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We believe that we can modestly improve our operating margins as we increase sales of digital products and leverage our expenses over our national franchise. Finally, we are preparing to re-engineer our appliance business, including enhancements to the customer experience, which we expect to boost sales and profitability in the next two years.

Expanding our Services
Another major opportunity for us is developing deeper relationships with customers through growth in the services we offer to our customers. Whether we are installing a digital television, connecting a car DVD player, configuring a computer or delivering appliances, we already are known for offering services. We have invested in this business for the past three years in order to improve customer satisfaction.

We have begun to offer new types of services as well. For example, we are the top retailer of subscriptions to MSN, Microsoft’s Internet service provider. We have seen early success with other subscription-based models, such as satellite radio. In the future, as consumers begin to embrace new delivery models for entertainment and information, and as the networked home arrives, we want our customers to think of Best Buy.

Services, like accessories, are an integral part of the package of products and services we provide to customers. Together they provide an excellent avenue for leveraging our greatest asset: the customer relationships we have created through our stores.

Anticipating Challenges
In the fast-paced world of retailing, only those who anticipate and respond to challenges in the environment succeed. For example, in anticipation of continued price pressures and competition from mass merchandisers, we have expanded our assortment and invested in added employee training to support sales of complex digital products and services. We also are partnering with key stakeholders in the entertainment business to explore a competitive alternative for consumers who download entertainment software. In addition, we are partnering with our vendors to increase our mutual profitability so that they can invest in the development of tomorrow’s products and services.

With an experienced management team, a culture that embraces change and the desire to lead through innovation, we have much reason for optimism about the future of Best Buy.


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