Best buy enterprise has had minimal innovation activities over the past few years; the company's financial position is declining, revenue fell by 4.7% from two years ago and 2.4% since last year for a total loss of 1.32 billion or 3.36 per share. Cash flow is down 2.6 billion due to charges in the closure of stores in the UK, China, and Turkey, also, the reopening on 50 stores in China. Profit is down by 1.7 billion with a year-on-year growth of negative 361. This report will cover a situational analysis of potential causes of the company's revenue, cash flow and profit problems. I will summarize the primary reasons for each of the performance problems.
Revenue, profits, and cash flow are the major causes of poor performance problems in the company with regards to its actions. Just like in all the other business fields, there are levels of information that can only be accessed by authorized personnel. Best buy enterprise information systems are vulnerable to attack and access to such information that easily gets into competitors and customer's knowledge. Taking advantage of the company is easy because of access to too much information and knowledge.
Cash flow
.The rise of competitors in Brick-and-mortar and online stores like Walmart and Amazon is the big factor in the decline in cash flow. Walmart is growing dramatically with their low prices and the policy to match any price combined with Amazons' aggressive and tactical approach to online shopping is leading to a significant loss in market share in both segments. Cash flow is down 2.6 billion due to charges in the closure of stores in the UK along with the reopening of 50 stores in China.
While this strategy was meant to increase cash flow and cut down costs, the charges associated with the closure of stores overshadowed the money coming from Chinas' stores. Another cause of the decline in cash flow was the US recession in 2009. The increase of the minimum wages floor from $7.75 per hour in 2010 to $8.5 in 2011 meant greater labor costs are leading to a decline in cash flow.
Revenue
Revenue is down 2.4% since last year leading to a loss of 1.32 billion or 3.36 per share. The biggest source of income is US based brick-and-mortar with a contribution of 76% followed by E-stores with 6%, and the rest comes from international stores. The first possible cause is the declining popularity of brick-and-mortar stores as online shopping is becoming more favorable. With the company's weak online presence and the big focus on physical stores combined with the evolving technology that is changing the nature of customers towards E-shopping.
Another cause is the rise of strong online competitors like Amazon and EBay. More and more companies are moving online with a minimum focus on brick-and-mortar stores leading them to capture a bigger market share. With the company's weak online presence, market share is subtle leading to the revenue decline.
Also, sales value growth in the US and international electronics and appliances segments has been in decline especially in 2009 recession. US market sales growth fell from over 10% in 2007 to almost 1% in 2011, the international did better in 2009 but eventually reaching 2%. That led to the biggest loss in revenue considering that the US market is the greatest source of income followed by the international market.
The launch of a joint venture with a UK-based mobile phone retailer was supposed to increase revenue, but the slow implementation of the investment allowed other competitors like Dixons Retail to take the lead and capture a bigger market share. It is also an explanation of the challenges of international market penetration. The company failed to meet the Chinese's' customers sales culture.
Counterfeit products are a big deal in the market. According to the International Anti-counterfeit Coalition "about 7% of the world, trade is in counterfeit goodsIncreased from 5.5 billion to about 600 billion annually. Best buy is prone to these challenges hence possible significant impact on the company's revenue."
Profit
Profit is down by 1.7 billion with a year-on-year growth of negative 361. The company's attempt to expand internationally had more of a negative impact, the costs associated with the opening of these stores were not matched by enough revenue to support them causing profit to decline. Also, the charges related to the closing of the company's venture stores in the UK resulted in a loss of 2.6 billion.
Another cause for profit decline is the weak average regional growth in Western Europe and North America considering that the companies have an 18% revenue source from the international market. With all the reason mentioned before, stock prices were highly impacted.
There are several other causes of poor performance of Best Buy company specializing in electronics including a decline in liquidity that make it challenging for it to accomplish its short term goals. In addition to this, the company largely depends on vendors for their supplies both internationally and domestically; this has a direct effect on profits and revenue.
Summary
Revenue, Cash flow, and profit are in decline because of many factors, internally and externally. The increase in wages has a direct effect on profits in the organization, considering that much of the income is spent on paying out the employees. On the other hand, the primary cause of low revenues is the slow pace of the European economy.
The most important causes that should be in immediate consideration are the company's lack of online presence and limitations of its online store followed by the intense competition of big retailers like Walmart and Amazon in the market and finally the high costs associated with opening and closing international stores.
References
Best Buy Co Inc in Retailing (WORLD). (2012, April 1).
Data, G. (2012, August 3). Best Buy Co, Inc. - Financial and Strategic Analysis Review.
Savitz, E. (2012, March 29). Best Buy: Grasping At Straws.
