The Industry Factors: The Electronic Product and Service Industry

Group 2

                           The Industry Factors: The Electronic Product and Service Industry

1. Overview:

In order to understand and analyze Best Buy, we must first look to understand the industry.  We can understand the industry by first identifying the many aspects that comprise the industry such as its economic factors, its value chain, and how it relates to Porter’s Five Forces.

Firstly,  identifying the industry as a whole, BestBuy belongs to the electronics product and service stores(Service Sector). It is one of the most famous electronic stores in the United States. Electronic stores as an industry are known to sell computers, cameras and household appliances. Competitors in this industry are primarily traditional store-based retailers, multi-channel retailers, internet-based businesses and vendors and mobile network carriers who offer their products directly to the consumer. They usually operate at large locations that allow them to have floor displays and accommodate the need for demonstration of certain products. They usually need to be in specialized locations that allow them to have large amounts of electricity to run all of their display products. This market has began to compete with several online firms competing for the same market share as these traditional stores such as the online retailers of Amazon, EBay, and several direct from manufacturer companies.

In recent years it has had a sluggish growth in per capita disposable income. The life cycle stage is Mature. Department stores, discount retailers, and online retailers are hitting the industry hard since they offer a lot of the same products with the same prices. Customers don’t have to go out of their way to buy an appliance they can go to their local Walmart or just order from the comfort of their own home with amazon.

Their demand is based on consumer spending and technological innovation. Getting consumers to replace or upgrade older products brings profit from effective merchandising, store traffic and repeat business. Large companies compete by using purchasing and marketing power, while smaller companies compete by offering specialized products or very good customer service.

According to Yahoo! Finance, there are mainly five big companies in the electronics stores. Four of them are public companies which are Best Buy Co., Inc. [BBY], CONN’S, INC. [CONN], Gamestop Corp. [GME] , and Hhgregg, Inc. [HGG]. The other private company is called RADIOSHACK Corporation.

The first four companies are leaders of electronic stores in Market Capitalization, which are Best Buy Co., Inc. They have outstanding Common Stock for about $12.6 Billion. The second one is Gamestop Corporation , which has a $4.5 Billion outstanding common stock. The third one is Conn's, Inc. with a $1.1 Billion outstanding common stock. Number four is Appliance Recycling Centers with a $6.7 Million common stock. Best Buy becomes the top one electronics company in the total electronics stores industry.    

II. Value Chain:

We must also turn to the Value Chain as it relates to the industry as well to get a better grasp of the situation.  Since electronic companies have to price battle with companies outside the industry, industry profitability has declined. With falling margins a lot of underperforming companies have closed down making the number of companies’ decline 1.9% per average over the last 5 years, bringing it down to 39,354 businesses. The projected economic recovery is spurring the industry’s comeback. Revenue is projected to increase at an average annual rate of 3.0% to $93.7 billion over the next five years. The number of single occupant households is at a rise, giving the industry a bigger population to work with. The value chain for companies in the retail store industry, more specifically the electronic retail store industry, can be very complicated due to increasing competition and globalization. Although some companies have more complex value chains, including areas such as research and development, there are in fact companies such as BestBuy that outsource these areas and thus just sell the finished products.

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The value chain for these industries that outsource R&D start with inbound logistics and manufacturers. This portion of the chain includes importing foreign products and buying domestic products that travel to distribution centers for each company. Manufacturers are often referred to as conversion agents who take the raw material needs of the company and convert them a product that will be assembled in the next step of the value chain.[1] The next step in the value chain is operations. Operations include warehouses where products are assembled and stored, as well as getting the store locations ready for business. This part of the value chain is where companies can add value to the products they provide by strategically formatting the showroom of the business and deciding which products will be provided in-store and online [2]. After operations, the next step in the value chain for electronic retail stores is outbound logistics. Outbound logistics include items travelling from distribution centers to individual stores and to customers by means of various forms of transportation including trucks, railways, airplanes, and ships. The mode of transportation really depends on which method the company finds to be most efficient and cost effective. The final step in the value chain is sales and marketing. Most of the companies in this industry are included in this part of the value chain. This section includes the retailers themselves and their interactions with customers. Sales and marketing is where companies develop new strategies to target and inform potential customers of promotions and new product arrivals. With electronics, many companies offer and promote protection plans for the items they sell. This can have a lot of influence on which company a consumer ultimately chooses.

III. Porter’s Five Forces:

Supplier Power  

Porter’s Five Forces is another powerful factor when it comes to analyzing the industry.  It is necessary to understand each factor to truly analyze the industry.  In terms of the first factor, supplier power, it seems as if there is a great deal of power in the hands of the suppliers.  There is a growing need for the businesses to have supplies to create new, bigger, better, and more advanced products, because of this need suppliers carry a great deal of power because companies are always looking for a steady stream of supplies to stay one step ahead of the competition. Because of this need for growth the supplier power is strong because suppliers can control certain types of technologies that these companies require.