Best Buy Situation Analysis

Best Buy Situation Analysis

Introduction

During the 2011 fiscal year, Best Buy experienced devastating losses to revenue, profits, and cash flows. “Revenue at established stores fell 2.4% last year, following a 4.7% decline in the previous year” (Savitz, 2012). Coincidentally, it also posted a net loss of $1.23 billion for the year, or $3.36 per share (Savitz, 2012). Cash flows and short-term investments suffered as well, dropping by $791 million to $1,125 million (Best Buy Financial, 2012). This report will conduct a situation analysis of the probable causes for the above performance problems, as well as summarize the key points for Best Buy’s financial blunders.

Revenue

Best Buy’s revenue decline at established stores dropped 2.4% in the past year was a result of changes to the technology market that caused Best Buy’s sales to drop (Savitz, 2012). These technologies, which include high-speed mobile broadband, cloud computing, tablet devices, and the modular nature of app stores, have changed the way consumers buy, service, and use their electronics (Savitz, 2012). Essentially, these new technologies are combining what used to be various electronic products into one product, which reduces the need for some of the outdated electronics Best Buy offers. For example, smartphones now take on the roll of cell phone, digital camera, and music player, which reduces sales of cameras and mp3 players. The app store is a technology that offers a new platform for sales of music, books, movies, softwares, etc., which reduces sales of similar media at physical locations like Best Buy.

Another reason for Best Buy’s revenue decline is due to its competition with e-commerce sites like Amazon. E-commerce has become a strong competitor in the electronics retailing market as it provides: “a cheaper alternative, offering customers a faster, more convenient, and less-expensive way to buy” (Savitz, 2012). Virtual retailers began by dominating the market with regards to...