Best Buy 2004 Annual Report Download - page 15

Through Networked Home SolutionsTM,
Best Buy is developing relationships with
new customers—builders—to offer home-
buyers base-structured wiring and/or
wireless network packages. These give
homebuyers a simple way to connect all
of their entertainment devices into an
easy-to-use, versatile system. We are
now working with 10 of the nation’s
top builders to offer this package in
three markets.
To compete, we provide our customers
services that go far beyond installation
and repair. We also offer a number of
subscription services to enhance our
customers’ enjoyment of their technology.
These include: broadband Internet access;
cellular phone service; entertainment
content delivery, such as cable, satellite
television, and satellite radio; and
magazine subscriptions. In fiscal 2004, we
helped launch the music downloading
services Rhapsody and Napster2, which
enable consumers to obtain music legally
through the Internet.
To make our customers’ consumer elec-
tronics products more fun and easier to
use, we plan to expand our service offer-
ings in fiscal 2005. For example, in fiscal
2004, we piloted Best Buy Photo Centers,
convenient in-store photo finishing studios
that enable customers to edit and print
their digital pictures. We intend to expand
this offering to more stores in fiscal 2005
to enable more of our customers to take
advantage of this solution.
Opportunities in Dual Branding
Our dual-branding strategy in Canada
continued to drive gains in market share
and customer acceptance in fiscal 2004.
We opened 11 new Canadian Best Buy
stores in seven markets and added four
new Future Shop stores. We also
relocated and expanded our distribution
center in western Canada to support
our future growth. Our Canadian online
site, FutureShop.ca, also experienced
significant growth in traffic and revenue.
It was named Canada’s No. 1 most-visited
retail Web store for the month of
December 2003 by Media Matrix, an
independent research company.
Our two Canadian brands have distinct
operating models that lead to different
shopping experiences for Canadian
customers. Future Shop operates with
a commissioned sales model, so the
customer experience is led by the sales-
person. The Canadian Best Buy stores
have an experience-based selling model
similar to that of U.S. Best Buy stores, with
non-commissioned associates. Customers
explore and interact with products as
they make their purchase decisions.
Knowledgeable salespeople are available
to assist, but the customer is in control
of the interaction.
Canadian customers view the two brands
as distinctly separate, and our research
shows that the customer bases of these
two concepts are very different. In fact,
only 18 percent of customers applying
for a Best Buy credit card in fiscal 2004
already held a Future Shop credit card.
Because our customers do not see the
Future Shop and Best Buy brands as
interchangeable, the revenue of existing
Future Shop stores declined less than we
expected when we opened Best Buy
stores in the same market. To the contrary,
we have gained the most market share in
cities where we operate both brands.
We believe that we can continue to differ-
entiate the two brands in terms of both
product assortment and store experience
and thus continue to gain market share.
The profitability of our Canadian operations
improved significantly in fiscal 2004 as
operating income more than doubled
from the prior year, despite increased
competition. As this fragmented market
rationalizes, we believe that we can expand
the operating income rate in Canada to
5 percent over the next four to five years.
In fiscal 2005, we plan to add approximately
10 Canadian Best Buy stores and three
Future Shop stores. To support our growth,
we anticipate more than doubling the size
of our Eastern Canada distribution center,
which serves both brands. We also expect
to launch an e-commerce Web site to
support Canadian Best Buy stores.
Best Buy Co., Inc. 13
Laptops covered by
a factory warranty or
PSP were typically
returned to service
centers or vendors for
repair, resulting in a
21-day repair cycle.
We expedited shipping
and consolidated
the repair locations.
That enabled a seven-
to 10-day turn time.
We also now provide
repair status updates
to keep customers
informed.
02 03 04
Canadian Best Buy Stores
—221 542
Future Shop Stores
1,923 2,154 2,258
Canadian
Store Footage
Actual footage at period
end, in thousands
Due to the success of our
dual-branding strategy,
we envision expanding to
165 to 180 stores in Canada
over the next three to four
years.
1,923
2,375
2,800