Best Buy 2005 Annual Report Download - page 9

Best Buy 05 Annual Report 5
By the end of fiscal 2006, we expect approximately one-
third of our U.S. stores will be fully converted to the customer-
centric operating model, including not only the training but
also new employee positions, expanded assortments and,
in some cases, new fixtures. The remaining two-thirds of the
stores will have begun their own transformation with the help
of the training programs and the assignment of customer
segments. In addition, we plan to continue operating lab
stores; their role is to test new offerings that can be rapidly
implemented across the chain and to explore other potential
customer segments.
Yes, we are accelerating our transformation to customer
centricity. There will be no turning back.
It is perhaps a natural evolution of the business. We began
as a product-centric company, seeking to grow fast enough
to survive rampant consolidation in the industry. We then
became process-focused, searching for the economies of
scale that would deliver a stronger bottom line. Now we
view our business as a portfolio of customers, which we
believe gives us far richer growth opportunities.
Preparing to Transform the Business
In fiscal 2005, we set the stage for our transformation to
customer centricity. While operating 30-plus lab stores, we
rolled out Geek Squad’s 24-hour, rapid-response computer
support task force at all North American Best Buy stores.
This rollout, which was completed in August, was acceler-
ated by two years based on customer feedback indicating
a high level of demand for computer services. In October,
we converted 67 stores to the new operating model.
We also invested resources into elevating the leadership,
talent and standard operating platforms at other stores in
order to prepare them for the challenging transformation
ahead. Our internal systems and processes also require
significant changes in order to support the new operating
model. In an effort to transfer knowledge from outside the
company, we outsourced our information technology work
through a new strategic alliance that also includes consult-
ing on a three-year plan to re-engineer our supply chain.
Finally, to attract incremental customers to our company,
we continued to grow our international segment, which
uses two store formats (Future Shop and Best Buy).
Accelerating Our Transformation
Now, for fiscal 2006, we have set five goals that will help
us fast-forward our transformation:
First, we will accelerate the conversion of our stores to
the customer-centric operating model. We plan to open
or convert an additional 150 to 200 U.S. Best Buy stores
to this model by the end of fiscal 2006. By year-end, we
expect to operate 250 to 300 segmented stores.
Second, we will strengthen and expand our service offerings.
We see opportunities in the marketplace to become the
premier national provider of computer services and to sup-
port booming sales of digital televisions, which are much
more complex than the analog televisions they replace.
Therefore, two areas we are targeting for growth include
Geek Squad services and home theater installation.
FY 05FY 04FY 03
Return on Invested Capital
We boosted our ROIC by cutting the cost of
opening new stores while improving our sales
productivity at existing stores.
20.0%
18.7%
15.7%
(from continuing operations)
FY 05FY 04FY 03
Operating Income Rate
The operating income rate in fiscal 2005 was
steady, as decreased incentive pay and higher
efficiency offset increased promotional activity.
5.3%5.3%
4.8%
(from continuing operations)