Best Buy 2006 Annual Report Download - page 21

7
PART I
leverage our operational expertise in consumer electronics
retailing. Since the acquisition, we have continued to build
on Future Shop’s position as the leadingconsumer
electronics retailer in Canada.
During fiscal 2003, we launched ourdual-branding strategy
in Canada by introducing the Best Buy brand. The dual-
branding strategy allows us to retain Future Shop’s brand
equity and attract more customers by offering a choice of
store experiences. As we expand the presence of Best Buy
stores in Canada,weexpect to gain continued operating
efficiencies by leveraging our capital investments, supply
chain management, advertising, merchandisingand
administrative functions. Our goal is to rea ch differentiated
customers with each brand by giving themthe unique
shopping experiences they desire. The primary differences
between our two Canadian brands are:
In-store experience — The customer’s interaction with
store employees is different at each of the two brands.
Future Shop stores have mostly commissioned sales
associates who take a more proactive role in assisting
customers. Through theirexpertise and attentiveness, the
sales associate drives the transaction. In contrast,
CanadianBest Buy store employees are
noncommissioned, and the stores offer more interactive
displays and grab-and-go merchandising. This design
allows the customer to drive the transaction as they
experience the products themselves, with store employees
available to demonstrate and explain product features.
Store size — At the end of fiscal 2006, the average
Future Shopstore was approximately 20,700 retail
square feet, compared with an average of approximately
25,400 retail square feet for Canadian Best Buy stores.
Canadian Best Buy stores generally have wider aisles, as
well asmore square footage devoted to entertainment
software. Further, Canadian Best Buy stores do not carry
appliances.
We have expanded Geek Squad service to be available in
all Canadian Best Buy stores, as wellasin five stand-alone
stores.
At February25, 2006, we operated 118 Future Shop stores
throughout all Canadian provinces and 44Canadian Best
Buy stores in Ontario, Quebec, Alberta,British Columbia,
Manitoba and Saskatchewan. Collectively, International
stores totaled approximately 3.6 million retail square feet at
the end of fiscal 2006, or about 10% of our total retail
square footage. For fiscal 2006, International retail stores
generated average revenue of approximately $22.7 million
per store.
As previously announced, we have begun exploring the
opportunity of expanding outside of North America. In fiscal
2007 we expect to open our first store in Shanghai, China.
Acquisitions
In the thirdquarter of fiscal 2006, we acquired certain
assets of AV Audiovisions, Inc., a California company, for
$7 million; in the fourth quarter of fiscal 2006, we acquired
Howell & Associates, Inc., an Ontario company, for $1
million. Both companies specialize in the design, sales and
installation of high-end home entertainment systems.
In the first quarter of fiscal 2007,we acquired Pacific Sales
Kitchen andBath Centers, Inc. (Pacific Sales). Pacific Sales,
based in southern California, operates 14 showrooms that
cater to home-remodeling customers. In calendar 2005,
Pacific Sales generated revenue of approximately $325
million. The company specializes in the sales of premium
kitchen appliances, plumbing fixtures, home entertainment
products and home furnishings. We acquired Pacific Sales
to enhance our ability to grow with an attractive customer
baseand sell premium brands using a proven and
successful showroom format. We expect to expand the
number of Pacific Salesstores in order to capitalize on the
rapidly growinghigh-end segment of the U.S. appliance
market. Pacific Sales’ results of operations will be included
in our Domestic segment results starting in fiscal 2007.
Discontinued Operations
We acquired Musicland Stores Corporation in fiscal 2001.
The original strategy behind our Musicland acquisition was
to bring Best Buy’s core competencies in retailing consumer
electronics to new customer segments, including segments
typically underservedby our Best Buy stores. However, the
Musicland acquisitiondid not meet our financial objectives.
In fiscal 2004, we soldour interest in Musicland. The
transaction resulted in the transfer of all of Musicland’s
assets other than a distribution center in Franklin,Indiana,
and selected nonoperating assets. The sale of our interest in
Musicland has allowed us to focus on our core businesses,