Best Buy 2007 Annual Report Download - page 24

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9
PART I
Magnolia Audio Video stores offer merchandise in two
product groups: consumer electronics and home-office.
Consumer electronics, the largest product group in fiscal
2007 based on revenue, consists of video and audio
products. Video products include televisions, DVD players,
home theater system installation, warranties and
accessories. Audio products include home audio
components, mobile electronics, home theater audio
systems and accessories. The home-office product group
consists primarily of home theater furniture.
Pacific Sales stores offer merchandise in two product
groups: consumer electronics and appliances. Appliances,
the largest product group in fiscal 2007 based on revenue,
consists of major appliances as well as small electrics,
housewares, plumbing, bathroom fixtures and services.
Consumer electronics consists of video and audio products,
including televisions, and home theater systems and
installation.
Within our Domestic segment product groups, as well as
within our International segment product groups, we include
a variety of services that we provide in connection with 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 delivery and
installation of appliances and home theater systems.
Services were not a significant part of our revenue in fiscal
2007. Our services offerings 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 and administrative expenses
(“SG&A”) rate. We expect to continue to expand our
services offerings such that services revenue will become a
more significant component of our business over time.
International Segment
Canada Best Buy and Future Shop stores offer merchandise
in four product groups: consumer electronics, home-office,
entertainment software and, for Future Shop only,
appliances. Consumer electronics, the largest product
group in fiscal 2007 based on revenue, consists of video
and audio products. Video products include televisions,
digital cameras, DVD players, digital camcorders and
accessories. Audio products include MP3 players, home
audio components, car stereos, speakers and accessories.
The home-office product group includes desktop and
notebook computers, computer support services, telephones
and accessories. Entertainment software products include
DVDs, video game hardware and software, computer
software and CDs. The appliances product group includes
major appliances as well as small electrics, vacuum
cleaners and housewares.
Although Canada Best Buy and Future Shop stores carry
similar product groups (except for appliances), there are
differences in product brands and depth of selection within
product groups. On average, approximately 35% of the
product assortment (excluding entertainment software)
overlaps between the two store brands.
China stores offer merchandise in three product groups:
consumer electronics, home-office and appliances. Our
China stores do not carry entertainment software.
Appliances, the largest product group in fiscal 2007 based
on revenue, includes major appliances, air conditioners,
small electrics and housewares. The consumer electronics
product group consists of video and audio products,
including televisions, digital cameras, MP3 players and
accessories. The home-office product group includes
desktop and notebook computers, computer support
services, telephones and accessories.
Distribution
Domestic Segment
Generally, U.S. Best Buy stores’ merchandise, except for
major appliances 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 major market. 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 inventory is
bar-coded and scanned to ensure accurate 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 per week, depending on sales volume.
Contract carriers ship merchandise from the distribution
centers to stores. Generally, online merchandise sales are
either picked up at U.S. Best Buy stores or fulfilled directly to
customers through our distribution centers.