Best Buy 2012 Annual Report Download - page 34

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Business Strategy and Core Philosophies
In recent years, the consumer electronics industry experienced limited new product innovation in many key product categories,
such as televisions, computers and gaming. At the same time, consumers have enjoyed greater price transparency and easier
comparison shopping. These factors have combined with a continuation of economic pressure weighing on many consumers. In
response to these circumstances, we have accelerated our cost reduction efforts, adjusted our sales mix and focused on
improving the experience we offer our customers.
Last year, we took important steps to begin transforming our company and focusing on strategies we believed offer the best
opportunities to improve returns. We significantly restructured our International business, closing our large-format Best Buy
branded stores in China, Turkey and the U.K. when it became clear that they would not deliver returns consistent with our
expectations and timelines. We also agreed to buy out the Best Buy Mobile profit share-based management fee paid to Best
Buy Europe pursuant to the 2007 Best Buy Mobile agreement (the “profit share agreement”). The buy-out of the profit share
agreement allows us to more fully capitalize on what we believe is the growing connections opportunities related to devices and
connection services in the U.S. and Canada.
We are currently focused on four initiatives to continue to drive the transformation of our company, all of which are focused on
improving our financial performance:
• Multi-year Cost Reductions;
• U.S. Store Format Improvements;
• Growth Initiatives; and
• Improved Customer Experience.
Multi-year Cost Reductions. We are taking several actions to lower our cost structure in certain areas of our business. These
actions are intended not only to help us be more efficient, but also to allow for current investments in our initiatives designed to
grow earnings over the long-term. We plan to redirect our financial resources to invest in enhancements to the customer
experience and in investment opportunities that will provide the greatest returns. In total, we expect to reduce costs in targeted
areas by $800 million by fiscal 2015 – with $250 million of the cost reductions expected to be realized in fiscal 2013. These
planned reductions primarily fall into three areas:
• Retail stores – including the closure of approximately 50 large-format Best Buy stores in the U.S. in fiscal 2013;
• Corporate and support structure – savings from information technology services, procurement savings on non-
merchandise purchases, reduction in consulting services and reduction in corporate and support positions; and
• Cost of goods sold – reduction of product transition costs, lower product return and exchange expenses and supply
chain efficiencies.
U.S. Store Format Improvements. We are revising our portfolio of store formats to improve the customer experience and to
improve store performance and productivity. In the immediate term, this will involve closing some large-format Best Buy
branded stores, modifying others to our pilot Connected Store format, and adding more small-format Best Buy Mobile stand-
alone stores. The Connected Stores will be remodeled large-format stores that focus on connections, services and an enhanced
multi-channel experience through a total transformation of both the physical store and the operating model. As we continue to
focus on making it easier for customers to shop with us – anywhere, any time and any way they want – we are increasing our
points of presence, while decreasing overall square footage, which we believe will result in increased profit per square foot.
Growth Initiatives. From an investment standpoint, we will continue to prioritize the opportunities in existing businesses
through four key growth initiatives: e-commerce, connections, services and China. We expect these initiatives to benefit our
overall financial performance.
• To continue to drive the growth of our e-commerce platform, we are focused on improving the customer experience by
providing more competitive online pricing, broader use of free shipping, the expansion of our online assortment and
the further development of the Best Buy Marketplace, which significantly expanded the range of assortment, price
points and brands available to our customers.
• We will continue to focus on growing connections, not only from Best Buy Mobile, but from other parts of our
business. While we believe Best Buy Mobile will remain an important driver of our connections performance, we plan
to leverage our mobile connections expertise for other devices – including tablets, notebooks and e-Readers – to drive
increased attachments of connections, accessories and services.
• We see the wide range of services we can offer our customers as a key differentiator and an area with growth potential.
Our growth initiatives will include: (i) refining our extended product support services with tailored programs for