Best Buy Co., Inc. (NYSE: BBY) is one of the world’s largest multi-channel consumer electronics retailers. Founded in 1966 as an audio specialty store called Sound of Music, Best Buy rebranded in 1983 and became a national retailer. It specializes in technology products such as televisions, computers, cell phones, DVDs and CDs, audio equipment, game consoles like PlayStation and Xbox, cameras, and other imaging products.
It has stores in Canada and previously in China and Mexico, in addition to the US. The company’s subsidiaries include Geek Squad, Magnolia Audio Video, Pacific Sales Kitchen & Home, and others. It currently boasts 102,000 employees worldwide, a decline from 125,000 in 2020.
In 2021, Best buy recorded revenues amounting to $47,262 billion with a comparable sales growth of 9.7 percent from the previous year.
Although it holds a dominant position in the US, it faces challenges posed by competition. Its main competitors are technology service providers, mobile network carriers, e-commerce businesses, traditional store-based retailers, and multi-channel retailers.
Best Buy Business Strategy
Best Buy has made its name by expanding aggressively. It has rapidly increased the number of stores as well as products sold and services offered. This strategy is aimed at making Best buy a one-stop shop for all gadget-related items. The company is also known for its competitive and proactive marketing strategies.
In addition, the company boasts a head start in customer service and product knowledge, a differentiated service offering. With service membership cards, customers can enjoy priority service. They can conveniently make returns without a receipt and also receive discounts on future purchases.
Best Buy has also successfully incorporated its e-commerce strategy into its 1159 stores distributed globally. The company has worked on the expansion of its online presence and checkout options to the physical stores. This strategy has helped improve customer experience and increase the convenience of customers when shopping for technology-related items.
Investments in modern technology such as smart home technology and hardware have set the ground for growth, further solidifying its competitive position in the market. The company made strategic acquisitions of senior health and technology companies such as GreatCall in 2018 and Mindshift Technologies in 2011. These acquisitions help the company to strengthen its foothold in the senior market, furthering its competitive position.
Today, Best buy has successfully moved from a traditional brick-and-mortar retail outlet to an Omni-channel retailer by creating synergies between physical and virtual stores.
Best Buy SWOT Analysis
- Market dominance: Best buy continues to dominate the consumer electronics retail industry. Its dominant position is supported by various factors, such as being first to market with new technologies and services; it also has a more extensive customer base, a larger network of stores, and a more extensive product range.
- Omni-channel Retail Strategy: Best Buy has successfully implemented an omnichannel strategy into its physical stores. The company aims to provide customers with seamless and convenient shopping experiences by offering the option to shop online in-store or order online and pick up goods from a local store. By harnessing the power of e-commerce for both commercial and social purposes, Best Buy has successfully created synergies between physical and virtual store options.
- Customer Centricity: To remain competitive in the consumer electronics industry, it is essential to provide customer-oriented services and products. Best Buy has achieved this by creating innovative programs such as ‘Know how’ that allows customers to enjoy priority service; they can also make returns without receipts. Such initiatives have helped Best buy attract and retain customers.
- Robust Portfolio of Brands: Best buy has a strong portfolio of brands that includes Samsung, Apple, Microsoft, and Sony, among many others. This ensures its competitiveness in the market by offering customers a wide range of products.
- Strategic Acquisitions: Best buy has a history of building upon its assets to stay competitive. In 2011, Best Buy acquired Mindshift Technologies, a small company that aims at developing portable power solutions for consumer electronics. This acquisition strengthened the company’s footing in portable power solutions. In 2018, it acquired GreatCall Inc., which produces mobile health and safety devices such as wireless emergency call devices for older adults. This acquisition enabled Best to expand its senior market, offering further differentiation from its competitors.
- Overdependence on Electronics: Best buy is over-reliant on the consumer technology and electronics industry. This position puts it at risk as it depends on a volatile market affected by economic conditions and innovations from newer companies. It must remain vigilant of potentially disruptive threats, such as smart home devices and voice assistants.
- Limited Customer Demographics: Best Buy’s customer demographic is limited to active or interested consumers. This puts it at risk as over half of the world’s population are considered passive customers who do not buy products on impulse. The company must expand its reach to customers outside this category to remain competitive and increase sales revenue.
- Global market potential: The global consumer electronics industry will grow steadily due to technological advancements and increasing demand from developing markets. By 2025, it is estimated to reach $547,186 million in revenue, growing at a CAGR of 4.28 percent (2021-2025). Best buy can benefit from this growth by expanding its geographical presence through inorganic or organic methods.
- Technological Innovations: The technological advancements in the consumer space are increasing exponentially and are expected to revolutionize how people live, work, and play. The Internet of Things (IoT) and cloud computing are prime examples of such innovation that Best Buy can harness through e-commerce.
- Competition from online retailers: There is a growing threat from online retail giants such as Amazon that pose stiff competition for Best Buy. By offering low-cost products and delivery, these companies can attract customers looking for the best deal. As e-commerce becomes more popular, Best buy will have to expand its product portfolio and offer competitive prices to compete in this space effectively.
- Changing consumer demographics: A growing shift in buyers’ demographics requires Best Buy to adopt strategies for different market segments. These include the elderly, who are more loyal customers and want flexible sales options, as well as Gen Z members who represent tomorrow’s consumers. These changing demographics will require Best Buy to adopt new strategies and focus on customer service to remain competitive.
Best Buy Competitor Analysis
Best buy competes with various companies such as Wal-Mart, Amazon.com, and other large electronic retailers. To succeed in this highly competitive market, Best Buy must strengthen its weaknesses while exploring growth opportunities.
1. Walmart Inc
Walmart Inc is an American multinational retail corporation that runs chains of large discount departments and warehouse stores across the globe. It is by far the world’s largest retailer and the biggest private employer globally, with over 2.3 million employees. The company also announced wage increases for 590,000 employees in 2021, signaling its commitment to increasing labor productivity.
In the financial year 2021, Walmart reported $35 billion in revenue growth Y/Y to $559.2 billion with a significant operating margin of 3.10 percent as of 31st July 2021.
It competes with Best Buy in the consumer electronics market and has a larger product portfolio, including appliances, computers, music, movies, books, games, sports equipment. Walmart is known for its low prices, and this has been the key to surpassing Best Buy in terms of sales revenue.
Best buy’s competitive strategies to combat Walmart include investing in e-commerce to offer convenient and low-cost online shopping. This is seen as a strategic move that will help the company establish itself as an alternative to its larger competitor and offer more to customers.
2. Amazon Inc.
Amazon (NASDAQ: AMZN) is an American international e-commerce company with headquarters in Seattle, Washington. It is the world’s largest online retailer by total sales and market capitalization. The quarter ending June 2021 reported$113.08 billion in revenue with an operating income of $7.702 billion. Here’s the complete SWOT analysis of Amazon for more details.
Amazon is a significant threat to Best Buy’s consumer electronics business and has the potential to disrupt the industry even further with its growth in cloud computing and e-commerce. Best Buy’s competitive advantage vis-à-vis Amazon includes its physical store presence that allows for a holistic brand experience compared to e-commerce based shopping.
Although Best Buy has a limited product portfolio that does not include Amazon’s popular third-party products, it remains competitive with its extensive product range in key categories such as video games and appliances. The company is also strengthening its e-commerce strategy with the incorporation of Best Buy Beta, which is set to help customers save money, protect their devices and provide a deal-first experience. Check out Amazon Flywheel strategy explained here.
3. Costco Wholesale
Costco Wholesale Corporation (NASDAQ: COST) is an American membership-only warehouse club that provides a wide selection of merchandise. It has 804 warehouses globally with over 273,000 employees and has a significant presence in countries like the US, Canada, UK, Mexico, and Japan.
It competes with Best Buy in recreation and entertainment products with its wide range of exclusive brands not available at other retailers. The company’s product portfolio includes appliances, computers, entertainment, tickets, and more. The retailer is also known to have among the best customer satisfaction ratings in the industry.
For the quarter ending May 2021, it recorded revenues of $45.277 billion, a 21.5 percent increase Y/Y and an operating income of $1.663 billion. In 2020, its total revenues amounted to $166.76 billion with a net income of $4.002 billion.
Best Buy’s competitive advantages against Costco include its wider product portfolio covering a larger set of relevant categories. In terms of e-commerce, Best Buy is ahead of Costco with a better mobile app and faster delivery speeds.
4. Target Corporation
Target Corporation (NYSE: TGT) is an American retailing corporation with headquarters in Minneapolis, Minnesota. The company has over 1,900 stores and is a dominant retailer in the United States.
It competes with Best Buy in the consumer electronics market. It also has a massive online presence that encompasses the entire product portfolio available at physical stores, and this is where its largest threat lies.
The quarter ending July 2021 recorded revenue of $25.160 billion and gross profit of $7.88 billion. This shows a growth of 9.51 percent in revenue Y/Y and an operating income of $2.46, a 7.6% increase compared to the same quarter last year.
Best Buy’s competitive advantage against Target includes its physical stores that allow a more holistic shopping experience and better customer service. However, Target has a clear advantage in e-commerce with faster delivery speeds, better deals, and exclusive products not available at Best Buy.
On the whole, it appears that Amazon and Target are significant competitors to Best Buy’s online business, while Costco is more of a threat to its offline consumer electronics business.
Apple Inc. (NASDAQ: AAPL), a multinational technology company, designs and markets consumer electronics such as the iPhone smartphones and the iPad tablet computers. It has its headquarters in Cupertino, California, and boasts over 147,000 employees.
Best Buy competes with Apple in all consumer electronics categories. However, its greatest threat comes from Apple’s retail stores that offer a unique brand experience and focused product portfolio. Apple’s sheer size, influence, and brand power have helped it trounce all competition in the consumer electronics industry. Its revenue and profit figures, detailed below, are testimony of this fact.
The quarter ending June 2021 recorded revenue of $81.43 billion, an increase of 36 percent Y/Y with a $1.30 diluted share (Apple). Its cash and cash equivalents amounted to $34,050, up from $38,016 the previous year.
The core difference between these competitors is that while Apple has just one product — iPhones – to sell through different channels (online and offline), Best Buy sells a wide range of products across categories through online and offline stores.
Best Buy’s competitive advantage against Apple includes its wider product portfolio and larger physical store network. On the other hand, Apple has a better brand image and customer loyalty which is difficult to match.
How Best Buy Stands Out Against Competitors
Historically, Best Buy’s revenue growth has been driven by its physical stores. However, in recent years, the company’s online sales have seen rapid growth, with online revenue increasing from $7,640 million in FY 2020 to $18,674 million in FY 2021.
Moreover, Best Buy has been making concerted efforts to cut costs and diversify its revenue streams. The company is seeing results as its bottom line revenue improved significantly from $36 billion in FY 2007 to $47 billion in FY 2021.
Best Buy also has the edge over its competitors’ thanks to a strong mobile app and digital tools such as Price Check that allows customers to check the product price of any item at Best Buy stores and purchase it online for the same price.
However, Best Buy’s greatest assets are its physical stores that allow an immersive retail experience and provide better access to information and support than what can be offered online. Additionally, its massive network of stores allows it to offer relatively lower prices than some e-commerce businesses.
Best Buy Competitor Analysis (FAQs)
Question: Who is Best Buy’s biggest competitor?
Answer: Best Buy competes with Amazon, Target, and Costco for market share across all categories. While Amazon is a clear online competitor, Target’s physical stores offer a better shopping experience than Best Buy. Amongst the offline competitors, Costco has a significant presence in consumer electronics which is an area of strategic importance for Best Buy.
Question: What is Best Buy’s Competitive Strategy?
Answer: Best Buy has a multi-pronged approach to tackling its competitors, including opening stores in several new markets across the US, reducing costs using technology, and offering an improved customer experience. It also incorporates a differentiation strategy, wherein it offers value for money products.
Question: What is Best Buy’s Positioning Approach?
Answer: Best Buy aims to be the preferred shopping destination for all technology products across the US and Canada. The retailer is customizing its brand, focusing on specific demographics, such as the Hispanic market, millennials, and women.
Best Buy is one of the leading retailers in consumer electronics. It stands out from its competitors with an edge on customer service and a wide range of products to offer online and offline. With these competitive advantages, it has driven revenue growth through physical stores and strong online sales figures. Additionally, best buy has also cut costs by diversifying its revenue streams while increasing profit margins significantly over the last years.