Best Buy 2003 Annual Report Download - page 13

Distribution
Magnolia Hi−Fi’s merchandise is received and warehoused at its distribution center in Washington or at its regional
warehouse in California. All inventory is bar coded and scanned to ensure accurate inventory tracking. In addition, a
computerized inventory replenishment program is used to maintain optimal inventory levels at each retail store.
Merchandise is delivered to retail stores an average of three times each week via Magnolia Hi−Fi’s in−house
distribution system.
Seasonality
Similar to many retailers, Magnolia Hi−Fi’s business is seasonal. Revenue and earnings are typically greater during the second
half of the fiscal year, which includes the holiday selling season.
Competition
Magnolia Hi−Fi competes with a variety of national, regional and local retailers, including large consumer electronics superstores,
mass merchants and small specialty stores.
Magnolia Hi−Fi has positioned itself between large mass merchants and high−end specialty boutiques. We believe Magnolia Hi−Fi’s
quality product offerings, extensively trained sales staff and focus on exceptional customer service both before and after the sale, in
combination with the leveraging of U.S. Best Buy stores’ core competencies, effectively position Magnolia Hi−Fi to meet current and
future competitive challenges.
International Segment
Overview
The International segment was established in connection with our acquisition of Future Shop in November of fiscal 2002. At the end
of fiscal 2003, the International segment consisted of 104 Future Shop stores in all Canadian provinces and eight Canadian Best Buy
stores in Ontario. Collectively, International stores generate average annual revenue of approximately $16.0 million per store and
represent approximately 2.4 million retail square feet, or 9% of our total retail square footage.
The Future Shop acquisition accelerated our international expansion plans and provided us with an opportunity to increase revenue,
gain market share and leverage our operational expertise. We continue to build on Future Shop’s position as the leading consumer
electronics retailer in Canada. During fiscal 2003, we opened nine new Future Shop stores. These new stores strengthen our presence
in Ontario, British Columbia and Quebec. In addition to investments in new store openings, we also enhanced the Future Shop Web
site. The Web site provides an increasingly important avenue for reaching consumers and enhancing the Future Shop brand in
Canada.
The primary objective of our International segment in fiscal 2003 was launching our dual−branding strategy in Canada. We
introduced the Best Buy brand in Canada by opening eight Best Buy stores in the Toronto, Ontario market. The Canadian Best Buy
stores are similar to the U.S. Best Buy stores and appeal to technology and entertainment enthusiasts who enjoy the interactive
shopping experience and grab−and−go convenience for which Best Buy is known. As we increase the presence of Best Buy stores in
Canada, we expect to gain operating efficiencies through the leveraging of our capital investments, supply chain management,
advertising, merchandising and administrative functions.
The dual−branding strategy was designed to retain Future Shop’s brand equity and attract more customers by offering a choice of store
experiences. Our goal is to reach differentiated customers with each brand by giving them the unique shopping experiences they
desire. The primary differences between the two brands are:
In−store experience – The customer’s interaction with store employees is different at each of the two brands. Future Shop has
commissioned sales associates who take a more proactive role in assisting customers. Through their expertise and attentiveness, the
sales associate drives the transaction. In contrast, Canadian Best Buy store employees are noncommissioned, and the stores offer
more interactive displays and grab−and−go merchandising. This design allows the customer to drive the transaction as they
experience the products themselves, with store employees available to provide product information and explain product features.
Store size – The average Future Shop store is approximately 21,000 retail square feet, compared with an average of approximately
28,000 retail square feet for Canadian Best Buy stores. Canadian Best Buy stores generally have wider aisles, with more square
footage devoted to entertainment software.
Additional information regarding our International segment is included in Management’s Discussion and Analysis of Results of
Operations and Financial Condition beginning on page 28 of our Annual Report, incorporated herein by reference. In addition,
selected International segment financial data is included in note 10 of the Notes to Consolidated Financial Statements on page 62 of