Porter’s Five Forces Analysis of Best Buy
Key Facts
| Name | Best Buy Company(BBY) |
| Industry | Retail and Wholesale |
| Founded | 1966 |
| Headquarters | Richfield, Minnesota, United States of America |
| CEOs | Richard M. Schulze |
| Revenues | $51.8 billion, 2022 |
| Profit | $2.5 billion, 2022 |
| Competitors | Lowe’s, GameStop, Target, Sam’s Club, Walmart and Costco |
Company Overview
Headquartered in Richfield, Minnesota. BestBuy is one of the leading stores in USA that specializes in consumer electrical and mechanical items and services. BestBuy eased for the consumers to gain the access to diverse technological devices and services. The company was founded by Richard M. Schulze in 1966.
Best Buy revenue for the twelve months ending October 31, 2022 was $47.928B, i.e. 8.42% decline year-over-year. Best Buy annual revenue for 2022 was $51.761B, a 9.52% increase from 2021. Best Buy total assets for 2022 were $17.504B and the profits were declared as $2.5B.
Porter’s Five Forces Analysis of
Porter’s Five Forces Analysis is a widely used model to evaluate companies’ strategies in reference to its industry for neutralizing the competition and increase the margins, it is developed by Professor Michael E. Porter in 1979, at Harvard Business School.
Best Buy Rivalry among Existing Competitor
BestBuy Business Segments: It has the business operations mainly in two segments i.e. domestic and international. BestBuy’s domestic business operations are within the states and territory of United States however the International operations are outside of US, in different European and Asian countries that includes Canada, China, Mexico and Turkey.
It also offers the products and services under the brand names of bestbuy.com, Best Buy Direct, Best Buy Express, Best Buy Mobile, Geek Squad, GreatCall, Magnolia and Pacific Kitchen and Home as declared by Forbes.
BestBuy Global Operations Year 2021:The domestic operations within USA, gross profit rate was 20.0% in comparison to 20.9% recorded in last year 2021. The domestic revenue of $14.99 billion decreased by 2.6% versus last year. The decrease was mainlyrecorded due to the sales decline of 2.1% and the loss of revenue from permanent closure of stores in 2021. International revenue of $1.4 billion decreased 10.7% versus last year 2021. This decrease was mainly recorded due to the closure of Mexico in 2022 and a sales decline of 3.8% in Canada. The highest number of Sales was recorded for the items that fall under the category of appliances, smart phones, virtual reality, home theater and headphones.
Amazon:Jeff Bezos founded Amazon on 5 July 1994. Amazon is the leading e-retailer in the United States, with net sales amounting to close to 470 billion U.S. dollars in 2021. Most of the company’s revenue is generated through e-retail sales of electronics and other products, followed by third-party seller revenues, subscription, and AWS cloud services. Due to its global scope and reach, Amazon is considered one of the most valuable brands worldwide as declared by Statista.It is the leading platform for online electronics and gadgets, essentials and supply chain services across USA, Europe and different countries cross the globe. Amazon has been offering online e-commerce business options through Amazon Cash/Top Up and Amazon.com. Amazon Kindle gives the writers and avid readers the opportunity to access and release numerous books online. Amazon annual revenue for 2021 was $469.822B, a 21.7% increase from 2020. Amazon annual revenue for 2020 was $386.064B.
Walmart: Walmart, formerly known as Wal-Mart Stores, Inc. was founded in 1962 by Sam Walton, when he and his brother James “Bud” Walton opened the first Wal-Mart Discount City in Rogers, Arkansas. The leading online and stores retail chain Walmart offers low prices and a huge variety of consumer products. Walmart is a tough competitor for BestBuy as it operates across USA, Canada and Mexico. Walmart’s total revenue generated through global operations is $573 billion.
Target- It is the leading supply chain facility, store and online retailer in USA. Target is headquartered in Minneapolis, Minnesota. Target has 51 supply chain facilities across 23 states in USA and 1,948 stores. Target annual revenue for 2022 was $106.005B, a 13.3% increase from 2021. When people due to COVID-19 restrictions went to discounted retailers like Target to stock up on daily necessities like toilet paper and hand sanitizer in 2020, Target’s profitability skyrocketed.
Investment in Research & Development-Marketing Cost and Brand Image
BestBuy is positioned and known to invest massively in its workforce and operations. The largest segment pf BestBuy’s marketing and promotional activities is related to computing and cellphones. It has heavily focused on advertising and customer engagement through online platforms. Statista’s annual data on BestBuy annual revenue from e-commerce and online shows the continuous visible increase in revenue from 2020 till 2021 and the main reason is the positive brand image and effective marketing. BestBuy generated annual revenue of 7,640 million in 2020 and 18,674 million in 2021 from online business.
Best Buy Threat of New Entrants
- Global retail online and in-store business
In 2022, the worldwide retail market is forecast to be worth around USD 23 trillion. Amazon has 41% of the US e-Commerce market as of October 2021, making it the biggest online retailer. Walmart is in second place, with a 6.6% market share. eBay is in third place, with a 4.2% market share. The new entrants would be joining the retail business in coming years due to high demand however differentiation of product offering is difficult, because it requires to achieve economies of scale.
- High Capital Investment- Trained Human Resources
Customers often need guidance while making the choice of product and its main source are the trained workforce. BestBuy hired and trained 1500 employees to guide the customers for smart home products. Employees at the company’s retail locations are cross-trained to handle online purchases, provide in-store customer care, and provide virtual customer assistance.
- Capital Expenditure on e-Commerce and product differentiation:The reasons for success in retail is online accessand product differentiation. Costco, Amazon and Walmart have been offering variety of products as per the consumer preferences and affordability. Retail e-commerce sales in 2021 are expected to be around 5.2 trillion US dollars’ global basis. This value is expected to rise by 56% over the upcoming years, reaching almost 8.1 trillion dollars by 2026.
- Technological Advancement: Online marketplaces have become more beneficial in retailing. By 2021, e-commerce will account for roughly 19% of global retail sales. During the COVID-19 restrictions the demand for online products and services surged rapidly. BestBuy devised new market strategies for technological advancement. According to Statista, internet market through mobile apps and websites will account for about a quarter of total worldwide retail sales by 2026.
Best Buy Bargaining Power of Suppliers
- Supplies Industry Influencer
BestBuy being a leading multinational retailer offers its products and services mainly through three channels i.e. retail stores, online platforms, and call centers. BestBuy has 1,144 stores worldwide and about 100,000 employees in the United States and Canada. BBY has started using heavy machinery to carry goods as it was done by humans previously.
- Suppliers Collaboration
Electronics and entertainment are by far the most significant product categories, contributing for 94.6% of net sales. BBY tackled the market needs through automated processes and efficient supply chain process. The collaboration with efficient supply chain management firm like Bastian solutions, for the process optimization and industry scale process automation has helped to gain the logistical efficiency and overcoming the challenges of ecommerce business.
Best Buy Bargaining Power of Buyers
- High Product Differentiation and market niche
BBY and its competitors are offering wide range of consumer electronic and technological items. Amazon has launched its own gadgets like Alexa, Amazon Kindle and Echo that have successfully grasped the customer’s attention in short span of time. Best Buy three major business acquisitions are Geek Squad, Magnolia Hi-Fi, and Pacific Sales Kitchen and Bath Centers. Geek Squad offers in-store repair services for electronics. Magnolia Hi-Fi was luxury audio and video retail business that was eventually integrated to BestBuy showrooms.
- Customer Satisfaction – After Sales Services
BBY has consistently prioritized the customer’s convenience. It offered multiple options for buyers in-store and online retail options. The additional services offered through Geek Squad for electronic item repairs and installation have helped to successfully gain the customer trust and satisfaction. Geek Squad offers 24/7 support and services that has provencommendable performance and a strong work ethic beyond repair options.
- Customer preference and Government’s Rules & Regulations
Best Buy is ranked at 101 in the list of Global Top 1000 Brands. The international gross profit rate was 23.4%, it decreased from 25.0% previous year.Lower product margin rates and greater supply chain expenses contributed to the lower gross profit rate. BBY and its competitors had to face a tough time while expanding international operations. They had to abide by the local laws and regulations and also trained their employees in understanding the local needs and behavior of customers. The overall bargaining power of buyers is low in this case.
Best Buy Threat of Substitute Products or Services
- Electronic and mechanical products and services
BBY has 10.6% market share. BBY is facing the threat of substitutes among its competitors and from new market entrants however the consistent quick services and easier access for the customers helps it to overcome this threat.
- Brand Loyalty and Post-COVID 19 Market
BestBuy differentiated among its loyal and difficult customers to understand the market trends. Global businesses have shown a major shift in their demand and operations during the past few years due to process automation, artificial intelligence and COVID-19. As a result, providing a pleasant experience to customers’ aids in the preservation of goodwill and brand loyalty.
References
- Forbes, Profile, BestBuy
- Statista (January 2022) Best Buy’s e-commerce/online revenue in the United States from FY 2018 to FY 2022 | Statista. Availableat Statista.
- BestBuy Corporate Code of Ethics. PDF available at BestBuy
- Britannica, By Amazon Kindle electronic reading device.Availableat Britannica
- Statista (Oct 14, 2022) Walmart – Statistics & Facts – statistics & facts. Statista.Availableat Statista
- Bastian Solutions, a Toyota advanced logistics company -The Material Handling Blog.Availableat BastianSolutions
- Statista (November2022) Amazon – statistics & facts- statistics & facts. Statista.Availableat Statista
- Target, A bull’s eye view – Our Locations. Available at Target
- Top 3 Companies Owned by Best Buy (BBY) (January 2023), Investopedia. Available at Investopedia
- Best Buy reports Q4 FY22 results (March 2022). Available at BestBuy
- Best Buy Provides Business Update Related To COVID-19 (April 2022). Available atBestBuy
- Statista (July 2022) E-commerce as percentage of total retail sales worldwide from 2015 to 2021, with forecasts from 2022 to 2026.Availableat Statista
- Statista (July 2022) Retail e-commerce sales worldwide from 2014 to 2026, Statista.Availableat Statista
