Best Buy
Best Buy Co., Inc. is an American multinational consumer electronics retailer headquartered in Richfield, Minnesota. Founded by Richard M. Schulze and James Wheeler in 1966 as an audio specialty store called Sound of Music, it was rebranded under its present name with an emphasis on consumer electronics in 1983.
| Best Buy Co., Inc. | |
|---|---|
| Type | Public |
| Traded as | NYSE: BBY |
| Industry | Retail, consumer electronics |
| Founded | 22 August 1966, Saint Paul, Minnesota |
| Founder | Richard M. Schulze, James Wheeler |
| Headquarters | Richfield, Minnesota, United States |
| Area served | United States, Canada |
| Key people | Corie Barry (CEO) |
| Products | Consumer electronics, home appliances, computers, mobile phones |
| Services | Geek Squad, Best Buy Totaltech |
| Subsidiaries | Geek Squad, Magnolia Audio Video, Pacific Sales, Insignia |
| Website | bestbuy.com |
Best Buy operates in the United States and Canada. It formerly traded in China until February 2011, when the business was merged with Five Star, in Mexico until December 2020 as a consequence of the COVID-19 pandemic, and in Europe until 2012. According to Yahoo! Finance it is the largest specialist retailer in the United States consumer electronics sector, and it ranked 72nd on the 2018 Fortune 500.
History
Sound of Music
On 22 August 1966 Richard M. Schulze and a business partner opened Sound of Music, a shop specialising in high-fidelity stereo equipment, in Saint Paul, Minnesota. Schulze financed the opening with his personal savings and a second mortgage on the family home. The business acquired Kencraft Hi-Fi Company and Bergo Company in 1967, earned one million dollars of revenue and about 58,000 dollars of profit in its first year, and by 1969 had three stores, at which point Schulze bought out his partner.
By 1978 Sound of Music operated nine stores across Minnesota. In 1981 the Roseville location, then the largest and most profitable, was struck by a tornado that sheared off the roof and destroyed the showroom while leaving the storeroom intact.
Schulze responded by holding a Tornado Sale of damaged and excess stock in the damaged store's car park, spending the remainder of his marketing budget on advertising it and promising best buys on everything. The four-day sale took more money than the business typically made in a month, and it supplied both the company's future name and the outline of its strategy.
Becoming Best Buy
In 1983, with seven stores and ten million dollars in annual sales, Sound of Music was renamed Best Buy Company, Inc. It broadened its range to include home appliances and video recorders in order to reach beyond its existing customer base of young men, and opened its first superstore at Burnsville, Minnesota. The Burnsville store followed a high-volume, low-price model derived from the Tornado Sale and in its first year outperformed all other Best Buy stores combined.
The company went public in 1985 and moved to the New York Stock Exchange two years later. In 1988, engaged in a price and location war with the Detroit appliance chain Highland Superstores, Schulze offered to sell the company to Circuit City for 30 million dollars. Circuit City refused, saying that it could open a store in Minneapolis and blow them away. Highland filed for bankruptcy in 1992 and closed all its locations the following year; Circuit City itself was liquidated in 2009.
Store concepts
In 1988 Best Buy introduced Concept II, replacing dimly lit industrial-style stores with brighter and better fitted ones, placing all stock on the sales floor rather than in a stockroom, employing fewer salespeople and providing self-service product information.
The most consequential element was the abolition of commission. The commission-free environment created a more relaxed setting free of the high-pressure tactics used elsewhere, but it was unpopular with salespeople and with suppliers. Maytag, Whirlpool and Sony withdrew their products entirely, objecting that staff would no longer push them, and returned only after Best Buy's sales grew following the rollout.
The company reached one billion dollars in annual revenue in 1992. Concept III stores appeared in 1994 in new markets including Los Angeles and Washington, with expanded ranges, touchscreen Answer Center kiosks and demonstration areas for surround sound systems and video games. Concept IV followed with the expansion into New England in 1998, using an open layout organised by category, cash registers distributed through the store and large demonstration areas for home theatre and software. Best Buy joined the S&P 500 in 1999.
Expansion and contraction
In 2000 the company formed Redline Entertainment, an independent music label and action sports video distributor, and in December acquired the audio-video retailer Magnolia Hi-Fi, operating in California, Washington and Oregon.
It acquired the computer services firm Geek Squad in 2002, which became the company's principal service differentiator against online competition. Further acquisitions included Pacific Sales and, internationally, Five Star in China and Carphone Warehouse's European operations through a joint venture.
The international ventures were largely unsuccessful. The Chinese business was merged into Five Star in February 2011, the European joint venture was unwound in 2012, and Mexico closed in December 2020.
Recovery
Best Buy faced an existential threat from showrooming, in which customers examined products in store and then bought them more cheaply online, particularly from Amazon. Under Hubert Joly, appointed chief executive in 2012, the company adopted a turnaround programme that included matching online prices, using stores as fulfilment and delivery points, and leasing floor space to manufacturers including Apple, Samsung and Microsoft for branded areas.
The strategy is widely cited as one of the few successful defences by a large physical retailer against online competition in its own category. Corie Barry succeeded Joly as chief executive in 2019.
Controversies
Geek Squad and the FBI
Documents obtained by the Electronic Frontier Foundation through freedom of information litigation showed that the Federal Bureau of Investigation had cultivated Geek Squad technicians at a repair facility in Kentucky as paid informants, who reported child abuse imagery found on customer devices. Civil liberties advocates argued that paying private technicians to search customer property amounted to circumventing the warrant requirement of the Fourth Amendment. Best Buy stated that its policy was to report such material when found in the course of repair but that it did not permit employees to search for it or accept payment for doing so.
Repair practices and right to repair
The company has been criticised over repair pricing and over the extent to which its service operations encourage replacement rather than repair. It has more recently supported elements of right to repair legislation and expanded parts availability, positioning its service business as a reason for customers to buy in store.
Employment practices
Best Buy has faced litigation over the classification and payment of employees, including claims relating to unpaid overtime, and a 2011 discrimination class action brought on behalf of women and minority employees which the company settled without admitting liability. The move away from commission, while improving the customer experience, also reduced earnings for sales staff, a longstanding source of internal complaint.
Chinese operations
The failure of the company's own-brand stores in China, closed in 2011, was attributed by analysts to an attempt to transplant an American format and pricing model into a market where consumers expected negotiation and where Five Star, the chain Best Buy already owned, operated on different principles. The episode is frequently cited as a case study in retail internationalisation.
Restructuring
Successive rounds of store closures and corporate job reductions, including the removal of thousands of positions during the transition to a smaller store estate and again during the post-pandemic contraction in electronics demand, have drawn criticism in the communities affected, particularly in Minnesota where the company is among the larger private employers.
See also
References