Best Buy 2006 Annual Report Download - page 23

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9
PART I
includes notebook anddesktop computers, computer
support services, telephones, networkingand accessories.
Entertainment software products include DVD movies, video
game hardware and software, CDs, computer software and
subscriptions. The appliances product group includes major
appliances as well as vacuums,small electrics, housewares
and services.
We also provide a variety of services related to the
merchandise offered within the product groups. In-store
services include computer set-up, repair and software
installation, as well as the installation of mobile electronics.
In-home services include computer set-up, repair, software
installation and home networking, and the deliveryand
installation of appliances and home theater systems.
Services were not a significant part of ourrevenue in fiscal
2006. Our services business does generally provide higher
gross margins than our merchandise assortment and has
been a contributor to year-over-year gross margin gains.
However,the infrastructure supporting that business has
also increased our selling, general andadministrative
expenses (SG&A) rate. We expect to grow our services
business such that over time service revenue will become a
more significant component of our business.
Magnolia Audio Video stores offer merchandise in two
productgroups: consumer electronics and home-office.
Consumer electronics, the largest product group for fiscal
2006 based on revenue, consists of video andaudio
products. Video products include digital televisions, DVD
players, digital broadcast satellite systems, digital imaging,
home theater installation, warranties and accessories. Audio
productsinclude home audio components, mobile
electronics, home theater audio systems, warranties and
accessories. The home-office product group consists
primarily of home theater furniture.
International Segment
International stores offer merchandise in four product
groups: consumerelectronics, home-office, entertainment
software andappliances. Consumerelectronics, the largest
productgroup for fiscal 2006based on revenue, consists of
video and audio products. Video products include
televisions, digital cameras, DVD players, digital
camcorders and accessories. Audio productsinclude MP3
players, home audio components, car stereos, speakers and
accessories. The home-officeproduct group includes
desktop and notebook computers, telephones and
accessories.
Entertainment software products include DVDs, videogame
hardware and software, computer software and CDs. The
appliances productgroup includes majorappliances as well
as small electrics,vacuums and housewares. Canadian Best
Buy stores do not carry appliances.
Although the two store brands of our International segment
carry similar product categories, there are differences in
product brands and depth of selection within product
categories. On average, approximately 42% of the product
assortment (excluding entertainment software) overlaps
between the two store brands.
Distribution
Domestic Segment
Generally, U.S. Best Buy stores’ merchandise, except for
majorappliances and large-screen televisions, is shipped
directly from manufacturers to our distribution centers
located in California, Georgia, Indiana, Minnesota, New
York, Ohio, Oklahoma and Virginia. Major appliances and
large-screen televisions are shipped to satellite warehouses
in each majormarket. U.S. Best Buy stores are dependent
upon the distribution centers for inventory storage and
shipment of most merchandise. However, in order to meet
release dates for selected products and to improve inventory
management, certain merchandise is shipped directly to the
stores from our suppliers.All inventoryis bar-coded and
scanned to ensureaccurate tracking. In addition, a
computerized inventory replenishment program is used to
manage inventory levels at each store. On average, U.S.
Best Buy stores receive product shipments two or three times
aweek, depending on sales volume. Contract carriers ship
merchandise from the distribution centers to stores.
Generally, onlinemerchandise sales are either picked up at
U.S. Best Buy stores or fulfilled directly to customers through
our distribution centers.
Magnolia Audio Video stores’ merchandise is received and
warehoused at either a distribution center in Washington,
adistribution center in California or the U.S. Best Buy
distribution center in California. All inventory is bar-coded
andscanned to ensure accurate tracking. In addition, a