Best Buy 2013 Annual Report Download - page 12

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Our success is dependent on the design and execution of appropriate business strategies.
Our success is dependent on our ability to identify, develop and execute appropriate strategies. Our current strategy includes
transformational change to many areas of our business, including online and in-store customer experience, employee training
and engagement, partnership with our vendors, retail execution and cost control. Achieving the targets we have set in a timely
manner will be challenging, and it is possible that our strategies prove ineffective and that we need to make substantial changes
to them in future periods. It is also possible that we are unsuccessful in executing our strategies. If we fail to design and execute
appropriate strategies, our results could be materially adversely affected. If investors are uncertain about the appropriateness of
our strategies or our ability to execute them, the market value of our common stock and debt instruments could be materially
adversely affected.
Refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, for further
information regarding our strategies.
Failure to effectively manage our property portfolio may negatively impact our operating results.
As a multi-national retailer, effective management of our large property portfolio is critical to our success. We primarily secure
properties through operating leases with third-party landlords. If we fail to negotiate appropriate terms for new leases we enter
into, we may incur lease costs that are excessive and cause operating margins to be below acceptable levels. We may also make
term commitments that are too long or too short, without the option to extend. The availability of suitable new property
locations may also hinder our ability to maintain or grow our operations. Factors such as the condition of local property
markets, availability of lease finance, taxes, zoning and environmental issues and competitive actions may impact the
availability for suitable property.
We have closed stores, and we may close additional stores or other facilities in the future. For leased property, the financial
impact of exiting a property can vary greatly depending on, among other factors, the terms of the lease, the condition of the
local property market, demand for the specific property, our relationship with the landlord and the availability of potential sub-
lease tenants. It is difficult for us to influence some of these factors. If these factors are unfavorable to us, then the costs of
exiting a property can be significant. When we enter into a contract with a tenant to sub-lease property, we remain at risk of
default by the tenant and the impact of such defaults on our future results could be significant.
Failure to effectively manage our costs could have a material adverse affect on our profitability.
Certain elements of our cost structure are largely fixed in nature. Consumer spending remains uncertain, which makes it more
challenging for us to maintain or increase our operating income. The competitiveness in our industry and increasing price
transparency mean that the focus on achieving efficient operations is greater than ever. As a result, we must continuously focus
on managing our cost structure. Failure to manage our labor and benefit rates, advertising and marketing expenses, operating
leases, other store expenses or indirect spending could severely impair our ability to maintain our price competitiveness while
achieving acceptable levels of profitability.
Our liquidity may be materially adversely affected by constraints in the capital markets or our vendor credit terms.
We must have sufficient sources of liquidity to fund our working capital requirements, service our outstanding indebtedness
and finance investment opportunities. Without sufficient liquidity, we could be forced to curtail our operations or we may not
be able to pursue business opportunities. The principal sources of our liquidity are funds generated from operating activities,
available cash and liquid investments, credit facilities, other debt arrangements and trade payables. Our liquidity could be
materially adversely impacted if our vendors reduce payment terms and/or impose credit limits. If our sources of liquidity do
not satisfy our requirements, we may need to seek additional financing. The future availability of financing will depend on a
variety of factors, such as economic and market conditions, the availability of credit and our credit ratings, as well as our
reputation with potential lenders. These factors could materially adversely affect our costs of borrowing, our ability to pursue
growth opportunities and threaten our ability to meet our obligations as they become due.
Changes in our credit ratings may limit our access to capital and materially increase our borrowing costs.
In fiscal 2013 (11-month), Moody's Investors Service, Inc. maintained its long-term credit rating at Baa2, but revised its
outlook to Developing. Fitch Ratings Ltd. and Standard & Poor's Ratings Services lowered their long-term credit rating to BB-
and BB, respectively, and each revised its outlook to Negative.
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