Best Buy Financial Essay

8024 Words Sep 11th, 2012 33 Pages
9 -7 1 3 -4 0 3
JUNE 30, 2012

JOHN R. WELLS GALEN DANSKIN

Best Buy in Crisis
Introduction
At the end of fiscal 2012, Best Buy found itself in an increasingly challenging situation. Although it could still claim to be the world’s largest consumer electronics retailer with $50.7 billion in revenues, growth for the year, at 0.9% was anemic. Meanwhile, Amazon’s sales in Best Buy’s categories were growing at more than 50% p.a. and its total sales, at $48 billion, were approaching those of Best Buy. Operating profits were also disappointing having dropped 54% to $1.1 billion and net income fell into the red at -$1.2 billion. The fiscal 2012 year-end stock price fell to $24.70, down from a high of $53.86 in 2006. In five years, Best Buy
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In 1981, a tornado hit Best Buy’s outlet in Roseville, Minnesota and, while it destroyed the building, it left the inventory undamaged. Schulze held a Tornado sale in the parking lot and the success of this heavily discounted event prompted Schulze to change his strategic direction and shift focus from service to discounted name brands. In 1981, Schulz added photography, home office products, video equipment, and televisions to Sound of Music’s selection, driving his sales per square foot up to $350, compared to an industry average of $150 to $200. In 1983, inspired by the 12,000-square-foot stores of the Federated Group, Schulze decided to venture into superstores. Schulze renamed the company “Best Buy” to emphasize their commitment to discounted, value products.

Concept I: 1983-1988
In 1983, Best Buy opened its first superstore in Burnsville, Minnesota. It featured a wide assortment of discounted brand-name merchandise, central service and warehouse distribution, and above all, low prices. Household appliances and VCRs were added to expand the line. In 1985, Best Buy raised $8 million in an initial public offering and was listed on the NASDAQ. This helped fund three new superstores outside the Twin Cities area. A second public offering in 1986 raised $33.6 million, funding a 12-store expansion. CDs and an expanded line of photo equipment were added to the product line. In 1987, Best Buy debuted on the NYSE with an offering of 8.3 million shares to fund

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