1. Turnaround Best Buy
By Cranium Crushers
Consulting Team:
Aditya Thakur
Rashi Sanghvi
Dhruv Soman
Syed Rehan Zafar
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2. Best Buy at a Glance
Stores 1,447 (305 mobile)
Employees 167,000
Revenue $50B (5% from Online stores)
ROE (28%) (18% in 2011)
D/E 34%
Gross Profit Margin 23.4%
Net Profit Margin (2.4%)
Inventory Days 55
A/R Days 16
A/P Days 51
Cash to Cash Cycle 20
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CapitalIQ

3. Unfavorable Situation for BigBox Businesses
Internal External
Sales growth is declining Economic situation: Reduced Consumer
spending across industries
Management – A new Turnaround CEO Consumer behavior – Shifting towards
has been hired by the company online & mobile
Big-box stores are being shutdown Perception about big box brands turning
negative
President for Online Business hired to People are pessimistic after the collapse
revamp Best Buy’s Internet strategy of CircuitCity
Founder and majority shareholder Best
Buy, Schulz, offered to buy the company
at a price higher than the market value
Sales per store are declining – Lower
footfalls
Non-Competitive pricing 3

4. Continued Underperformance will lead to Bankruptcy
Company
Perception
Expected Performance Same Store
Sales
Infancy Stage Stagnation Management
Team
Early Stage Underperforming Cash & Cash
Equivalents
Midstage Significant
Performance Impairment Shareholder
Value
Late Stage Crisis
Deep
Yogurt!
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5. Strategic & Operational challenges hindering
sales growth
• Strategic:
– Weak positioning
– Value proposition not compelling enough
– Price disadvantage
– Negative customer perception
– No clear vision
– From ‘Brick & Mortar’ to ‘Brick & Click’ – changing business model
• Operational:
– High overheads
– Poorly designed online store interface
– Too many products
– Cluttered service model
– Unstable leadership/management
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6. Stabilize, Analyze & Strengthen
• New Store Formats:
- Best Buy Express
- Best Buy Studio
- Online Store
• Change in Focus:
- Competing on Price
- Product Mix
- In-store experience
- Service
- Loyalty
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7. Turnaround Implementation
Reduce Big Box Outlets:
1. Best Buy “Studio” stores in major cities – Store
in Store model
2. Using Market analysis, consolidate stores
based on customer behavior - Online
purchases
3. Significant reduction in overheads
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8. Turnaround Implementation
Best Buy Express:
• Small stores in high traffic locations
• Product Mix: Small & fast moving goods
• Acts as Geek Squad (Service center) branch
Online Store:
• Exploit Amazon’s lack of focus in electronics
• Redesign User Interface
• Develop competencies in faster delivery for loyalty
program members
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9. Turnaround Implementation
Price Matching:
• Price comparison part of core sales process in
stores
• Matched to direct competitors -Amazon
• Consistent in all store formats
• Price checking kiosks
Product Mix:
• Trim product categories and lines
• ‘Featured Products’ section for high margin
products
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10. Turnaround Implementation
Loyalty Program
• Annual fee
• Covers services for all products
• Focus on Geek Squad
• Offer a flat fee off services
• Notional discount on matched prices initially
• Free shipping of products
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11. Why it will work?
“Experience, Convenience & Price”
Revenues:
• Capitalize on the “Showrooming” nature of customers - Store
Experience
• Mobile store offers convenience for servicing
• Membership program serves to locking in customers
• Competitive pricing will boost sales
• Additional revenue from partners in studio model
Costs:
• Consolidation of stores: Reduction in rent expenses
• Reduction in employees
• Lower Overheads
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12. Financial Estimates
2012 2013 2014 2015 2016
Revenue $50,705 $51,681 $50,131 $49,630 $49,630
Revenue Growth 2% 2% -3% -1% 0%
Gross Profit (75%) $12,592 $12,834 $12,533 $12,407 $12,407
SG&A $(10,242) $(10,439) $(8,522) $(7,444) $(7,444)
Operating Income $2,350 $2,395 $4,010 $4,963 $4,963
Operating Profit
Margin 4.6% 4.6% 8.0% 10.0% 10.0%
Interest Expense $(134) $(134) $(198) $(165) $(132)
Restructuing Costs $(58) $(250) $(400) $(400) $(400)
Net Profit $(1,231) $1,193 $2,239 $2,880 $2,902
Net Profit Margin -2% 2% 4% 6% 6%
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