Best Buy 2004 Annual Report Download - page 5

At the same time, we saw a looming
threat from other large retailers with lower
cost structures. We realized that we must
boost our growth rate and capital efficiency
in order to compete more effectively for
customers. These desires formed the
basis of our efficient enterprise initiative.
The beauty of these two initiatives,
customer centricity and efficient enterprise,
is how well they balance each other while
providing opportunities for growth.
Today, we are:
•Teaching our employees to focus on
specific customers who have similar
needs and expectations, rather than
just focusing on product categories.
•Decentralizing authority to allow the
person closest to the customer to
make informed decisions using new,
adaptive operating platforms.
•Teaching all store employees about
the financial impact of their decisions
so that they can improve their ability
to determine profitable ways to meet
diverse customer needs.
•Increasing investments in high-return,
customer-facing areas, such as store
labor and new services.
•Increasing the efficiency and adapt-
ability of back-office functions, such
as sourcing and supply chain.
The Opportunity to Transform
Our Business
Our transformation began more than
a year ago, when we first determined our
four strategic initiatives: customer centricity,
efficient enterprise, win the home with
service and win in entertainment. Our
leaders taught these initiatives to employ-
ees, and dedicated work teams began
to implement them. For example, we
opened 32 customer centricity test stores,
each focused on one or more of the five
specific customer segments. We set goals
for profitable sales growth and asked our
employees to find efficiencies.
We challenged ourselves to find ways
to grow our services business and to take
the lead in the entertainment business.
We revamped our system of rewards and
recognition to focus on employee strengths,
performance and company values.
Our goal: to transform into a talent-
powered, customer-driven enterprise
focused on enhancing our customers’
enjoyment of technology.
Historically, consumer electronics retailers
have competed by anticipating new
technologies and managing accelerating
product cycles. We have mastered that
business, and our performance has led
the industry. But all that wins for us is the
right to compete in the next round of
retailing. And in the next round, not only
is the competition more powerful, but the
rules will have changed … because we are
changing them.
At Best Buy, we see a very different
consumer electronics business in the
future. This future has critical implications
for our customers and for our company.
Key products are converging, which works
to our advantage as a leader in both
consumer electronics and home-office
products. Technologies are becoming
more complex, which favors retailers with
well-trained employees and a robust
service offering. Our customer centricity
strategy is to serve as the advocate of
customers, helping them assemble the
solutions that work for them—and backing
up those sales with service. Only a few
large retailers excel in this environment,
and none have our breadth of product
and services assortments. We will sharpen
our advantage as well, through our
national rollout of Geek Squad services.
Finally, customers today are unwilling to
pay for inefficiency. Low-cost providers
have gained significant market share, at
the expense of mall-based retailers and
others who are less efficient. We believe
we must boost our efficiency and lower
our expense rate in order to fund our
transformation and remain competitive
in the marketplace.
Best Buy Co., Inc. 3
02 03 04
International
$596 $1,643 $2,322
Domestic
$17,115 $19,303 $22,225
Revenue
($ in millions)
New stores and better
execution drove higher
revenue. International
revenue growth also
benefited from the
stronger Canadian dollar.
$17,711
$20,946
$24,547
02 03 04
Return On
Invested Capital*
(continuing operations)
Increased earnings
and more effective
use of capital drove
a higher return.
* See reconciliation
on page 21
16.7% 15.7%
18.7%