Best Buy 2014 Annual Report Download - page 32

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27
the presentation of accessories and services and enabling customers to build their own bundle, as well as leveraging our
expanded supply chain capabilities. We will also continue to re-engineer our e-commerce technology platform so that new
features and functions can be developed quickly and optimized across platforms.
Retail Stores. Our ability to transform Best Buy is highly dependent on our ability to transform our in-store experience. To that
end, we are evolving our field organization based on what we see as the mission of retail, which is (1) the execution of category
and functional strategies; (2) the development and implementation of effective market-level strategies that take into account the
specifics of local markets; and (3) the ability to lift our performance in terms of employee engagement, customer satisfaction,
sales and profitability.
Supply Chain. We believe that our supply chain is a competitive advantage, driven by a powerful network of strategically
located distribution centers and the recently launched ship-from-store capabilities. Our goal over the next 24 months is to use
this network and improve our customer experience by providing (1) increased inventory availability; (2) improved speed to the
customer; and (3) improved home delivery and installation capabilities for our large-cube assortment. To achieve this, we will
continue to invest in systems and infrastructure to drive significantly enhanced delivery options.
Geek Squad Services. We believe the Geek Squad is one of our biggest competitive advantages, yet at the same time, we
believe it is an underutilized asset. Our goal for the Geek Squad is to deliver a superior customer experience, while providing a
key revenue and profit growth engine for Best Buy. Our goals for Geek Squad over the next 24 months include (1) improving
our service delivery and the service experience for our customers; (2) refining existing service offerings (e.g., extended
warranty services); and (3) building new offerings that meet the needs of customers in the context of today’s technology
environment.
Cost Structure. Our goal is to more quickly and deeply reduce our costs. Through the fourth quarter of fiscal 2014, we
eliminated a total of $765 million in annualized costs, which exceeded our original multi-year target of $725 million. We have
now increased our target to $1 billion. We expect these additional cost reductions to come primarily from: (1) returns,
replacements and damages; (2) logistics and supply chain; (3) procurement; and (4) continued rationalization of our
organization.
Employee Engagement. Across the company, we have a commitment to serving our customers in such an extraordinary manner
that they become promoters of Best Buy. A key to achieving this goal is the talent and engagement of our people. In line with
this, over the next 24 months, we will be pursuing the successful implementation of our new field- and store-operating model,
the strengthening of our talent in critical areas, and the redefining of key business processes to better support our multi-channel,
customer-focused strategy.
In addition to the areas above, we plan to focus on improving the performance in our International segment. Largely as a result
of our Renew Blue initiatives, we reduced International SG&A in fiscal 2014. In fiscal 2015, we expect to take further actions
to reduce our International segment’s cost structure.
Long-Term Financial Targets
All of these initiatives are in pursuit of our long-term non-GAAP targets of a 5% to 6% operating income rate and a 13% to
15% return on invested capital.
Fiscal 2015 Trends
In the U.S., we have an agreement with Citibank for the issuance of promotional financing and customer loyalty credit cards
bearing the Best Buy brand (the "Citibank credit card agreement"). We commenced operating under the Citibank credit card
agreement in September 2013, at which point Citibank acquired the customer portfolio from the previous bank. The Citibank
credit card agreement is expected to result in lower revenue and gross profit rates due to less favorable economics as a result of
changes in both the regulatory and overall consumer credit market. Revenues we earn under the Citibank credit card agreement
are primarily based on the profitability of the credit card portfolio. These revenues are inherently more difficult to forecast than
revenues earned under the previous credit card agreement, which were primarily based on new account activations.
In fiscal 2015, we estimate we will generate $150 million to $200 million less revenue from our credit card agreement than in
fiscal 2014. A portion of this year-over-year decrease is driven by the accelerated recognition of previously deferred revenue
related to our previous credit card agreement in fiscal 2014.