Best Buy remains best bet in consumer electronic sector

Implications: -          Best Buy’s (BBY) initiative to facilitate the customers need for their consumer electronic needs with their “end to end” solution differentiates them from their major competitors and the big box stores in the CE sector.

Analysis:  -          Their focus on customer service is exactly what the customer needs. It does not take long for the majority of customers to realize that they need help in setting up their home theater. With BBY’s consumer orientated business model that offers the average customer help from the store to their sofa. This customer centric model will help the company develop an economic moat between their competition as it is well worth the extra expense to have a “working” system set up by professionals to optimize the home theater experience. -         


BBY is also entering the Canadian and Chinese market this year to learn the idiosyncrasies in their business environment to allow them a rapid expansion when it is time to pull the trigger. Obviously it is intuitive to spread out the business into as many markets as possible to avoid the effects of an economic downturn in any one market. - 


         BBY is also entering a strategic relationship with Apple to sell their assortment initially in 200 doors with plans to expand this to the majority of their doors. -         


BBY will continue to open stores at a net rate of 100 to 150 doors/year over the next 4 years. They are shrinking their foot print down to about 20,000 sqft. which will maximize their inventory levels and sales/sqft. -         

The Geek Squad initiative in addition to providing services fore mentioned is expanding rapidly in servicing home consumer electronic and computer users who purchased their hardware elsewhere. Geek Squad margins run at a rate above BBY’s core I.M.U.’s which will increase the margins somewhat significantly. -         


BBY continues to out perform their competitions CAGR over the last 4 years and there is no reason why this trend should not continue. The same holds true for their ROIC which surpasses the other players in the CE sector. -         


The focus on their productivity, innovation and the re structuring of their supply chain are a big factor in their comparatively outpacing of the other players in the CE sector. With the outsourcing of the IT function BBY has been able to focus more on the customer and productivity. Corporate governance has shown innovative thinking resulting in what should be a strong future when the current macro economic conditions improve.