Project Manager: Jacob Hostetler Fall 2012 Management 320: Leading & Managing Teams by Dr. Len McKendrick Loyola University Chicago Corporate Analysis on current state of Best Buy. Recommendation on 4 options from SMEs and group members.

1. The Future of Best Buy
Project Manager
Mitch Goebel
Team Members
Mayra Gomez, Matthew Cruz, Marie Holada, Alix
Gilmore, Jacob Hostetler
October 25, 2012

2. Table of Contents
• ABOUT BEST BUY 3
• BUSINESS MODEL ASSESSMENT
– COMPETITIVE ADVANTAGES 4
– MAJOR WEAKNESSES 5
• 5-YEAR FINANCIAL SUMMARY 6
– Q2 2013
– Q3 2013
• Q2 FY 12 REVENUE MIX 7
• PERSONAL SUMMARIES 8
• ANALYSIS
– SME QUOTES 10
• RECOMMENDATIONS 14
• WORKS CITED 15
2

3. About Best Buy
• Best Buy Company, Inc. was founded in 1966
under the name Sound of Music by Richard
Schulz and took the name Best Buy in 1983
• Headquarters is located in Richfield, Minnesota
• Current CEO is Hubert Joly
• Largest electronics retailer in the United States
with over 1,200 stores
• Brands: Best Buy, Best Buy Mobile, Pacific
Sales, Magnolia Audio Video, Geek Squad
3

4. Business Model Assessment:
Competitive Advantages
• 92.7% of recent customers had a positive
shopping experience; there is a very
large, happy consumer base.
• Customers are able to interact with products
first-hand and ask associates questions at the
many store locations.
4

5. Business Model Assessment:
Major Weaknesses
• Best Buy has many more overhead and other
expenses than online competitors.
• Constant evolutions in technology make it
difficult for Best Buy to keep up and profit on
products with highly fluctuating prices.
• The company’s strategies failed in foreign
markets.
• Best Buy has failed to keep up with online sales.
• Customers use Best Buy as a “showroom.”
5

6. 5-Year Financial Summary
6

7. Q2 FY 2013 Review Mix
7

8. Personal Summaries
• Mitch
– Best Buy must reduce overhead costs or go out of business.
– If Best Buy does not change they will be driven out of business by online
competition.
• Marie
– #EPIC
– #FAIL
• Alix:
– I believe the best option for Best Buy is to restructure and focus more on
offering technological expertise as well as good customer service.
– However, this option does not guarantee Best Buy’s survival, and I believe
they will eventually go out of business.
8

9. Personal Summaries (cont.)
• Matthew
– The most attractive options for Best Buy’s future are privatization and
corporate turn-around.
– Neither of these options is likely to succeed. Schulze’s bid is actively being
blocked by the board of directors, and a major component of the
restructuring (price-matching strategy) will actually cause more harm than
benefit.
• Jacob
– In my opinion, Best Buy will end up restructuring by taking extreme cost-
cutting measures such as layoffs and massive store closings.
– Long term, it is too late for Best Buy to rectify the current situation to remain
the largest electronics retailer; they will either go out of business or succeed
as a smaller retailer.
• Mayra
– Best Buy needs to reduce the square footage of its stores.
– Best Buy can survive if it can match the prices of online competitors such as
Amazon.
9

10. SME Quotes
Go Private!
• 7/19 Recommendations
• “For Best Buy’s board, we advise them to accept
Schulze’s offer.” – Saibus Research, Seeking Alpha
10

11. SME Quotes (cont.)
Restructure!
• 8/19 Recommendations
• 2 subject matter experts mention that though
restructuring is necessary, the price matching
against its competitors is unfeasible.
11

12. SME Quotes (cont.)
Bankruptcy!
• 2/19 Recommendations
• “There is no reason for a dedicated specialty
retailer selling commodity products, and that is
exactly what Best Buy is.” – Michael Pachter,
Wedbush
12

13. SME Quotes (cont.)
Merge!
• 3/19 Recommendations
• “This has led to some to believe that Best
Buy, with its depressed shares, is a takeover
candidate for Amazon.” – Benzinga
Insights, Forbes
13

14. Recommendation
• It is the opinion of Team Beta that the best options for Best Buy to prolong
its life are to accept Richard Schulze’s bid to take the company private as
well as to continue Best Buy’s current plan for restructuring, with one
notation.
– The notation Team Beta must make is that price matching, which will increase
revenue in the short-term, may ultimately reduce Best Buy’s profit margins by
an amount that will prove to be a loss. Furthermore, price matching with
competitors like Amazon and Walmart, who are in a more financially stable
position, could provoke a disastrous price war.
• The restructuring would allow Best Buy to eliminate certain overhead
costs, such as the costs of excessive real estate.
• However, this solution alone is not enough. Team Beta feels that going
private will “buy some time” for Best Buy to turn its business model
around. Privatization will allow Best Buy to make some tough decisions
without dealing with public backlash from excessive scrutiny that all public
companies must endure. Additionally, privatization will allow Best Buy to
avoid Sarbanes-Oxley compliance requirements which apply only to public
companies (the “best interest” regulations for private companies still
apply).
1414

15. Works Cited
• "Analysts Take Skeptical View of Best Buy." Bloomberg Businessweek. Acquiremedia,. 2012. Web. 2012. <http://investing.businessweek.com/research/stocks/news/article.asp?docKey=600-
201208221429APDIGITLFINANCE__US_Best_Buy_Analyst_N-1>.
• "Annual Financials for Best Buy Co. Inc." Market Watch. Wall Street Journal. Web. 2012. <http://www.marketwatch.com/investing/stock/bby/financials>.
• "Annual Report." Best Buy Co. Inc. Best Buy, 2012. Web. 12 Oct. 2012. <http://phx.corporate-ir.net/phoenix.zhtml?c=83192&p=irol-reportsannual>.
• "Best Buy Co Inc in Consumer Electronics (USA)." Local Company Profile (n.d.): n. pag. Euromonitor International. Web. 2012. <http://www.marketsqueeze.com/2012/07/06/was-circuit-citys-
closing-foreshadowing-for-best-buy/>
• “Best Buy Co Inc. (BBY:New York).” AP Digital, Bloomberg Businessweek.2012. <http://investing.businessweek.com/research/stocks/news/article.asp?docKey=600-
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• ”Best Buy Co.,Inc.: Financial Performance-Annual Reports Five Year Financial Summary.” Best Buy, 2012,
<http://phx.corporate-ir.net/phoenix.zhtml?c=83192&p=irol-reportsannual>
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• "Best Buy Co., Inc.: NYSE:BBY Quotes & News - Google Finance." Google Finance. Google. Web. 2012. <http://www.google.com/finance?q=NYSE:BBY>.
• "Best Buy Earnings Release." 4 Traders. Thomson Reuters. 2012. <http://www.4-traders.com/BEST-BUY-CO-INC-11778/calendar/>.
• "Best Buy Reports Fiscal Second Quarter 2013 Results." Best Buy. Best Buy. Web. 2012. <http://phx.corporate-ir.net/phoenix.zhtml?c=83192&p=irol-newsArticle&ID=1727161&highlight>.
• “Best Buy's Q2 highlights challenges facing new CEO”, Larry Dignan, ZD net.com. 2012. <http://www.zdnet.com/best-buys-q2-highlights-challenges-facing-new-ceo-7000002939/>
• "Best Buy SG&A Expense Quarterly." Y Charts. Y Charts. Web. 2012. <http://ycharts.com/companies/BBY/sga_expense>.
• "Best Buy's Eroding Competitive Advantages." Seeking Alpha. 29 Nov. 2011. Web. 2012. <http://seekingalpha.com/article/310849-best-buy-s-eroding-competitive-advantages>.
• Boehringer, Daryl. “Daryl Boehringer Quotes.” Cleveland Research. 2012. <http://www.successories.com/iquote/author/72532/daryl-boehringer-quotes/1.>
• Burritt, Chris. "Best Buy CEO Says Employee Training Key to Reviving Stores." Bloomberg Businessweek: News from Bloomberg. Bloomberg News. 2012. Web. 13 Oct. 2012.
<http://www.businessweek.com/news/2012-09-07/best-buy-ceo-joly-says-employee-training-key-to-reviving-stores>.
• "Businessweek." Bloomberg Businessweek. Web. 2012. <http://investing.businessweek.com/research/stocks/people/board.asp?ticker=BBY>.
• Cramer, Jim. "Best Buy: The Smart Side of a Dumb Idea." MSNMoney. MSNMoney, 07 Aug. 2012. Web. 23 Oct. 2012. <http://money.msn.com/top-stocks/post.aspx?post=2a830a15-502e-4e84-ae3a-
65c48787aa81>.
15

16. Works Cited (cont.)
• Damouni, Dhanya Skariachan and Nadia. "Founder Offers to Take Troubled Best Buy Private." Yahoo! News. Yahoo! Web. 2012. <http://news.yahoo.com/best-buy-founder-offers-24-26-per-share-
124408986--sector.html>.
• Dignan, Larry. "Best Buy's Q2 Highlights Challenges Facing New CEO." ZDNet. Web. 2012. <http://www.zdnet.com/best-buys-q2-highlights-challenges-facing-new-ceo-7000002939/>.
• Duprey, Rich. “Keeping Tabs on Best Buy's Demise.” The Motley Fool. 2012. http://www.fool.com/investing/general/2012/10/17/best-buy-to-sell-own-tablet.aspx.
• Gandel, Stephen. “Best Buy bid shows leverage is back.” CNN Money. 2012. http://finance.fortune.cnn.com/2012/08/07/best-buy-leverage/.
• Gilroy, Amy. “Best Buy’s Dunn Resigns.” CE Outlook. Web. 2012. http://www.ceoutlook.com/2012/04/10/best-buys-dunn-resigns/
• Hottovy, R.J.. “Best Buy Investors Should Brace for Tough 2Q.” Morningstar. 2012. <http://news.morningstar.com/articlenet/article.aspx?id=565294>
• “How to Save Best Buy from Extinction.” Caroline Winter, BloombergBusinessweek, 2012, http://www.businessweek.com/articles/2012-08-06/how-to-save-best-buy-from-extinction
• "Is Best Buy's Big-box Business Model Dead?" The Week. The Week Publications Inc., 2012. Web. 2012. <http://theweek.com/article/index/226277/is-best-buys-big-box-business-model-dead>.
• Kelly, Anne Marie. "Whoever Ends Up Running Best Buy Could Inherit Happy Shoppers." Forbes. Forbes Magazine. 2012. Web. 2012.
<http://www.forbes.com/sites/annemariekelly/2012/08/31/whoever-ends-up-running-best-buy-could-inherit-happy-shoppers/>.
• Lachapelle, Tara, and Chris Burritt. "Best Time for Best Buy Bid Now as Founder Exits: Real M&A." Bloomberg. Web. 24 Oct. 2012. < http://www.bloomberg.com/news/2012-06-10/best-time-for-best-
buy-bid-now-as-founder-exits-real-m-a.html>
• Lee, Thomas. “Best Buy's founder taps ex-CEO for buyout.” StarTribune. 2012. http://www.startribune.com/printarticle/?id=164257326.
• Mani. “Best Buy (BBY): Buyout Feasible Albeit Unlikely.” iStockAnalyst. 2012. http://www.istockanalyst.com/finance/story/6015332/best-buy-bby-buyout-feasible-albeit-unlikely.
• "NYSE:BBY Quotes & News." Google Finance. Web. 2012. <http://www.google.com/finance?q=NYSE:BBY>.
• Rosenberg, Yuval. “5 Founders That Came Back To Rescue Their Companies.” Huffington Post. 2012. http://www.huffingtonpost.com/2012/08/15/founders-rescue-companies_n_1778956.html.
• "Showrooming." Techopedia.com. Web. 2012. <http://www.techopedia.com/definition/28277/showrooming>.
• Skariachan, Dhanya. "Best Buy Suspends Profit Outlook, Share Buybacks." Reuters. Thomson Reuters. 2012. Web. 2012. <http://www.reuters.com/article/2012/08/21/us-bestbuy-results-
idUSBRE87K0H820120821>.
• Sterman, David. “The Crowd Is Wrong About Best Buy.” Seeking Alpha. 2012. <http://seekingalpha.com/article/479221-the-crowd-is-wrong-about-best-buy.>
• Strasser, David; Vora, Sarong; Bassman, Darren. “Best Buy Buyout More Likely Than Staples.” Barren’s. 2012. 16
<http://online.barrons.com/article/SB50001424053111904819604577651612696848268.html.>