Best Buy 2005 Annual Report Download - page 41

In October 2004, we converted 67 U.S. Best Buy stores to Efficient Enterprise
the customer centricity operating model. At the end of The purpose of our efficient enterprise initiative is to
fiscal 2005, a total of 85 U.S. Best Buy stores were reduce our cost structure, increase our speed to market
operating under the customer centricity model, including and improve the returns we achieve on our capital
18 lab stores which continue to develop ideas to serve investments.
customers better. During fiscal 2006, we plan to open or During fiscal 2005, we completed a comprehensive
convert 150 to 200 additional U.S. Best Buy stores to the evaluation of our information technology capabilities. We
customer centricity operating model. Each of these stores concluded that new, flexible systems that could support
is expected to include elements designed to appeal to one business innovation were needed for us to continue to
or two of our five existing key customer segments, compete effectively in the rapidly changing retail
including affluent professional males, young entertainment environment. We then began to evaluate strategic options
enthusiasts who appreciate a digital lifestyle, upscale for delivering information technology and other corporate
suburban moms, families who are practical technology support services. After considering various options and
adopters and small businesses with fewer than 20 conducting due diligence, we engaged Accenture in
employees. In addition, during fiscal 2006 we anticipate July 2004 to provide us with consulting services, as well
rolling out key elements of customer centricity to all of our as support and development services in the information
other U.S. Best Buy stores. Finally, we are planning to technology area, to further enable our anticipated
complete the conversion of all of our U.S. Best Buy stores transformation to a more efficient, customer-centric
to the customer centricity operating model within three business model. We selected Accenture based on our
years. historical track record of successful joint projects and our
The successful rollout of our customer centricity initiative is confidence in Accenture’s ability to help us deliver results.
a critical component in our goal of increasing our annual Under our July 2004 seven-year agreement with
operating income rate to 7% of revenue for fiscal 2008. Accenture, Accenture will manage and further develop the
For the portion of fiscal 2005 in which they operated full scope of our information technology operations. As
under the customer centricity operating model, the 67 part of the agreement, we plan to optimize our supply
segmented stores collectively reported a comparable chain management capabilities, enhance the vendor
stores sales increase of 8.2%, compared with a management of our customer call centers, expand the
comparable store sales gain of 1.9% at other U.S. Best functionality of our Web sites and improve the reporting
Buy stores during the same period. Further, as expected for our customer centricity initiative. We expect the
the gross profit rate at the 67 stores, collectively, was agreement with Accenture will result in a new and
higher than that of other U.S. Best Buy stores for the easier-to-manage operating platform that will reduce our
portion of fiscal 2005 in which they operated under the risk and cost structure, including our total cost of
customer centricity operating model, driven primarily by a ownership for information technology systems.
more profitable revenue mix. However, due to one-time
Our other fiscal 2005 efficient enterprise accomplishments
conversion costs and a higher expense structure, the
included:
selling, general and administrative expenses (SG&A) rate
for the 67 stores, collectively, was higher than that of • Engaged Accenture to assist us with improving our
other U.S. Best Buy stores for the same period, resulting in operational capabilities and reducing our costs in
an operating income rate for the period that was less than the human resources area
that of other U.S. Best Buy stores. • Reduced fixed headcount
We continue to make improvements in our customer • Lowered health care costs
centricity operating model, including refining our store
• Increased the productivity of our store labor
labor model. We believe the profitability of stores
operating under the customer centricity platform will • Reduced the cost to construct new retail store
improve over time, similar to our historical experience locations, and
with new-store openings.
25