Best Buy is based in the US, operating in electronic retail industry. The company has centered its operations in the US and also has market presence in Canada currently. The PESTLE analysis of Best Buy elaborates on the different factors present in the external environment of the company and their effect on the business.
Political Factors
The US has a stable political environment with minimum political disruption. There remains a threat of violence and terrorism in the US and the ranking of 96 in the political stability list indicates the risk present in the business environment. Best Buy is operating effectively in the country maintaining its operations through retail stores and online portals.
Trade relations with other countries affect the way supply chain of retail stores work. In case of Best Buy, the company is able to manage its supply chain integrating suppliers from different countries. China holds a significant position among the list of supplier for Best Buy (Repko, 2020). Changes in tariff are another political factor that can disrupt the supply chain for the company.
Economic Factors
The changes occurring in tariff affect the price structure that is offered by the retail organizations to the consumers. The management at Best Buy recognizes the implications of higher tariff and the resultant price changes. The company also recognizes that consumers may not be prepared to pay when there is a significant raise in the prices, thus decisions have to be made accordingly.
In an effort to manage complications arising out of increased tariff, the company has procured the products before the application of new tariff. The performance of an organization is also dependent on the economic environment created by income of households, employment ratio and inflation. Best buy faced 11% lower profitability in its outlets owing to the high inflation (Repko, 2022).
The ongoing economic uncertainty during and after the pandemic has affected the company’s decisions pertaining to human resources and business operations. The number of employees had to be reduced due to the increasing cost of operations. Moreover, the decision to shut down operations in Mexico was a result of unfavorable economic environment.
Retailers such as Best Buy had to close some of the outlets to reduce the financial strain and mitigate the risk of bankruptcy. In 2021 the management decided to proceed with the closure of its 12 outlets to limit the negative effect of economic slowdown. A recent closure was finalized in Hixson, with the plans of shutting down the store that had operated for almost 2 decades.
Social Factors
Demographic changes and shifting in the buying patterns of consumers has a significant effect on the profits gained by retailers. Best Buy had to deal with lower sales due to the reduced spending of consumers on electronics during pandemic. This has resulted in lower profits observed by the company, and the management had to reduce costs by layoff of employees and store closures.
Another trend that had influenced the in-store sales of the company was that people initiated work from home due to lockdown and ongoing pandemic. The high number of such workers created a surge in the purchase of related electronic items from online portal. Some of the stores were closed because people preferred buying online (Best Buy, 2022).
The in-store shopping experience was altered during the pandemic as social distancing guidelines were implemented. The introduction of pick up in-store (BOPIS) was initiated for the customers keeping in view the consumer preference of online shopping and the desire to save cost. This service enabled the customers to get package themselves without paying for the delivery charges.
The customer buying patterns for retail industry reflects the way social events and celebrations guide the purchase decisions. The company has significantly higher ratio of sales during the last quarter of the year. A large number of customers make purchases during the holidays resulting in higher sales for the company.
Technological Factors
Best Buy has a wide range of electronic items available for the customers, which are connected to their different technology needs. Besides offering the different technology solutions, the company is using its technical knowledge to engage in technology development of teens through Teen Tech Centers.
Degree of technological advancement of an industry also affects the way supply chain, inventory management and other organizational operations are handled. The company has incorporated BOPIS connecting the in-store and online portals for customer ease. The digital technology has greatly supported the organization in surviving during the pandemic and to manage online sales.
Legal Factors
There are different legal aspects that the company has to follow in order to adhere to the legal framework. Some of the legal requisites include lease agreements, consumer and employment laws. The management had to offer a settlement to the customers who were facing issues due to the problematic product return policies (Bob & Kjeldgaard, 2021).
Product safety standards and quality have to be followed in order to avoid legal complications from violation of consumer law. Failure to provide good quality products to the customers and poor exchange and warranty process has lead to legal cases being filed against Best Buy.
Environmental Factors:
The eco-friendly initiatives taken by Best Buy include Race to Zero and renewable energy. The Environment Protection Agency (EPA) in the US encourages the reduction of waste, carbon emission and shifting to green energy. Best Buy has integrated these practices as a part of the company operations and gained recognition of being the top ENERGY STAR (Best Buy, 2022).
Best Buy also promotes recycling among the customers, encouraging them for a trade in. the products received by the company are recycled to lower the wastage and the harmful impact on the environment. The management aims to achieve zero waste certification in order to reflect the commitment to becoming green and adhering to EPA standards.
Conclusion
Pandemic has altered the retail electronic industry and the business operations of Best Buy were disrupted. However, the company has made strategic decisions in response to these changes in the external environment. In order to remain profitable, Best Buy needs to keep track of the changing trends and market dynamics.
References
Best Buy (2022). Fiscal 2022 Annual Report. Retrieved from: https://s2.q4cdn.com/785564492/files/doc_financials/2022/ar/Best-Buy-Annual-Report.pdf
Bob, C. & Kjeldgaard, N. (2021). Best Buy Settles $633,500 Case Over Return Policies. NBC San Diego. Retrieved from: https://www.nbcsandiego.com/news/investigations/nbc-7-responds/best-buy-settles-633500-case-over-return-policies/2525467/
Repko, M, (2022). Best Buy cuts its outlook, joining other retailers as inflation pressures shoppers. CNBC. Retrieved from: https://www.cnbc.com/2022/07/27/best-buys-shares-fall-10percent-as-it-cuts-its-forecast-for-second-quarter-cites-weaker-demand.html
Repko, M. (2020). Best Buy CEO says lessons it learned from tariffs are helping as it adapts to coronavirus. CNBC. Retrieved from: https://www.cnbc.com/2020/02/27/best-buy-ceo-says-lessons-it-learned-from-tariffs-are-helping-as-it-adapts-to-coronavirus.html