Best Buy 2004 Annual Report Download - page 6

The Opportunity to
Reach New Customers
So we started on a journey toward the
future. We envisioned a new culture within
Best Buy, one focused on specific customer
segments and driven by a strengths-based
organization. In this culture, employees
are energized because they have both the
responsibility and the accountability to
make decisions and drive innovation based
on their knowledge of the customer.
This culture treats customers as kings
and queens, and the employees closest
to the customer as royalty. That leaves
headquarters employees—including
me—as servant leaders.
The good news is that not only are
employees ready for the change, but
they have been clamoring for it.
Based on the performance of our 32 lab
stores, we expect to transform up to 110
additional Best Buy stores to our customer
centricity format this year. We also plan to
deliver approximately 30 basis points of
operating income rate improvement,
fueled by efficient enterprise activities.
Delivering on these promises will be a
challenge for us. Yet we are very optimistic
about the future because we know we
have the talent and creativity needed to
complete our transformation. We are well
known for the ability, once we grasp an
opportunity, to develop a rollout plan
and to execute it across North America.
Moreover, behind the strategy is
essentially the same management team
that led us to become North America’s
No. 1 consumer electronics retailer.
Some investors have asked us to name
a customer-centric retailer we hope to
emulate. Frankly, we are not aware of any
other retailer who has successfully imple-
mented a customer-centered approach
in this manner. Actually, that does not
dissuade us; rather, it encourages us.
At Best Buy, we love to prove conven-
tional wisdom wrong. ”No one has
successfully sold hardware and software;
you have to choose one or the other,”
they said in 1986. ”Nobody will buy
high-end consumer electronics from
noncommissioned sales associates,” they
said in 1989. ”Retailers can’t make money
selling computers,” they said in 1997.
”Dual branding works only with consumer
products,” they said in 2000. Each time
we challenged the status quo, and by
running our business for the long term,
we frequently have achieved top-quartile
performance in total shareholder return.
The Opportunity to Boost Results
The coming year will be a critical test for
Best Buy. Our initial guidance for fiscal
2005 called for an 11- to 13-percent
increase in revenue and a 15- to 20-
percent increase in diluted earnings per
share from continuing operations. The
opening of new stores and comparable
store sales gains are expected to drive our
top line, while increased efficiency is
expected to boost our bottom line.
Behind the scenes, we will be running
hard in our core business while we begin
the work of transformation to a customer-
centric organization. In other words, we
are attempting our transformation during
a period of success and prosperity.
4
02 03 04
Capital Spending
($ in millions)
Lowering the cost
per square foot of new
stores helped reduce
capital spending.
$581
$725
$545
02 03 04
Operating
Income Rate
We boosted profitability
by selling products at
a higher gross-profit rate.
5.1% 4.8%
5.3%
Best Buy Co., Inc. $100.00 $103.50 $86.47 $146.70 $94.02 $173.46
S&P 500 $100.00 $111.73 $102.57 $92.81 $71.76 $99.41
S&P Retail 100 $100.00 $97.46 $94.92 $113.16 $78.23 $122.14
99 00 01 02 03 04
Total Shareholder Return
Comparison of the five-year cumulative total returns on com-
mon stock of Best Buy Co., Inc., S&P 500 and S&P Retail 100.