Best Buy 2006 Annual Report Download - page 24

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computerized inventory replenishment program is used to
manage inventory levels at eachstore. Merchandise is
delivered to stores an average of three times each week
pursuant to an in-house distribution system.
International Segment
Our International stores’ merchandise is shipped directly
from our suppliers to ourdistribution centers in British
Columbia and Ontario. OurInternational stores are
dependent upon the distribution centers for inventory
storage and shipment of most merchandise. However, in
order to meet release dates for selected products and to
improve inventory management, certain merchandise is
shipped directly to the stores from manufacturers and
distributors. All inventory is bar-coded and scanned to
ensure accurate tracking. In addition, a computerized
inventory replenishment programis used to manage
inventory levels at each store. Our International stores
typically receive product shipments twice a week, with
accelerated shipments during periods of high sales volume.
Contract carriers ship merchandise from the distribution
centers to stores.
Suppliers
Our strategy depends, in part,upon our ability to offer
customers a broad selectionof name-brand products and,
therefore, our success is dependent upon satisfactory and
stable supplier relationships. For fiscal 2006, our 20 largest
suppliers accounted for approximately three-fifths of the
merchandise we purchased, withfive suppliers —Sony,
Hewlett-Packard, Gateway, Toshibaand Apple —
representing approximately one-third of total merchandise
purchased. Theloss of or disruption in supplyfrom any one
of these major suppliers could have amaterial adverse
effect on our revenue and earnings. We generally do not
have long-term written contracts with our major suppliers
that would require them to continue supplying us with
merchandise. We have no indication that any of our
suppliers will discontinue selling us merchandise. We have
not experienced significant difficulty in maintaining
satisfactory sources of supply, and we generally expect that
adequate sources of supply willcontinue to exist for the
types of merchandise sold in our stores.
We operate three global sourcingoffices in China in order
to purchase products directly from Asian manufacturers.
These offices have improved our product sourcing efficiency
andprovide us with the capability to offer private-label
products that complement our existing product assortment.
In the future, weexpect purchases from our global sourcing
offices to increase as a percentage of total purchases. We
also believe that the expected increase in our global
sourcing volumes will help drive gross profit rate
improvements by lowering our overall product cost.
Store Development
The addition of new stores has played, and we believe will
continue to play, a significant role in our growth and
success. Our store development program has historically
focused on enteringnew markets; adding stores within
existing markets; and relocating, remodeling and expanding
existing stores. During fiscal 2006, we opened 105 new
stores, converted 163 existingU.S. Best Buy stores to our
customer centricity operating model, relocated 16 other
stores and remodeled three other stores. While a majority of
the new stores opened infiscal 2006 were in existing
markets, some were in new markets, including the opening
of Canadian Best Buy stores in Quebec.Duringfiscal 2006
we closed one U.S. Geek Squad store and one Future Shop
store.