On Bestbuy from HBR - Case Study Example

Case Study on BestBuy from HBR BestBuy was founded in 1966 by Peter Schulze and a colleague business partner. They started by opening a first Audio of Euphony store at St. Paul in Minnesota with the aim to penetrate the market that was being dominated by Car Stereo Retail and Twin Cities’ Home. By 1969 the company had penetrated into five more areas around Minneapolis with revenues averaging $ 1 million. In 1970, Peter bought out his partner and by the end of 1978, the company had nine operational stores (Wells and Danskin 2). However, because of increased competition in the hi-fi audio industry characterized by cut-throating tactics the company started to look for a new business model. Problems continued to increase after a tornado hit the company in 1981 forcing Schulze to shift his strategic plan from services to discounted brands. Eventually, he ventured into superstores in 1983 and thus, rebranded the business Best Buy (2). Strategic Issues and Problems Best Buy faces stiff competition both locally and globally from these chains necessitating it to initiate different strategies to cope with competition. The company partnered and acquired different businesses in a bid to expand its market share and product lines to increase its revenue base and gain competitive advantage over the rival firm Wal-Mart. The company acquired Pacific Sales Kitchen, partnered with Carphone Warehouse, Dell, Apple, Napster Inc., Jiangsu Five Star Appliance Co. among many other business in the U.S., Europe, Canada and China (5). Conversely, due to competition and the changing market environment, the company has experienced fluctuating revenues and net profits. For instance, in 2009 due to pressure from rivals the company’s operating profits declined to $2.0 billion up from $2.2 billion in 2008, despite a growth in sales. Similarly, in the fiscal year 2012, the company’s stock closed at $24.70 up from $56.86 year end close in 2006 resulting in approximately 55% loss in market capitalization (1). Nature of the Industry and Market Environment The electronics industry is a competitive market with some of the world’s well-established retail chains and superstores such as Wal-Mart. This has resulted in Best Buy losing its market share gradually to online retailers such as Amazon and discounters (1). SWOT Analysis Opportunities Best Buy can leverage from greater international expansion, The Company has penetrated international markets over the years through partnerships and acquisitions of other businesses, which has enable it open new stores in these markets. For instance, by partnering with Jiangsu Five Star Appliance Co., which is China’s fourth largest appliances and electronics industry, the company has been able to penetrate the Chines market significantly (5). The positive expansion in global markets is another significant opportunity that is available to Best Buy, in addition to, online or e-commerce platforms. The use of online platform to offer products to consumers, which has given companies like Amazon a competitive edge over Best Buy is another opportunity that can help the company to penetrate global markets and increase its market share (6). Threats The threat of substitutes is one of the serious problems facing the electronics market environment. The companies operating in this industry stock and similar products such as TVs, mobile phones and other electronic appliances (Wells and Danskin 1). Intense competition in the electronic industry is another significant factor, which is affecting the revenue bases of companies such as Best Buy. In 2006, for instance, Best Buy sold only three million phones representing a 2% of the total market share of Best Buy’s consumer electronics market, which is considered to be about 20% (4). Conversely, the competition in the industry has triggered price wars and cut throating tactics among the industry players as was witnessed in 2006, when Wal-Mart and Lowe’s forced the prices of flat screen TVs down through heated holiday price discounts (6). Organizational Evaluation SWOT Analysis Strengths Greater product diversification Best Buy stocks and sells many different types of consumer products such as computers, TVs, phones, video products among many other products. The company has partnered with many other businesses to sell their products such as iPhone for Apple (1). A strong brand name is another significant factor that has enabled the company to maintain a strong leadership position in the industry amidst all competition. Strong financial position as result of increasing operating profits and margins. In-store uniformity for its outlets, which attracts customers. Weaknesses Management problems with the resignation of its CEO Brian Dunn in 2012 (1). Escalating operating expenses that necessitated the company to offer voluntary separation packages to its corporate workers to reduce expenses (6) Fluctuating sales and profits witnessed over the years. Plummeting company stock value that has created a negative image on the company, (declined from $56.86 in 2006 to $24.70 in 2012) (1). Possible Causes of Action The SWOT analysis indicates that the company’s overall position in the industry is strong and stable despite the challenges and problem management short comings crippling it (Allen). Therefore, the company should continue pursuing its expansion strategies to increase its market share and profits to enable its increase its market capitalization and hence restore its share price to its glorious value. Recommended Action and Possible Outcome Best Buy ought to use an advertising methodology that will concentrate on customized business-to-business offering. Utilizing individual offering of items will permit Best Buy to surpass its principle risk, Wal-Mart, as the leading electronic retailer in the electronics industry. This can enable the company increase its sales and revenues, thus minimize the weakness of fluctuating profits; create a strong corporate image to restore investor confidence and hence appreciation of the company’s stock. The company should reduce cut down on its operating expenses to boost its net incomes. This is critical in determining the company’s dividend and market capitalization and thus, its stock price. The company should develop an elaborate e-commerce platform to enable it penetrate global markets, thus increase its market share. This can enable it increase its sales and revenue base. Works Cited Allen, Baden. Is Best Buy’s leadership crisis overwhelming strategy?. Web. 2012. Wells, John R. and Danskin, Galen. Best Buy in Crisis. Harvard Business School, 2014. Pdf. Read More