Create and post your critique of the Best Buy team’s work.. Student postings should provide an in-depth analysis and critique of the case. Start your post “subject” with the assignment question number(s) for easy identification.
Industry analysis (except for five competitive forces analysis), as well as its alignment/consistency with the case report as a whole. Support of the selected strategy should also be assessed.
The retail consumer electronics industry includes U.S.-based publicly owned companies that sell a mix of items including, but not limited to, televisions, cellular phones, wireless handheld devices, personal computers, cameras, audio/video devices, and gaming consoles. Included are retailers that offer brick-and-mortar and online shopping options as well retailers that sell in additional categories such as home appliances, clothing, or personal care items. Excluded are retailers whose primary product is cellular phones and retailers that do not have
The condition of the industry is strong.
Growth in this industry is driven by continual innovation and advances in technologies that appeal to a broad range of consumers. With employment levels rising and a resulting increase in discretionary spending, consumers will allocate more financial resources to the purchase of consumer electronics for work, education, home, and personal use.
Assumptions used in the Industry Analysis:
- The impact of the economic crisis that began in 2008 will continue to wane resulting in greater employment and an increase in discretionary spending.
- Consumer electronics will be a primary allocation for discretionary spending among U.S. consumers.
- Innovation and the consumer’s progressive transition to the use of technology will continue to advance the consumer electronics.
Summary of the Four Most Important
- Market Size: $223.2 billion9
- Market Growth Rate: 1% per year
- Stage in industry life cycle: Mature- shows positive growth rate, inefficient companies fail (Circuit City and Radio Shack), high demand
- Number of companies in industry: The industry contains ten major companies (estimated and within industry definition parameters) with an estimated fifty significantly smaller companies. The top four companies hold an estimated 58% of the market share.10
- Customers (all volumes estimated):
- Standard Retail Buyers: 50 million
- Small Business Buyers: 9 million
- Educational Institution Buyers: 140,000 educational institutions which include public, private, postsecondary Title IV, and 2-year and 4-year degree granting institutions
- Corporate Buyers: 16,000
- U.S. Internet/Gaming (Cyber) Cafes: 250
- Government Offices: 2,800
- Ease of industry entry: Difficult due to economies of scale needed and existing brand identities
- Ease of industry exit: Difficult due to significant investments in capital and inventory and large employee base
- Technology/Innovation Trends: Rapid advances in technology and new, innovative product lines such as wearables, 3D printers, evolution of handhelds, and mobile-social-cloud based technology
By 2017, there will be an average of 14 connected devices per household.11
Households with home networks will rise from approximately 70 million in 2015 to 134 million by 2030.11
- Product/service characteristics: Somewhat differentiated, based on variation in service and warranties linked to consumer electronics purchases, price, in-store and online experience in acquiring the product, product line variety, and bundled products
- Scale economies: Mass retailers can offer lower prices to consumers by implementing system wide lean practices to reduce operating costs and using their buying power are able to negotiate lower per unit costs.
- Capacity utilization: 73.2% for computer and electronics products, (4th quarter 2015)12
- Current industry profitability:
- 2015 ROA = 7.36%13
- 2015 ROS (pre-tax unadjusted opening margin) = 8.82%14
- Stability of demand: Cyclical (moves up or down with economy) and seasonal (holiday season)
- Special industry problems: Price wars diminish profitability, shifts in consumer preferences affect demand, longer product life cycles
- Technological change (Favorable)
- Technological advances such as wireless technology, cloud-based services, 3D technology, enterprise computing, and online transactions (banking, e-commerce, purchasing) fuel the innovation that propels consumer electronics industry growth (i.e. Apple pay with iPhone, Microsoft 365 with mobile devices).
- Technological change, while disruptive at times, stimulates product innovation and consumer interest in products that drive industry growth.
- Product innovation (Favorable)
- Product innovation stimulates consumer interest in new products and resulting industry growth
- Technological advances drive rapid product innovation as evidenced by the wide array of product lines that integrate new technology
- Wearables, mobile devices, 3D printing, virtual reality, wireless entertainment products, and products that support 3D visual technology
- Entry/exit of major firms (Favorable)
- Legacy retailers whose product lines were primarily consumer electronics have exited the market (Circuit City and Radio Shack).
- Sears/Kmart has experienced steep declines in sales, resulting in store closures with more planned. Analysts are not optimistic about Sears’/Kmart’s future.
- As these companies close, competition decreases and market share becomes available for the remaining companies.
- More concentrated competition forces companies to focus on differentiation, especially when some competitors (Target, Walmart, and Amazon) are willing to accept lower margins in consumer electronics categories.