Best Buy 2004 Annual Report Download - page 9

Operating Review
Opportunity to Gain Market Share
Dynamics within the competitive environ-
ment gave Best Buy an opportunity to
gain significant market share in fiscal
2004—including more attractive pricing
on digital products, customers’ preference
for efficient retailers, and convergence
between home office and consumer elec-
tronics devices. We capitalized on this
opportunity by playing to our strengths:
the quality of our store employees and
the effectiveness of our advertising.
Namely, we increased the number of
employees working in our stores and
invested in our new advertising campaign.
Highly effective advertising and promotions
included a holiday television campaign
that attained the highest customer recall
scores of any Best Buy advertising ever.
The new advertisements, ”Thousands of
possibilities. Get yours,” showed how
our employees seek to understand each
customer’s unique needs before suggesting
products and services. We also successfully
launched Reward Zone, our customer
loyalty program, which awards discount
certificates to members based on
purchases. Reward Zone has been enthu-
siastically received by our customers; as
of February 2004, we had signed up more
than 2.5 million members. Reward Zone
members shop at our stores more
frequently than nonmembers and give us
valuable information about our customers.
Another key component of our winning
strategy this year was increased coordination
of promotions between our stores and our
corporate teams, which was reflected in
the execution in our stores.
Store employees responded to increased
customer traffic with excellent advice, the
right products and services, and the ability
to handle sales of more complex products.
We realize that, as the products and
services we sell become more complex,
shoppers require more advice. Mass
merchants and direct sellers cannot offer
customers the opportunity to experience
products or the face-to-face assistance,
deep product and services assortments
and service for which Best Buy increasingly
is known.
Our strategy of focusing on our strengths
was successful. We achieved revenue
growth of 17 percent for the fiscal year,
including a comparable store sales gain of
7.1 percent. We believe that we increased
market share in key products such as
notebook and desktop computers, digital
cameras and camcorders, and CDs.
Moreover, we believe we have potential to
make further market share gains in fiscal
2005 as we pursue new customers through
new store openings and the roll-out of our
customer centricity initiative.
Opportunity to Attract
New Customers
In fiscal 2004, we opened 60 new Best Buy
stores in the United States, with 23 in our
standard 45,000-square-foot format and
the balance in our smaller-market formats.
Most of these stores expanded our
presence in existing markets.
We plan to open approximately 60
new U.S. Best Buy stores in fiscal 2005,
with approximately two-thirds of the
new stores in our smaller 30,000- and
20,000-square-foot formats. Our new,
20,000-square-foot format proved to be
very successful in fiscal 2004 and is on
track to deliver a return on invested
capital of over 20 percent. It enabled us to
reach customers in smaller markets (popu-
lations of 100,000), as well as fill in existing
markets. In fiscal 2005, we anticipate
opening our first store in Hawaii and a
flagship store in West Hollywood. We also
plan to renovate many of our older stores.
Another key element of our U.S. growth
plan is the implementation of innovative
ideas that resulted from our customer
centricity pilot stores and other tests.
Our customer centricity initiative changes
our focus from selling products to meeting
customers’ needs, adapting each store to
serve specific, profitable customer segments
shopping at that store. We initially identified
five customer segments that we believe
either represent significant new growth
Best Buy Co., Inc. 7
02 03 04
U.S. Best Buy Retail
Square Footage
Actual footage at period
end, in thousands
By adding more stores
in our 30,000- and 20,000-
square-foot formats,
we are able to reach
customers in smaller
markets, although the
percentage growth in
retail square footage
is moderating.
21,599
24,243
26,421
6%
Appliances
Product Revenue Mix
(FY 04)
The fastest-growing
product category
in fiscal 2004 was
Home Office, driven
by notebook and
desktop computers.
37%
Consumer
Electronics
22%
Entertainment
Software
35%
Home
Office