service contracts with wireless phones. "This year, they're going after the well-heeled consumer and the enthusiast," said Alan Wolf, senior editor at industry trade publication TWICE. "It's too early to tell because they haven't made a total transformation. It's a start -- and a scary proposition for electronics retailers." By selling low-price televisions, DVD players and cameras, Wal- Mart Stores Inc. moved ahead of Circuit City Stores Inc. into the No. 2 spot in TWICE's 2003 sales rankings. The discounter is still No. 2, with U.S. electronics sales last year of $12.11 billion (not including sales of $2.07 billion at its Sam's Club chain). Best Buy Co. is No. 1, with sales of $20.75 billion. Wal-Mart management has said it views electronics as a way to entice customers from its grocery aisles to the other side of its stores. Although Best Buy still has a substantial lead, and electronics chains trump the discounter on selection, service, installation and warranties, no one is underestimating Wal-Mart. When asked about Wal-Mart's potential in consumer electronics, analysts shrug and point to toys and groceries. The discounter reigns in both categories. "Wal-Mart always wants more. In this category, it's No. 2, but Wal-Mart doesn't like being No. 2 when it thinks it can be No. 1," said Edward Weller, retail analyst at ThinkEquity Partners LLC. "It wasn't that long ago that people didn't think they would take the toy lead." "Talk to the food guys a few years ago," CompUSA chief executive Larry Mondry said about Wal-Mart's fast rise to become nation's No. 1 grocer. Dallas-based CompUSA is the eighthlargest electronics retailer. So far, electronics is Wal-Mart's best-selling category online, said Wal-Mart.com spokeswoman Amy Collela. "We offer an expanded assortment of electonics to complement our stores on our Web site," she said. Its top-selling item online this holiday season is its proprietary mobiBLU Cube. The 512megabyte MP3 player sells for $99.72 and is the retailer's answer to Apple's wildly successful iPod. It comes with five free Wal-Mart music downloads.
49
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
Wal-Mart is now the leading major retailer of wireless phones. Rankings released last week showed that it moved ahead of Fort Worth- based RadioShack Corp. in the category during the third quarter. When Austin-based Dell Inc. expanded into printers, cameras and flat-screen TVs a couple of years ago, TWICE's Mr. Wolf remembers Best Buy management calling Dell "dangerous." But it wasn't until Wal-Mart moved ahead of Circuit City that Best Buy started to respond to the competition with its "customer-centric" stores, he said. Almost two years ago, Best Buy defined what these new and remodeled stores would look like and what items they would carry, based on neighborhood demographics. It opened several of these stores in California and acquired an upscale home theater company called Magnolia. On Tuesday, Wall Street battered Best Buy's stock price after the retailer said higher spending on new initiatives -- including its customer-centric stores -- and stiffer competition in Canada cut into third-quarter profits. So far this holiday season, Circuit City's aggressive pursuit of market share has made the environment more competitive for Best Buy, Goldman Sachs analyst Matthew J. Fassler said in a report Wednesday. He downplayed the impact of Wal-Mart and Target Corp. on the consumer electronics specialty stores for now: "The threat from discount stores on near-term results has been overstated, but as flat-panel TVs commoditize, discounters will grow more relevant." Wal-Mart advertised a big-screen TV for just under $1,000 and a $387 laptop computer the day after Thanksgiving. Both sold out, said Wal-Mart spokeswoman Gail Lavielle. "Those were our blitz products, but we're also selling out of some digital cameras and combo TV and DVD players," she said. CompUSA's Mr. Mondry said stores that are selling technology have an advantage over WalMart. "We all had $400 notebooks and huge lines the day after Thanksgiving, too, and so did Best Buy," he said. Shoppers who want to integrate their big-screen HDTVs with their computers, intall cables and cut holes in the wall "can't go to Wal- Mart," Mr. Mondry said. "Our sales associates know what else you can do with your new iPod and can show you what you need to run it through the car stereo or make it an alarm clock." Best Buy said Tuesday that it added 2,500 Geek Squad agents during the quarter, bringing its total number of service staffers to more than 11,900. Prudential Equity Research analyst Mark J. Rowen said in a report this week that service revenue remains a significant driver at Best Buy. "Geek Squad and home-theater installation revenues were up a strong double-digit percentage," he wrote.
50
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
Circuit City said Monday that it was expanding its service abilities by hiring PlumChoice Online PC Services to supply remote computer support. Technicians can access home or office computers remotely for complex repairs or to simply teach safe downloading of music. "Our employees have gone through extensive training," said Amada Tate, spokeswoman for Richmond, Va.-based Circuit City. "Flat- panel, big-screen TV prices are down 30 percent from last year. That's driving a lot of interest, and more consumers are aware, but we deliver and offer installation and component and speaker hook- ups." Warranties are also important to shoppers buying complex electronics, and Wal-Mart has started offering them. But a warranty is a product that needs to be sold, analysts said. Last year, warranties represented 3.8 percent of Circuit City's domestic sales. Just before Thanksgiving, analyst Mr. Rowen published an in- depth report on Wal-Mart's potential threat to the consumer electronics chains this season and beyond. Although Wal-Mart has improved its assortment of advanced- television technologies, he concluded that at least for holiday 2005, the electronics chains have better selections. Wal-Mart's foray into selling warranties is alarming for the chains, he said. And ultimately, he said, Wal-Mart and such direct- to-consumer retailers as Dell pose threats -- especially in product categories that consumers view as commodities, such as DVD players and entrylevel cameras. At the Wal-Mart Supercenter in Garland on Tuesday, Jim Newsom of Rowlett was looking at an 8-megapixel Olympus digital camera priced at $397.62. "They're getting better, especially in digital, mobile phones and the MP3 players," he said of Wal-Mart. "I think online is a bigger threat for lots of these categories, but yeah, I'll consider Wal- Mart from now on." He didn't know if the camera he was ready to buy was in stock and was waiting for someone to help him. The electronics department has its own registers, and checkers were busy, with two lines formed. A few minutes later, Mr. Newsome had wandered into the automotive department. "I'll go back when the lines go down," he said. [Return to Handout]
Best Buy Service Trumps Circuit City
May Wong. Associated Press Online April 7, 2007 Ralph Devoe's hunt for a new computer monitor didn't include a stop at Circuit City, even though one of its stores was only a few doors down from the Best Buy where he went shopping this week. "They often don't have what I want," the retired physicist said. "And Best Buy just seems a little better. The salespeople actually know what they're doing."
51
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
Though Best Buy also has its detractors, Devoe's dislike of Circuit City illustrates a challenge facing the electronics retailer as it competes in the shadow of its larger and younger rival. Its sales staff at stores is thinner and product selections are often more limited and less organized. The companies' financial results are telling. Best Buy, the nation's No. 1 electronics retailer, this week posted an 18 percent rise in fourth-quarter profits despite a bruising environment of flat-panel TV price drops. No. 2 Circuit City, on the other hand, swung to a loss in the quarter and is shaving its total work force by 8 percent, laying off 3,400 of its most experienced (and expensive) clerks. Analysts say Best Buy is executing well on all fronts. Its rapid expansion and earlier investments in its Geek Squad tech support service and high-end Magnolia home theater segment all part of its "customer centricity" strategy are paying off. "Circuit City has spent a lot of time catching up, and right now, they're not catching up fast enough," said Stephen Baker, analyst at market researcher NPD Group. Yet the tale of the dueling electronics chains goes beyond numbers. It also boils down to consumers, where they like to shop and where they spend their money. For sure, bargains and good rebates could be found at the stores of either chain an important draw for the price-conscious American public. But other times, it's as basic as how a store feels, how the products and aisles are laid out, how the workers there treat you. A friendly greeter is stationed just inside Best Buy's front door. "How's it going? Welcome to Best Buy," he repeats. Within a minute of browsing in a section, a Best Buy associate swings by to offer assistance. The staffer casually dispenses product info or comparisons, and just as quickly lays back if you decline the help. A visit to Palo Alto's Best Buy and Circuit City to pick up a component-video cable illustrates the differences. At the Circuit City, it took some effort to find a store employee to ask where to find the cables and the red-shirted employee who was tracked down misdirected this shopper to cables for TVs. At Best Buy, the greeter at the door quickly responded with a more specific question, "What kind of component video?" By asking, he learned the cable's purpose was for a game console and pointed to the video game section. The desired Sony-branded cables were sold out, but the Best Buy associate did double check the store inventory. That kind of attention to detail goes a long way in a shopper's experience. At another Best Buy in Sunnyvale, for instance, the music MP3 players on display were in good working order, and a patron could test the controls and use headphones to listen to them. By contrast, the Palo Alto Circuit City's portable players with the exception of a separate display for Microsoft Corp.'s Zune player were not powered and lacked headphones so a shopper couldn't get a good test run of the devices. Product information placards were also missing from some models.
52
MBA 619 Term Project: Best Buy T. Alves, A. Bornstein, M. Brana, G. Tan, & M. Walters
"I like how it's easier to find things (at Best Buy), and it's cool when you walk in and they greet you," Dustin Durham said outside the store, clutching a new projector. Durham used to shop at a Circuit City when he lived in Kentucky but moved a year ago to the San Francisco Bay Area where both stores geographically compete neck-in-neck. He hasn't been back to a Circuit City since because he said the store just felt "like a maze." Devoe, who bypassed Circuit City in his search for a computer monitor this week, first tried the local Costco, then a Fry's electronics store and finally Best Buy, where he admittedly was pleasantly surprised with its selection and knowledgeable staff. At Costco, displays weren't powered on, and at Fry's, he couldn't adjust the display resolutions. But at Best Buy, he was sold on a 24-inch, $700 display after he was able to actually compare and adjust the resolutions of various models. In some cases, it just comes down to location. With more than 800 Best Buy stores in the U.S., compared with Circuit City's 650, Richfield, Minn.-based Best Buy Co. Inc. has an upper hand at the moment. "I don't have anything against Circuit City, but this one is just closer to me," Daisy Zhao said, as she stepped out of a Best Buy with a new digital camcorder. It was just a one-mile difference from the next closest Circuit City where Zhao said she used to shop before the Best Buy opened in her Sunnyvale neighborhood about three years ago. Since then, the homemaker has bought a DVD recorder, a DVD player, a small, flat-panel TV and some other computer accessories from Best Buy. On the same day Richmond, Va.-based Circuit City Stores Inc. reported its disappointing fourth-quarter results, A.J. Sanchez and his 8-year-old son emerged from one of its stores with two new video games. He chose that store because it's closer to his home. But for electronics, he has shopped at both leading chains, looking for the better bargain. He recently spurned both in favor of a good deal for a 42-inch high-definition TV at a Sears store going out of business. But Sanchez said there seem to be fewer sales representatives at Circuit City and the store layout is confusing. Titles for the Xbox 360 were limited and spread across different areas, which made his shopping mission Wednesday just a tad frustrating. "But they both beat Target and other stores, hands-down," Sanchez added. Representatives of Best Buy and Circuit City did not return calls for comment. Analysts agree that Best Buy and Circuit City do a better job of training its employees on high-tech products than other large general retailers. Indeed, a Circuit City employee spent a good five minutes explaining the pros and cons as well as a good dose of history of Intel and AMD processors during a recent visit to check out Windows Vista laptops. "One of the key differentiators of retail stores is the person on the floor," NPD's Baker said. And that customer interaction, he said, will be all the more important as Circuit City and Best Buy continue to battle not just each other but the growing conveniences of online shopping. [Return to Handout]
53