We are a specialty retailer of consumer electronics, home office products, entertainment software, appliances and related services. We operate retail stores and Web sites under a variety of brand names such as Best Buy (BestBuy.com, BestBuy.ca, BestBuy.com.cn, espanol.BestBuy.com, BestBuyMobile.com), The Carphone Warehouse (CarphoneWarehouse.com), Five Star (Five-Star.cn), Future Shop (FutureShop.ca), Geek Squad (GeekSquad.com and GeekSquad.ca), Magnolia Audio Video (MagnoliaAV.com), Napster (Napster.com), Pacific Sales (PacificSales.com), The Phone House (PhoneHouse.com) and Speakeasy (Speakeasy.net). References to our Web site addresses do not constitute incorporation by reference of the information contained on the Web sites.
Our vision is to make life fun and easy for consumers. Our business strategy is to treat customers as unique individuals, engaging and energizing our employees to serve them, and meeting their needs with end-to-end solutions, while maximizing overall profitability. We believe we offer consumers meaningful advantages in store environment, multi-channel shopping, product value, product selection, and a variety of in-store and in-home services related to the merchandise we offer, all of which advance our objectives of enhancing our business model, gaining market share and improving profitability.
Information About Our Segments
During fiscal 2009, we operated two reportable segments: Domestic and International. The Domestic segment is comprised of the store, call center and online operations in all states, districts and territories of the U.S. operating under the brand names Best Buy, Best Buy Mobile, Geek Squad, Magnolia Audio Video, Napster, Pacific Sales and Speakeasy. U.S. Best Buy stores offer a wide variety of consumer electronics, home office products, entertainment software, appliances and related services. Best Buy Mobile stand-alone stores offer a wide selection of mobile phones, accessories and related services in a small-format store. Geek Squad provides residential and commercial product repair, support and installation services. Magnolia Audio Video stores offer high-end audio and video products and related services. Napster is an online provider of digital music. Pacific Sales stores offer high-end home-improvement products including primarily appliances, consumer electronics and related services. Speakeasy provides broadband, voice, data and information technology services to small businesses.
The International segment is comprised of: (i) all Canada store, call center and online operations, operating under the brand names Best Buy, Best Buy Mobile, Future Shop and Geek Squad; (ii) all Europe store, call center and online operations, operating under the brand names The Carphone Warehouse, The Phone House and Geek Squad; (iii) all China store, call center and online operations, operating under the brand names Best Buy, Geek Squad and Five Star and (iv) all Mexico store operations, operating under the brand names Best Buy and Geek Squad. Our International segment offers products and services similar to that of our U.S. Best Buy stores. However, Best Buy Canada stores do not carry appliances and Best Buy China stores and Five Star stores do not carry entertainment software. Further, our store format and offerings in Europe are similar to our Best Buy Mobile format and offerings in the U.S., primarily offering mobile phones and related accessories and services.
Domestic Segment
We were incorporated in the state of Minnesota in 1966 as Sound of Music, Inc. We began as an audio components retailer and, with the introduction of the videocassette recorder in the early 1980s, expanded into video products. In 1983, we changed our name to Best Buy Co., Inc. and began using mass-merchandising techniques, which included offering a wider variety of products and operating stores under a "superstore" concept. In 1989, we dramatically changed our method of retailing by introducing a self-service, noncommissioned, discount-style store concept designed to give the customer a variety of brands and more control over the purchasing process.
In fiscal 2000, we established our first online shopping site, BestBuy.com. Our "clicks-and-mortar" strategy is designed to empower consumers to research and purchase products seamlessly, either online or in our retail stores. Our online shopping sites offer expanded assortments in all of our principal revenue categories.
In fiscal 2001, we acquired Magnolia Hi-Fi, Inc. — a Seattle-based, high-end retailer of audio and video products and services — to access an upscale customer segment. During fiscal 2004, Magnolia Hi-Fi began doing business as Magnolia Audio Video.
In fiscal 2003, we acquired Geek Squad Inc. Geek Squad provides residential and commercial repair, support and installation services. We acquired Geek Squad to further our plans of providing technology support services to customers. Geek Squad service is available in all Best Buy stores, as well as in six stand-alone stores in the U.S. Our goal is to build Geek Squad into one of the largest multi-national providers of residential and commercial product repair, support and installation services.
In fiscal 2005, we opened our first Magnolia Home Theater store-within-a-store experience in a U.S. Best Buy store. We believe Magnolia Home Theater — with its high-end brands, home-like displays and specially trained employees — offers a unique solution for our customers. The Magnolia Home Theater store- within-a-store experience was in 353 U.S. Best Buy stores at the end of fiscal 2009.
In fiscal 2005, we also began converting U.S. Best Buy stores to our customer centricity operating model and we completed this transition in fiscal 2007. These stores offer variations in product assortments, staffing, promotions and store design, and are focused on key customer segments. The stores tailor their store merchandising, staffing, marketing and presentation to address specific customer groups. Originally, these customer groups included affluent professional males, young entertainment enthusiasts who appreciate a digital lifestyle, upscale suburban mothers, families who are practical technology adopters and small businesses. In fiscal 2007, we evolved our customer centricity segmentation to address the needs of customer lifestyle groups, rather than specific customer groups. Our stores now focus on lifestyles such as affluent suburban families, trend-setting urban dwellers, and the closely knit families of Middle America.
In fiscal 2007, we acquired Pacific Sales Kitchen and Bath Centers, Inc. ("Pacific Sales"). Pacific Sales specializes in the sale of ultra-premium and mass-premium kitchen appliances, plumbing fixtures and home entertainment products, with a focus on builders and remodelers. We acquired Pacific Sales to enhance our ability to grow with an affluent customer base and premium brands using a proven and successful showroom format. With minimal changes to the existing store format, we expect to increase the number of stores over time in order to capitalize on the high-end segment of the U.S. home market.
In fiscal 2007, we developed the Best Buy Mobile concept through a management consulting agreement with The Carphone Warehouse Group PLC ("CPW") and test marketed five stand-alone stores located in New York. Best Buy Mobile seeks to satisfy the needs of all our customer lifestyle groups by providing a comprehensive assortment of mobile phones, accessories and related services offered by experienced sales personnel in all U.S. Best Buy stores and eight Best Buy Canada stores, as well as 38 stand-alone stores at the end of fiscal 2009.
In fiscal 2008, we acquired Speakeasy Inc. ("Speakeasy"). Speakeasy provides broadband, voice, data and information technology services. We believe our acquisition of Speakeasy will generate synergies by providing new technology solutions for our existing and future customers.
In fiscal 2009, we acquired Napster, Inc. ("Napster"). We believe Napster provides one of the most comprehensive and easy-to-use digital download music offerings in the industry. We also believe that the combined capabilities of our two companies will allow us to build stronger relationships with customers and expand the number of subscribers.
International Segment
Our International segment was established in connection with our acquisition of Canada-based Future Shop Ltd. ("Future Shop") in fiscal 2002. The Future Shop acquisition provided us with an opportunity to increase revenue, gain market share and leverage our operational expertise in consumer electronics retailing. Since the acquisition, we have continued to build on Future Shop's position as the leading consumer electronics retailer in Canada.
During fiscal 2003, we launched our dual-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, we expect to gain continued operating efficiencies by leveraging our capital investments, supply chain management, advertising, merchandising and administrative functions. Our goal is to reach differentiated customers with each brand by giving them the unique shopping experiences they desire. The primary differences between our two principal brands in Canada are:
In-store experience — The customer's interaction with store employees is different at each of the two brands. Future Shop stores have predominantly commissioned sales associates who take a more proactive role in assisting customers. Through their expertise and attentiveness, the sales associate drives the transaction. In contrast, Best Buy Canada store employees, like employees in U.S. Best Buy stores, are noncommissioned, and the stores offer more interactive displays and grab-and-go merchandising. This design allows customers to drive the transaction as they experience the products themselves, with store employees available to demonstrate and explain product features.
Products and services — Only Future Shop stores carry appliances. In addition, Geek Squad service is available in all Best Buy Canada stores, but is not available in Future Shop stores.
Store size — At the end of fiscal 2009, the average Future Shop store was approximately 26,700 square feet, compared with an average of approximately 32,500 square feet for Best Buy Canada stores. Best Buy Canada stores generally have wider aisles, as well as more square footage devoted to entertainment software.
In fiscal 2007, we acquired a 75% interest in Jiangsu Five Star Appliance Co., Ltd. ("Five Star"), one of China's largest appliance and consumer electronics retailers. We made the investment in Five Star to further our international growth plans, to increase our knowledge of Chinese customers and to obtain an immediate retail presence in China. In the fourth quarter of fiscal 2009, we completed the acquisition of the remaining 25% interest in Five Star.
In fiscal 2007, we opened our first Best Buy China store, located in Shanghai. In fiscal 2009, we furthered our expansion of Best Buy in China by opening an additional four stores.
In fiscal 2009, we acquired a 50% share in Best Buy Europe Distributions Limited ("Best Buy Europe"). Best Buy Europe is a venture with CPW, consisting of CPW's former retail and distribution business with over 2,400 The Carphone Warehouse and The Phone House stores, online channels as well as device insurance operations and mobile and fixed-line telecommunication services. The transaction also included CPW's economic interest in both Best Buy Mobile in the U.S. and the Geek Squad in the U.K. and Spain. We made the investment in Best Buy Europe to further our international growth plans, to increase our knowledge of European customers and to obtain an immediate retail presence in Europe. We plan to launch large-format Best Buy-branded stores and related online channels in the European market beginning in fiscal 2011. The primary features of Best Buy Europe's small-format stores are:
In-store experience — Stores have predominantly commissioned sales associates who provide independent advice on the best service and hardware suited to each customer. The Carphone Warehouse and The Phone House stores offer interactive displays which allow customers to experience the products themselves, with store employees available to demonstrate and explain product features. Most phone sales require an in-store registration process between the customer and the mobile network operator facilitated by our employees via our systems. Typically, credit checks and registration carried out in conjunction with the mobile network operator systems are on-the-spot, and the customer can leave the store with a fully active phone and service contract. There is also grab-and-go merchandising mainly in the form of mobile phone, laptop and gaming accessories.
Products and services — Best Buy Europe primarily sells mobile phone connections. A connection is defined as the sale and activation of mobile phone service, and it is usually combined with the sale of a subsidized handset. Our stores also sell mobile phones without a connection. Connections are either subscription-based, for which the customer commits to a contracted term with a mobile network operator, typically for 12 to 24 months, or pre-pay, for which a customer pays for usage but has no ongoing obligation. In addition, we sell mobile phone accessories. We recently expanded our product portfolio to include laptops, mobile broadband connections, gaming consoles, accessories and software. Geek Squad service is available in certain stores in the U.K. and Spain.
Best Buy Europe also offers a range of insurance products to its customers, providing protection primarily for the replacement of a lost, stolen or damaged handset. Finally, Best Buy Europe offers mobile telecommunication services in Germany and the U.K., fixed-line telecommunication services in Spain and Switzerland, and billing management services.
Store size — At the end of fiscal 2009, the average store for The Carphone Warehouse and The Phone House was approximately 600 retail square feet.
In fiscal 2009, we expanded our Best Buy Mobile operations to Canada by opening three stand-alone stores and eight store-within-a-store experiences in our Best Buy stores and opened our first Best Buy Mexico store, located in Mexico City.
Merchandise and Services
Domestic Segment
U.S. Best Buy stores have offerings in six revenue categories: consumer electronics, home office, entertainment software, appliances, services and other. Consumer electronics consists of video and audio products. Video products include televisions, digital cameras and accessories, digital camcorders and accessories and DVD players. Audio products consists of MP3 players and accessories, navigation products, home theater audio systems and components, and mobile electronics such as car stereo and satellite radio products. The home office revenue category includes notebook and desktop computers, monitors, mobile phones and related subscription service commissions, hard drives, networking equipment and accessories. The entertainment software revenue category includes video gaming hardware and software, DVDs, CDs, digital downloads and computer software. The appliances revenue category includes major appliances as well as small electrics. The services revenue category consists primarily of service contracts, extended warranties, computer-related services, product repair, and delivery and installation for home theater, mobile audio and appliances. The other revenue category includes non-core offerings such as snacks and beverages.
U.S. Best Buy Mobile offerings are in our home office revenue category. Revenue from U.S. Best Buy Mobile stand-alone stores is primarily derived from mobile phone hardware, subscription service commissions and associated mobile phone accessories.
Pacific Sales stores have offerings in three revenue categories: appliances, consumer electronics and services. Appliances consists of major appliances, evenly split between high-end and mass-market premium brands, and plumbing, which consists of kitchen and bath fixtures including faucets, sinks, toilets and bath tubs. Consumer electronics consists of video and audio products, including televisions and home theater systems. The services revenue category consists primarily of repair services.
Magnolia Audio Video stores have offerings in two revenue categories: consumer electronics and services. Consumer electronics consists of video and audio products. Video products include televisions, DVD players and accessories. Audio products include home theater audio systems and components, mobile electronics and accessories. The services revenue category consists primarily of home theater system installation as well as service contracts and extended warranties.
International Segment
The Carphone Warehouse and The Phone House stores in Europe have offerings in two revenue categories: home office and services. Home office consists primarily of mobile phones and related accessories as well as subscription service commissions. Services consists of device insurance operations, mobile and fixed-line telecommunication services, billing management services and Geek Squad repair services.
Best Buy Canada and Future Shop stores have offerings in five revenue categories: consumer electronics, home office, entertainment software, services and other, and for Future Shop only, a sixth revenue category, appliances. Consumer electronics consists of video and audio products. Video products include televisions, digital cameras and accessories, DVD players and digital camcorders and accessories. Audio products encompass MP3 players, home theater audio systems and components, navigation products, mobile electronics and accessories. The home office revenue category includes desktop and notebook computers and their respective accessories, monitors, hard drives, printers and mobile phones and related accessories. The entertainment software revenue category includes video game hardware and software, DVDs, CDs and computer software. The appliances revenue category includes major appliances as well as small electrics. The services revenue category includes service contracts, extended warranties, repair, delivery, computer-related services and home theater installation. The other revenue category includes non-core offerings such as snacks and beverages.
Although Best Buy Canada and Future Shop stores offer similar revenue categories (except for appliances), there are differences in product brands and depth of selection within revenue categories. On average, approximately 29% of the product assortment (excluding entertainment software) overlaps between the two store brands.
Best Buy China and Five Star stores have offerings in four revenue categories: appliances, consumer electronics, home office and services. Our China stores do not carry entertainment software. Appliances includes major appliances, air conditioners, small electrics and housewares. The consumer electronics revenue category consists of video and audio products, including televisions, digital cameras, MP3 players and accessories. The home office revenue category includes desktop and notebook computers, mobile phones, traditional telephones and accessories. The services revenue category includes computer support services.
Our Best Buy Mexico store has offerings in six revenue categories: consumer electronics, home office, entertainment software, appliances, services and other, with products and offerings similar to our U.S. Best Buy stores.
Number of Employees
At the end of fiscal 2009, we employed approximately 155,000 full-time, part-time and seasonal employees worldwide. We consider our employee relations to be good. In the U.S., we offer our employees a wide array of company-paid benefits, which we believe are competitive relative to others in our industry. In our operations outside the U.S., we offer benefits that may vary from those offered to our U.S. employees due to customary local practices and statutory requirements.