Best Buy 2007 Annual Report Download - page 25

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Magnolia Audio Video stores’ merchandise is received and
warehoused at either a Magnolia Audio Video distribution
center in California or the U.S. Best Buy distribution center
in California. 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. Merchandise is delivered to stores an
average of three times per week pursuant to an in-house
distribution system.
Pacific Sales stores’ merchandise is received and
warehoused at a distribution center in California. All
inventory is bar-coded or marked with vendor serial
numbers to ensure accurate tracking. In addition, a
computerized inventory replenishment program is used to
manage inventory levels at each store. Most merchandise is
fulfilled directly to customers through our distribution center.
International Segment
Our Canada stores’ merchandise is shipped directly from
our suppliers to our distribution centers in British Columbia
and Ontario. Our Canada 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 manufacturers and distributors. 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. Our
Canada stores typically receive product shipments twice per
week, with accelerated shipments during periods of high
sales volume. Contract carriers ship merchandise from the
distribution centers to stores.
Our Five Star stores’ merchandise is housed in more than
50 distribution centers located throughout the Five Star
retail chain, the largest of which is located in Nanjing,
Jiangsu. Our Five Star stores are dependent upon the
distribution centers for inventory storage and shipment of
most merchandise. In addition, the distribution centers also
provide installation services and act as service centers for
Five Star customers. Most merchandise is fulfilled directly to
customers through our distribution centers.
Our China store’s merchandise is shipped directly from our
suppliers to our distribution center in Shanghai’s Song Jiang
District. Our China store is dependent upon the distribution
center 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 store from
manufacturers and distributors. In certain circumstances,
merchandise is shipped directly to our customers from
manufacturers and distributors. Our China store typically
receives product shipments three to four times per week,
with accelerated shipments during periods of high sales
volume.
Suppliers
Our strategy depends, in part, upon our ability to offer
customers a broad selection of name-brand products and,
therefore, our success is dependent upon satisfactory and
stable supplier relationships. In fiscal 2007, our 20 largest
suppliers accounted for over three-fifths of the merchandise
we purchased, with five suppliers — Sony, Hewlett-Packard,
Samsung, Gateway, and Toshiba — representing over one-
third of total merchandise purchased. The loss of or
disruption in supply from any one of these major suppliers
could have a material adverse effect on our revenue and
earnings. We generally do not have long-term written
contracts with our major suppliers that would require them
to continue supplying us with merchandise. We have no
indication that any of our suppliers plans to discontinue
selling us merchandise. We have not experienced significant
difficulty in maintaining satisfactory sources of supply, and
we generally expect that adequate sources of supply will
continue to exist for the types of merchandise we sell.
We operate three global sourcing offices in China in order
to purchase products directly from manufacturers in Asia.
These offices have improved our product sourcing efficiency
and provide us with the capability to offer private-label
products that complement our existing product assortment.
In the future, we expect purchases from our global sourcing
offices to increase as a percentage of total purchases. We
also believe that the expected increase in our global
sourcing volumes will help drive gross profit rate
improvements by lowering our overall product cost.
Store Development
The addition of new stores has played, and we believe will
continue to play, a significant role in our growth and
success. Our store development program has historically
focused on entering new markets; adding stores within
existing markets; and relocating, remodeling and expanding
existing stores. During fiscal 2007, we opened 96 new
stores, acquired 145 stores and relocated 20 other stores.
Further, we added the Magnolia Home Theater store-
within-a-store experience to nearly 200 new and existing