Best Buy vs' Circuit City - PowerPoint PPT Presentation

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Best Buy vs' Circuit City

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Internet sales and local electronic boutiques. Five Forces Cont'd ... Threats - Mass Merchandisers, boutique shops, high cost structure. Critical Success Factors ... – PowerPoint PPT presentation

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Title: Best Buy vs' Circuit City


1
Best Buy vs. Circuit City
By Shannon Smith, Anthony Ciccarone, Pete
Stupak, and Vasee Sivasegaran
2
Industry Overview
  • Definition - Retail - Consumer Electronics
  • Sub-categories
  • Electronics and Appliances
  • Mass Merchant
  • Electronics Only
  • Home Office
  • Computer Store

3
Demographics
  • Slow population growth in US - Highest growth in
    South West e.g. Arizona and Nevada Major
    Cosmopolitan Areas had experienced little growth
    or even decline
  • Age group of 19-65 had remained constant -
    Retailers cannot rely on increasing population
    size to maintain sales
  • Number of individuals with higher education is
    increasing more with Bachelor or Graduate
    Degrees
  • The population is becoming more affluent - These
    customers tend to be the main segment of the
    Innovators and Early Adopters They are familiar
    with high end technology and electronics

4
Social Conditions
  • More women and minorities at work larger number
    exposed to technology and high end electronics
  • Increased customer base and demand for
    electronics
  • Collaboration by many technology firms to create
    Internet Lifestyle more aspects of life are
    becoming technology based
  • Most have positive attitude towards technology
    and high end electronics

5
Political and Legal Factors
  • This industry is very sensitive to trade
    restrictions due to the large number of
    electronic items and parts that are imported from
    Asian countries - Biggest chip manufacturers
    include Taiwan, China, and Singapore However,
    ratio of openness had increased in the past 50
    years imports are less affected by Tariffs and
    NTBs
  • Shelf-sharing restrictions have decreased
    tremendously retailers can display higher
    variety of products
  • Wages have increased in the last decade, leading
    to higher disposable income. (slight dip in 2002)
  • Recent weaker dollar would be beneficial for
    exports but would negatively affect imports

6
Economic Factors
  • GDP has grown to 10.2 Trillion - Retail Industry
    is 3.2 Trillion or 31 of GDP Non-Durable goods
    are 1.9Trillion Industry revenues roughly 89
    Billion
  • National Income per capita has increased to
    34,870 increase of 17 since 1997 More buying
    power
  • Economy is climbing out of a recessionary phase
  • Interest rates are at the lowest in decades
    cost of capital is low
  • Inflation has remained constant for past decade
    no affect in consumer buying power
  • Consumer confidence is low
  • Unemployment rate remains high

7
Technological Conditions
  • Rate of Innovation is high technology doubles
    every 18 months favors Innovators and Early
    Adopters
  • More than 580 computers per 1000 individuals
  • More than 50 of households have computers
  • Internet users have more than doubled to 95.4
    million
  • People are not intimidated by technology
    noticeable increase in use

8
Industry Environment
  • Retail as a whole is a mature industry
  • Consumer Electronics segment is still in the
    growth phase
  • - Sales Trends
  • 1997 62 Billion
  • 2001 89 Billion
  • - Forecast
  • Continued revenue growth with economic recovery
    and further innovative products
  • - Anticipate 10-12 growth for 2003

9
Consumer Electronics Revenue Trend
10
Market Share Trends by Category
11
Market Share Trends - Top 10 Retailers
12
Industry Overview - Top 3 Market Share
13
Porters Five Forces
  • Rivalry within industry is high
  • - 3 main competitors
  • Threat of new entrants is low
  • - Barriers to entry high
  • Highly trained sales force
  • Large amount of capital required
  • Threat of substitutes is high
  • - Switching costs are low
  • Internet sales and local electronic boutiques

14
Five Forces Contd
  • Buyers bargaining power is moderate to high
  • - Price sensitivity
  • - Demand high degree of service
  • Suppliers bargaining power is low
  • - Low pricing power
  • - Low threat of forward integration

15
Industry Key Success Factors
  • Merchandising Mix
  • Product Selection
  • Service
  • Product Cycle and Innovation Pipeline
  • Identify Trends
  • - Flexibility
  • Adapt stores to demand

16
Threats to Industry
  • Weak economy
  • - Downward trend in consumer spending
  • - Less discretionary income

17
Consumer Spending
18
Circuit City
19
Mission/Vision
Were With You
  • Provide the best possible shopping experience for
    consumer electronics including
  • - Exceptional levels of product information
  • - Fast customer service
  • - A broad good/better/best merchandising
    assortment
  • - Competitive prices
  • - An engaging store environment

20
Overview
  • 625 stores in 44 states (Mainly Superstores)
  • Avg. Sq. Ft 34,000
  • Products video equipment, personal computer and
    entertainment software, DVD players, video
    cassette recorders, camcorders, cameras, audio
    equipment, car audio and security systems, home
    office products, personal computers, printers,
    peripherals, facsimile machines, video games, DVD
    movies and music, wireless phones, corded and
    cordless phones, and accessories.

21
Competitive Position
  • 2 in the Market
  • Broad Product Line
  • Multiple Price Points
  • Effective Distribution
  • Superior Advertising Budget
  • Balance Sheet Strength
  • High Brand Recognition

22
Customer Profile
  • Capture ALL users of Consumer Retail Electronics
    with a broad selection and multiple price points

23
Core Competencies
  • Customer Service Experience Were With You
  • Employee Training/Knowledgeable Sales Force
  • Information Systems
  • Distribution and Supply-Chain Management

24
Resource Based View
  • Tangible - Superstores, Training, Inventory
    Management, Distribution Capability, Supply-Chain
    Management, Information Systems/POS Link, Balance
    Sheet
  • Intangible - Brand Recognition,
    Marketing/Advertising Campaigns, Reputation with
    Suppliers
  • Organizational - Combination of Training, POS
    link, and Customer Feedback to Deliver Superior
    Service

25
SWOT
  • Strengths - Customer Service Focus, Employee
    Training, Established Brand, IT and Customer
    Service Information Systems, Economies of Scale
  • Weaknesses Strategic Focus, Merchandising Mix,
    Outdated Stores, Conservative Management,
    Deteriorating Financial Position
  • Opportunities - Consumer Retail Recovery,
    Innovation Pipeline
  • Threats - Lack of Consumer Retail Recovery, Mass
    Merchandisers, Shortage of Innovative Products in
    the Pipeline

26
Critical Success Factors
  • Execute Differentiation Strategy/Update Stores
  • - Provide an Innovative Experience to the
    Customer
  • Strategic Merchandising Mix
  • Highly Trained Sales Force
  • Service and Convenience
  • - Very knowledgeable employees, fast checkout,
    home delivery, generous return policy, repair
    options

27
Generic Strategy
  • Differentiation Strategy
  • - Good/Better/Best
  • - Good Value/Price to Drive More Traffic
  • - Better Variety
  • - Best Innovation/High Margin

28
Grand Strategy
  • Turnaround Strategy Under Way
  • - Major Cost Cutting Effort
  • Increased Innovation
  • - Aggressive Store Remodeling
  • - Rebalancing Merchandising Mix

29
Best Buy
30
Mission/Vision
  • Making Life Fun and Easy
  • Innovation
  • Have fun while being the best
  • Learn from challenge and change
  • Act with respect, humility, and integrity
  • Unleash power of people

31
Overview
  • 546 Stores in 48 states
  • Avg. Sq. Ft 35,000
  • Other businesses
  • - Future Shop, Magnolia Hi-Fi, Media Play, On
    Cue/Sam Goody, Suncoast, Musicland, Best Buy.com

32
Competitive Position
  • 1 in the Market
  • Broad Product line
  • Customer relationships
  • Customer services
  • Supplier partnership/Supply chain mgmt
  • Effective Advertising Partnerships
  • Management strength/Capital investment

33
  • Customer Profile
  • Innovators/Early Adopters
  • First 15-20 of users of product
  • Venturesome, socially integrated, cosmopolitan,
    social mobility, privileged
  • Core Competencies
  • Innovation
  • - supporting new products
  • - supply chain management
  • - demand forecasting systems
  • - knowledge mgmt systems
  • Meeting Customers Needs
  • - identifying best product for customer
  • - after-purchase services

34
Resource Based View
  • Tangible - Capital, Diversification of products,
    and locations, Store layouts
  • Intangible - Brand recognition, effective
    advertising, social/community involvement,
    customer-friendly service
  • Organizational - Employee compensation program,
    structure to support quicker product
    integration,customer relationship management,
    supplier relationships/partnerships

35
SWOT
  • Strengths - Customer services, market presence,
    store-layouts, high margin products, customer
    relationships, partnerships with suppliers,
    cutting-edge products, product mix
  • Weaknesses - Capital needed for new outlets,
    Musicland, Corporate overhead, labor expenses
  • Opportunities - build B2B, innovative technology
    for products and organizational efficiency,
    develop private label products
  • Threats - Mass Merchandisers, boutique shops,
    high cost structure

36
Critical Success Factors
  • Innovation
  • - development of own products
  • - increased efficiency to current business
    systems
  • Service and Product Selection
  • - sales force
  • - after-purchase services
  • - broad selection of manufacturers and models

37
Generic Strategy
  • Differentiation
  • - Innovative products
  • - Product variety
  • - Sales associate knowledge
  • - Customer services

38
Grand Strategy
  • Innovation
  • - Creating systems to increase efficiency
  • - Consortium bringing technology to daily life
  • Product development
  • - BB creating own products (PC)
  • Caution to Best Buy . . .

39
Income Statement
CAGR 32
CAGR 13
40
Income Statement Contd
41
Income Statement Contd
CAGR 13
CAGR 6
42
Balance Sheet - 2002
43
Stock Price 1993-2002
44
Conclusion
  • Best Buy is better positioned for the future.
  • - Proactive management
  • - Flexibility with inventory, merchandising, and
    distribution
  • - Clear strategy
  • - Diversification of businesses and products
  • - Customer service

45
Questions?
46
Best Buy vs. Circuit City
Shannon Smith, Anthony Ciccarone, Pete Stupak,
and Vasee Sivasegaran
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