Best Buy Co., Inc
Best Buy Co., Inc.
7601 Penn Avenue South
Richfield, Minnesota 55423-3645
Telephone: (612) 291-1000
Fax: (612) 292-4001
Web site: http://www.bestbuy.com
Incorporated: 1966 as Sound of Music, Inc.
Sales: $24.54 billion (2004)
Stock Exchanges: New York
Ticker Symbol: BBY
NAIC: 443112 Radio, Television, and Other Electronics Stores; 443111 Household Appliance Stores; 443120 Computer and Software Stores; 443130 Camera and Photographic Supplies Stores; 451140 Musical Instrument and Supplies Stores; 451220 Prerecorded Tape, Compact Disc, and Record Stores; 454110 Electronic Shopping and Mail-Order Houses
Minnesota-based Best Buy Co., Inc. is the leading consumer electronics retailer in the United States, far outpacing archrival Circuit City Stores, Inc. in revenues if not in store count. In early 2004, the company's flagship Best Buy chain included more than 600 stores in 48 states (the exceptions being Hawaii and Wyoming) as well as 19 more in Canada. In addition to personal computers, computer peripheral equipment, and consumer video and audio products, Best Buy outlets, which are on average about 44,000 square feet in size, offer large and small appliances, ranging from refrigerators to coffeemakers, and entertainment software, including compact discs, video games, DVD and VHS movies, and computer software. In the early 2000s, Best Buy acquired two other chains: Seattle-based Magnolia Audio Video and Burnaby, British Columbia–based Future Shop. By early 2004, Magnolia Audio Video, formerly called Magnolia Hi-Fi, operated 19 stores in Washington, Oregon, and California offering high-end consumer electronics and providing expert design and installation services. These stores are about 10,000 square feet on average. Future Shop, operating more than 100 stores throughout Canada, is that nation's largest electronics retailer, offering a wide selection of digital products, televisions, computers, music, and appliances. The average Future Shop outlet occupies approximately 21,000 square feet of retail space. Each of the company's business units also runs an electronic shopping web site on the Internet. Overall, Best Buy's revenue mix has consumer electronics generating 37 percent of the total revenues; home office products, 35 percent; entertainment software, 22 percent; and appliances, 6 percent.
Best Buy is the brainchild of the company's founder and chairman, Richard M. Schulze. In 1966 Schulze and a partner established Sound of Music, Inc. and opened their first store in St. Paul, Minnesota, in an attempt to capture a share of the Twin Cities' home and car stereo retail market. First-year sales reached $173,000. Four years later Schulze bought out his partner and proceeded to expand his retail chain; his product line, however, was limited to audio components until the early 1980s. Then, according to an Executive of the Year cover story for Corporate Report Minnesota, Schulze said, "The lights began to turn on." Writer S.C. Biemesderfer explained: "Schulze had come to realize that there wasn't much of a future in a market glutted with vendors, serving a shrinking audience of 15- to 18-year-olds with limited resources." His ability to alter the course of his company was enhanced by a weeklong management seminar he attended in 1981. Departing the seminar as a "reformed controller," Schulze saw the dynamic possibilities that lay ahead and turned them into reality.
His first step was to expand Sound of Music's offerings to include appliances and VCRs. Schulze saw sales quickly climb. In 1982 revenues reached $9.3 million; the following year the company renamed itself Best Buy Co., Inc. and firmly oriented itself toward an older, broader, and more affluent customer base. Then, in 1984, Schulze took another major step by introducing the superstore format and quickly capturing 42 percent of the local market. At the time the company operated just eight stores in the Midwest, but by 1987 this number had tripled, while sales and earnings had spiraled upward to $239 million and $7.7 million, respectively. In addition to greatly expanded warehouse size and product offerings, the superstore format meant significantly smaller margins to maintain its good service, low prices image. Meantime, Best Buy was taken public in 1985, raising $8 million through an IPO, and two years later gained a listing on the New York Stock Exchange (NYSE).
Price Wars in the Late 1980s
Of course Best Buy was not alone among upstart chains during the 1980s in capitalizing on the superstore format and such hot-ticket consumer items as VCRs. "But after a raft of these chains went public," wrote Mary J. Pitzer in 1987, "they expanded rapidly and began colliding head-on. As a result, many companies took a beating on profit margins and are now gravely wounded." It was, in a very real sense, the best of times and the worst of times for Best Buy. Although sales had practically doubled to $439 million in 1988, net earnings had declined by 64 percent. Price wars were the chief culprit, and they were still escalating to a frenzied pitch in Best Buy's core Twin Cities market, which Highland Superstores had boldly entered in early 1987.
For a while, both companies benefited from market share increases, if not profit gains, by the battle. Then, finally, a saturation point was reached, with too many stores in the same area competing for the same dollars. According to Biemesderfer, "Rumor had it that, as Best Buy limped into the fall of 1988 Schulze tried to sell his company to Sears and failed because of his demands for certain perks." Biemesderfer went on to write, "Schulze denies the allegation, but to this day, even his backers question his version of the story." Schulze's own explanation was as follows: "At no point in time were there ever any concerns or fears about the future of the company. . . . Our discussion with Sears Roebuck was simply an attempt to understand the interest they would have in supplying capital necessary to grow the company independently."
Despite the earnings downturn in 1989 (net profits for the year ending March 31 slumped 26 percent, to just $2 million) and the looming presence of Highland, revenues were still climbing, albeit more slowly. In Schulze's mind, the key to regaining the momentum of the mid-1980s was to stand out from the competition, for the average customer recognized little difference among superstores, with their discount prices, multiple-step purchase processes, commissioned salespeople, and ubiquitous service plan and extended warranty packages. Schulze's answer? Concept II stores.
The unveiling of Best Buy's first Concept II stores in 1989 was the culmination of a daring new advance by Schulze. The idea behind Concept II was that the traditional superstore format was out of sync, in large part, with the needs or preferences of most shoppers. Shoppers were entering electronics discount stores with only a limited need for sales help and a desire for hassle-free buying (no service plan contracts, no waiting for merchandise from the back room, no switching from counter to counter). Thus the revamped Best Buy stores would feature well-stocked showrooms averaging around 36,000 square feet, fewer salespeople, more self-help product information, Answer Centers for those requiring personal assistance, and one-stop purchasing. As a veteran Best Buy analyst, quoted by Biemesderfer, proclaimed: "Concept II is the most innovative thing to happen in this industry—ever." The revenue Best Buy sacrificed in de-emphasizing service plans was compensated for by lowered employee costs. Stores without commissioned sales help now were able to operate at two-thirds of the workforce required in the past.
Continued Expansion in the Early 1990s
In April 1991, even before Best Buy had gotten around to converting its ten Twin Cities stores, loss-ravaged Highland exited the metropolitan area, conceding defeat and closing all six of its stores there. Best Buy itself reported a loss of $9.4 million for 1991, but this was due to a $14 million change in its method of accounting for extended service plans. From 1992 to 1993, Best Buy reported "the best financial performance in the company's 27-year history." In addition to its stunning increases in revenues and earnings, the fast-growing retailer opened 38 new stores and saw comparable store sales (sales from stores open at least 14 months) increase by 19.4 percent.
During the calendar year 1993, Best Buy opened nine more stores in Chicago, for a total of 23, to solidify its leadership position in the Midwest, and entered the key Circuit City markets of Atlanta and Phoenix with an additional 13 stores. Numerous other openings, including a small number of megastores (40,000- to 50,000-square-foot self-service warehouses emphasizing the emerging growth lines of prerecorded music and computers), brought Best Buy's tally to 151 stores by year-end 1993. At that point the only internal factor seriously saddling the company was a hefty 43 percent debt-to-capital ratio. Best Buy's "push" distribution system, however, in which products are automatically shipped to outlets based on computer analysis of past sales trends, along with its rapid turnover time and its expectation of rising sales per store, indicated that the company could hold its costs while continuing to expand.
Its greatest concern for the future was the bottom line impact of Circuit City's latest moves. Just as Best Buy had looked to the outer corridors of the country, Circuit City had looked inward. It, too, had embraced Chicago, where price wars began anew. The Virginia company also had plans to enter Kansas City, Missouri, and the Twin Cities in 1994.
Our vision is to make life fun and easy. Our business strategy is to bring technology and consumers together in a retail environment that focuses on educating consumers on the features and benefits of technology and entertainment products, while maximizing overall profitability. We believe our stores offer consumers meaningful advantages in store environment, product value, selection and service, all of which advance our objectives of enhancing our business model, gaining market share and improving profitability. The Future Shop and Magnolia Hi-Fi acquisitions provide us with access to new distribution channels and new customers.
By 1993 both superstore titans had virtually vanquished the remaining competition, which included such former number two retailers as Highland Superstores (forced to liquidate) and Dixons Group's Silo Holdings (forced to downsize and sell to Fretter Inc.). Best Buy's growth had been nothing short of spectacular. From 1989 to 1992 corporate sales rose annually by 23 percent, while the industry as a whole expanded by a yearly average of just 3 percent. From 1992 to 1993 revenues catapulted for the first time beyond the $1 billion mark, from $929 million to $1.6 billion, for an increase of 74 percent. During this same period net earnings soared 107 percent to just less than $20 million. Although Circuit City was a significantly larger and more stable company in the eyes of investors, with a history of wider profit margins and negligible debt, it was Best Buy that generated the most excitement on Wall Street. For the first half of 1991, Best Buy outshone all other NYSE stocks in percentage appreciation. With excitement, however, came volatility: in 1993 the stock nearly doubled within a three-month period but then dropped by 10 percent in a single day in mid-November. Part of this roller-coaster pattern stemmed from Best Buy's increasingly heated battle with Circuit City, which had many analysts wary.
The roller-coaster ride continued into 1994, with Best Buy's stock hitting a high of $37 a share in April, then falling almost 40 percent in the next five months to $22. It rose again to $45 only to drop by December to $34. Competition with Circuit City remained fierce, with Best Buy challenging its archrival by entering its traditional strongholds in California, Washington, D.C., and Ohio. The head-on clash prompted renewed price wars, which Best Buy was positioned to withstand because of its low cost structure. Lowered prices, however, meant lower earnings for Best Buy. In the meantime, Best Buy moved forward with the introduction of its larger Concept III stores, which were 45,000 to 58,000 square feet in size and offered customers a greater selection of products and more information, particularly through hands-on displays.
The company's strategy of cutting service to help offer lower prices continued to cost the company suppliers. By 1995 the electronics manufacturer Hitachi had stopped supplying Best Buy, as had the appliance maker Kenwood. In addition, Whirlpool pulled its top-line Whirlpool brand from the store, although it continued to supply its lower-priced Roper brand. President of Mitsubishi Consumer Electronics America Jack Osborn explained to Forbes in 1995 that his company chose to sell through smaller retailers because they offer better service and cannot use their size to pressure Mitsubishi into offering lower wholesale prices. Osborn said at the time, "We will not be in a national chain."
In an effort to reverse this trend, Best Buy announced in 1995 that it would revamp its merchandising format for high-quality audio products. Brad Anderson, the president of Best Buy, told Forbes that the move was needed because, "We could not land some of the products we wanted."
Expanding Territory and Market Share in the Late 1990s
Despite these problems, Best Buy continued to broaden its territory and bolster market share. In 1995 the company added 47 new stores and moved into new areas, including Miami and Cincinnati. By late 1995 Best Buy was breathing down the neck of Circuit City in terms of market share. With 8.7 percent of the consumer electronics market, Best Buy stood only a tenth of a percent behind Circuit City.
- Richard M. Schulze and a partner establish Sound of Music, Inc., a home and car stereo store in St. Paul, Minnesota.
- Schulze buys out his partner and begins to expand.
- After expanding offerings to include appliances and VCRs, revenues reach $9.3 million.
- Company changes its name to Best Buy Co., Inc.
- Schulze introduces the superstore format.
- Company goes public.
- Best Buy gains a listing on the New York Stock Exchange; revenues reach $239 million from 24 stores.
- Company introduces its Concept II stores, which have a warehouse format and no commissioned sales help.
- Revenues soar past the $1 billion mark, reaching $1.6 billion.
- Larger Concept III stores, with hands-on information displays, are introduced.
- The Concept IV format debuts, featuring more high-tech products, merchandise grouped in such departments as home theater, cash registers throughout the store, and "high touch" areas for digital products where more employee interaction is needed.
- Revenues surpass $10 billion.
- Best Buy relaunches an expanded bestbuy.com web site; Seattle-based Magnolia Hi-Fi, Inc., operator of 13 high-end consumer electronics stores on the West Coast, is acquired for $88 million.
- Best Buy acquires Musicland Stores Corporation, operator of 1,300 music stores, for $685.3 million in cash and assumed debt; also purchases Future Shop Ltd., the largest consumer electronics retailer in Canada, for $368 million.
- Some $500 million in special charges, mainly related to the money-losing Musicland operations, cut profits for the fiscal year to $99 million; Best Buy divests Musicland; Magnolia Hi-Fi is renamed Magnolia Audio Video; Best Buy pays its first dividend.
The company added almost 50 new stores in 1996 and moved into additional new territories, including Philadelphia. Revenues rose to more than $7 billion in fiscal 1996 from 1995 revenues of $3 billion. Earnings, however, actually dropped, from about $58 million in 1995 to $48 million in 1996. This decline forced Best Buy to rethink its product offerings. For instance, the company began offering cut-rate compact discs in 1988 as a loss leader and pushed the idea in the mid-1990s. Although people bought the low-priced discs, they did not stay to purchase the big-ticket, high-margin items. In 1997 the company cut back its CD selection and raised the remaining titles' prices slightly. It also added an assortment of books and magazines to its entertainment section. In addition, it decided to concentrate on higher margin items, such as computer peripherals, high-end appliances, and service plans.
By 1997 Best Buy had achieved its goal of becoming the industry leader, but it paid the price in profits, which had fallen to a dismal $1.7 million on revenues of $7.77 billion, translating into a minuscule profit margin of 0.02 percent. The company was particularly hurt that year by an ill-timed decision to borrow heavily to add $300 million of merchandise, mainly computers, for the 1996 holiday season. Soon after the products began arriving at the stores, chipmaker Intel Corporation announced plans to introduce its latest chip, a Pentium featuring MMX technology designed to improve the multimedia performance of personal computers. Demand for existing computers running earlier generation processors fell almost immediately. In early 1997, saddled with mountains of unsold PCs, Best Buy had to ask its creditors and vendors for an extra 60 days to pay its bills. Its stock tanked, dropping as low as $1.31 per share during the year, and finishing at $1.54, and it appeared that Best Buy might be destined for the dustbin, joining the legion of electronics retailers already there.
Schulze, however, brought in outside consultants from Andersen Consulting LLC for advice on a range of areas. Significant changes were made to the product mix, particularly by eliminating slower selling product lines and models; a greater emphasis was placed on selling service plans to customers; and "high touch" areas were added to the stores to help sell the burgeoning array of digital consumer products, such as cameras, cellular phones, satellite systems, and the fast-selling DVD player (first introduced in 1996) for which customers often needed more assistance. The management team was also overhauled; 40 new vice-presidents were hired, most coming from the outside and replacing much of the company's old guard. While this restructuring proceeded, the chain's expansion was slowed considerably, and only 12 new stores opened during the fiscal year ending in February 1998. The changes that were implemented succeeded in turning the company around. Inventory began turning over at a quicker pace, a key criterion for retail success, and net profits for 1998 jumped to a record $94.5 million on record revenues of $8.36 billion. By June 1998, following a two-for-one stock split, Best Buy's stock had soared 900 percent since February 1997, to a split-adjusted $36 per share.
In March 1998 Best Buy officially entered the e-commerce realm by launching an online music store at its bestbuy.com web site. Later in the year the company unveiled its Concept IV format. Typically sized between 43,000 and 45,000 square feet—actually slightly smaller than the previous model—these stores featured more high-tech products, had a more open layout with products grouped in such departments as home theater and digital imaging, and added cash registers throughout the store. The recently introduced "high touch" areas were retained, and additional hands-on features were added to the car audio section, where customers could now listen to different audio components in a "Boom Room" and a "virtual car." As Schulze described it in the company's annual report: "The new format reinforces our brand position as the destination for new technology in a fun, informative and no-pressure shopping environment." Also during 1999, Best Buy began selling digital televisions, and the company returned to more robust store growth, opening up 28 new stores and entering the New England market for the first time. Revenues increased 21 percent for the year, hitting the $10 billion mark, while profits surged 138 percent, to $224.4 million. Best Buy's stock leaped 233 percent, prompting another two-for-one stock split in March 1999. Shortly thereafter, the stock was added to the prestigious Standard & Poor's 500 index.
Early 2000s: Reaching New Heights, Turning Acquisitive
During the next fiscal year, 47 more stores were opened, bringing the total to 357, as the chain moved into the major California markets of Sacramento, San Diego, and San Francisco, and also into Richmond, Virginia. Best Buy also introduced a new and smaller, 30,000-square-foot format designed specifically for markets with populations under 200,000. Nine of these stores were opened during fiscal 2000, and it was hoped that the new format would enable the company to continue its expansion even as its penetration of larger metropolitan areas neared saturation. The smaller stores were also expected to serve as models for a planned move into high-density urban markets, such as New York City, where it would be impossible to build massive superstores. Fiscal 2000 profits jumped 60 percent, to $347.1 million, and revenues grew smartly again, reaching $12.49 billion. This translated into a profit margin of 2.8 percent, significantly better than the 1.1 percent figure from two year's previous.
In June 2000 Best Buy relaunched an expanded bestbuy.com web site, which now offered not only music and DVDs but also consumer electronics, computers and peripherals, software, and games. In addition to choosing delivery to the home, customers could also elect to pick up the merchandise they ordered through the web site at a Best Buy store, and they could return items there as well. Customers at the stores, meanwhile, now had the option of logging onto an in-store computer to order products not available at that outlet. Best Buy entered into a number of partnerships to help with the content of the site and the technology behind it. The most prominent deal was with Microsoft Corporation, which invested $200 million for a 2 percent stake in Best Buy. In return, Best Buy began promoting the Microsoft Network as its preferred Internet service to buyers of new computers. Microsoft also agreed to give bestbuy.com "prominent and preferred placement" on several Microsoft web sites. Bestbuy.com quickly became one of the most visited e-commerce sites on the Internet.
Among the 62 new Best Buy stores opened during 2001 were 15 located in the greater New York City area. The first store on Manhattan opened the following year. In August 2000, through an agreement with Whirlpool Corporation, Best Buy stores began selling KitchenAid brand appliances. Next, Best Buy turned acquisitive. In December 2000 the company completed its first ever acquisition, that of Magnolia Hi-Fi, Inc. Bought for $88 million, the privately held Magnolia was based in Seattle and operated 13 high-end consumer electronics stores in Washington, Oregon, and California. (It had gotten its name from the Magnolia district of Seattle, in which its first store was sited.) The company generated more than $100 million in annual revenues from the sale of audio, video, and home theater products. Magnolia was founded in 1954 by Len Tweten, who built the firm into one of the most respected audio-video retailers in the nation based on the high quality of its merchandise, its dedication to exceptional customer service, and its renowned in-house repair/installation department. At the time of its acquisition, Magnolia had won Audio/Video International magazine's prestigious Retailer of the Year award for 22 straight years. Magnolia was headed by Jim Tweten, son of the founder, who continued to run the company as an autonomous Best Buy subsidiary. Best Buy hoped to leverage Magnolia's experience as a retailer catering particularly to early adopters of new gadgets, gaining strategies for maximizing sales early in the product life cycle, when profits were at their peak.
Having conquered most of its electronics retailing rivals, and gaining the upper hand over archrival Circuit City, Best Buy set off after new challenges with its next acquisition. In January 2001 Best Buy acquired Musicland Stores Corporation, based in nearby Minnetonka, Minnesota. The purchase price was $425.1 million in cash plus the assumption of $271.2 million in debt. Musicland, whose 1999 revenues totaled $1.89 billion, operated more than 1,300 stores in 49 states and Puerto Rico: approximately 650 Sam Goody stores (4,500 square feet on average), selling prerecorded home entertainment products, primarily in suburban shopping malls; 400 Suncoast Motion Picture Company stores (2,400 square feet), selling video, DVD, and movie-related products, primarily in metropolitan shopping malls; around 75 Media Play superstores (46,000 square feet), selling books, music, videos, software, and other products in select large to midsize markets; and some 200 On Cue stores (6,000 square feet), selling a variety of entertainment products in small town markets. Each of these stores also had a sister e-commerce site. Best Buy planned to retool some of Musicland's store formats and was particularly interested in gaining a presence within shopping malls by revamping the Sam Goody format through the addition of such consumer electronics goods as MP3 players, cellular products, and gaming items. In addition, shopping malls, a retail environment frequented by women and preteens, provided Best Buy with an opportunity to expand its core customer demographic, which had remained dominated by young to middle-aged males. Having largely conquered the nation's major markets, Best Buy also coveted the access to the smaller markets that would be gained through ownership of the On Cue chain, which served communities of 30,000 people or fewer.
Heightened competition and a slowdown in consumer spending cut into fiscal 2001 profits, which increased only 14 percent over the previous year. Revenues climbed 23 percent, reaching $15.33 billion. Despite the onset of a recession, Best Buy bounced back the following year, reporting record profits of $570 million on revenues of $19.6 billion, also a record. Sales of digital products reached 17 percent of total sales, compared to the 4 percent figure for fiscal 1999. This rapid growth in digital product sales also inspired a shift in the overall product mix: sales of consumer electronics products (33 percent of the total) surpassed the sales of home office products (31 percent) for the first time (in 1999 these figures were 27 percent and 36 percent, respectively). Among the 62 Best Buy stores opened in 2002 were the first ones in Seattle, which had been the only major U.S. market the chain had not penetrated.
That year Best Buy also set its sights north of the border in its quest for further expansion opportunities. In November 2001 the company spent $368 million for Future Shop Ltd., the largest consumer electronics retailer in Canada. Based in Burnaby, British Columbia, Future Shop operated 88 stores throughout Canada and had annual sales of $1.32 billion. Future Shop outlets had a product mix similar to that of a Best Buy store, although the specific brands and products carried differed. At an average of 21,000 square feet, the typical Future Shop was also considerably smaller than a Best Buy, but the key difference was that the Canadian chain used commissioned sales associates, a practice that Best Buy had so famously—and successfully—done away with years earlier. Future Shop had been founded by Hassan Khosrowshahi, who opened the chain's first outlet in Vancouver, British Columbia, in 1982. He later expanded the chain throughout the remaining Canadian provinces and even made an abortive move into the U.S. market in 1992, opening 28 stores in five states and losing millions before beating a hasty retreat. Khosrowshahi relinquished his position as chairman and CEO following the takeover, but Future Shop's president and chief operating officer, Kevin Layden, a former Circuit City executive, stayed on to head up the new Best Buy subsidiary.
Returning to the Core: 2003 and Beyond
Despite the completion of this acquisition, Best Buy pushed ahead with a previously planned expansion of the Best Buy chain into Canada, opening eight stores in the Toronto area in the fall of 2002. The company appeared confident that it could successfully operate the dual Canadian brands given their distinguishing characteristics. Meanwhile, in July 2002 Schulze turned over his CEO duties to Vice-Chairman Brad Anderson, who had also served as president and chief operating officer since 1991 and had been with the company since 1973. Schulze remained involved in the company he founded as chairman and continued to be the largest shareholder in the company, owning a stake of nearly 17 percent.
As the Best Buy chain pushed past the 500-store mark in 2003 with the opening of 67 new stores in the United States, including the first stores in Alaska, Idaho, Utah, and West Virginia, the situation at the Musicland chains was deteriorating. Sales at music retailers were ratcheting down not only because of the downloading of music over the Internet that had been made steadily more popular by Napster and other online music services but also because consumers were increasingly buying the cheaper CDs that were now being offered by such mass merchants as Wal-Mart Stores, Inc. and Target Corporation. Musicland's mall-based chains suffered a further blow with the dwindling of mall traffic post-9/11. Best Buy announced in April 2002 that it would rebrand the On Cue stores under the more nationally known Sam Goody name. Then in January 2003, 90 Sam Goody stores were closed, along with 20 Suncoast outlets. Musicland continued to lose money, however, and in March 2003 Best Buy announced it would sell the entire division. During 2003 Best Buy took $410 million in charges to write down the value of its Musicland acquisition, and coupled with additional charges of $90 million, net profits for the year totaled just $99 million. In another early 2003 development, Best Buy shifted its corporate headquarters from Eden Prairie, Minnesota, where it had operated out of eight scattered buildings, to a more compact 37-acre campus in nearby Richfield.
In June 2003 Best Buy offloaded Musicland, essentially giving the unit away to Sun Capital Partners Inc., a private investment firm based in Boca Raton, Florida. Paying no cash in the transaction, Sun Capital simply assumed Musicland's debt and lease obligations. In what was perhaps an understatement, Anderson told the Minneapolis Star Tribune that "this was a very expensive, but a powerful learning experience for Best Buy." Investors reacted positively to Best Buy's return to its roots. The stock had performed poorly ever since the Musicland acquisition, but during the 2003 calendar year, shares of Best Buy ascended 124 percent. In December, Best Buy rewarded those shareholders who had stuck with the company by issuing its first dividend ever of 30 cents per share. In November 2003 the Best Buy chain opened its 600th U.S. store, during a fiscal year in which 78 new Best Buys made their debut. In September, meantime, Magnolia Hi-Fi adopted the more contemporary name of Magnolia Audio Video, a move that accompanied that chain's entrance into the Los Angeles market. Magnolia, now 22 outlets strong, was just beginning to recover from a severe post-9/11 downturn in sales of high-end electronics.
Fueled by a 7.1 percent increase in comparable store sales, the newly refocused Best Buy rebounded with its best year ever in fiscal 2004. Overall revenues rose 17 percent, reaching nearly $25 billion, while net income totaled $705 million. During the next year, Best Buy planned to open 60 more U.S. stores, including the first store in Hawaii, as well as ten Best Buys and three Future Shops in Canada. Faced with the ongoing challenges of shorter product cycles, severe downward pricing pressure, and heightened competition from mass merchants, Best Buy was also in the process of rolling out a new store concept, one the company described as "customer-centric." In addition to featuring more high-tech digital gadgets, particularly products promoting the integration of multiple technologies, the new stores were customized to meet the needs of local markets. They also placed a greater emphasis on high-end electronics coupled with service and installation—taking a page from the Magnolia playbook. Toward this same end, Best Buy had bought Minneapolis-based Geek Squad, Inc. in October 2002 for about $3 million. Founded in 1994, Geek Squad was a computer-maintenance company providing at-home/in-office technology support services. Through these initiatives, Best Buy hoped to stay ahead of its many rivals in what was perhaps the most ruthlessly competitive segment of the retail market.
Geek Squad, Inc.; Magnolia Hi-Fi, Inc.; Best Buy Canada Ltd.; Future Shop Ltd. (Canada).
Circuit City Stores, Inc.; CompUSA Inc.; Wal-Mart Stores, Inc.; CDW Corporation; RadioShack Corporation; Staples, Inc.; Office Depot, Inc.; Amazon.com, Inc.; Boise Office Solutions; Sears, Roebuck and Co.
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—Jay P. Pederson
—updates: Susan Windisch Brown, David E. Salamie