Best Buy 1999 Annual Report Download - page 25

F I S CAL 1999 B E S T B U Y ANNU AL R E POR T
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MANAGE ME NT ’S DI S CU S S I ON & ANALYS I S OF R E S U L T S OF
OPE R AT I ONS AND F I NANCI AL CONDI T I ON
Sales in the home office product category continued to grow in fiscal 1999, although the
category declined from 38% of total sales in fiscal 1998 to 36% in fiscal 1999. Sales of personal
computers increased over the previous year as an increase in units sold more than offset the 16%
decline in average selling price. The introduction of computer packages below $1,000 and the
increasing popularity of the Internet attracted new, as well as second-time, computer buyers.
More effective management of the transition to new models led to a product offering that better
satisfied consumer demand. Higher unit volumes, combined with improved merchandising
and selling strategies, resulted in higher sales of the additional products and services that
complement the sale of computer hardware and generate additional profit from the computer sale
transaction. The Company’s new configure-to-order process for personal computers enabled
expansion of the computer assortment to satisfy more knowledgeable computer buyers. Increased
sales of digital phones, pagers and other new technology products were also factors in the overall
increase in this category.
Sales of digital technology and products that enhance the consumer’s home theater experience
drove the video and audio product categories’ sales growth in fiscal 1999. Sales of televisions,
particularly big-screen televisions which became more affordable in fiscal 1999 as unit prices
decreased, generated double-digit comparable store sales increases as consumers sought a richer
listening and viewing experience. Camcorder and digital satellite system sales increased in fiscal 1999
driven by lower selling prices, product improvements and sales assistance provided to the customer
in the stores’ “high touch” sales area. Lower selling prices and an increased assortment of DVD
movie titles resulted in rapid consumer acceptance of DVD hardware. DVD represents one of the
initial products in consumer electronics to transition from analog to digital technology. The
Company introduced Digital Television (DTV) to its customers in selected markets in fiscal 1999.
DTV represents a significant opportunity for future growth, although the high initial selling prices
for this new technology will likely result in only a minimal impact on total sales in fiscal 2000.
Sales of entertainment software, which includes recorded music and movies, computer software
and video games, maintained its sales growth rate with a 24% increase in sales in fiscal 1999 as
compared to fiscal 1998. Sales of recorded music were driven by a higher demand for new releases.
Sales of DVD movies and video game software and equipment also contributed to the overall sales
increase. Strong new movie releases such as “Titanic” also contributed to the sales gains. DVD
software sales grew significantly in fiscal 1999 due to the increase in DVD players sold and the
growth in available DVD titles from 500 to over 1,500. Video game software and peripherals sales
increased as a result of the continued growth of the Nintendo 64 and Sony Playstation formats.
The Company also began selling recorded music and DVD movies on its Internet shopping site
in fiscal 1999. While not generating significant sales volume, management believes the Internet
is another revenue growth opportunity.
The major appliance product category generated a double-digit comparable store sales increase in
fiscal 1999, performing better than the industry as a whole. The addition of the Whirlpool appliance
line in the second quarter of fiscal 1999 strengthened the Company’s appliance assortment.
A strong economy, faster product turns and better service levels all contributed to increased sales.