Consumer electronics comprised 33% of Best Buy’s total sales mix in fiscal 2001, up from 30% in fiscal 2000. The category experienced double-digit comparable store sales growth, led by new technology products, including digital televisions, digital camcorders, cameras and DVD players. The sales were driven by increased consumer demand for new technology and lower price points. Sales of digital televisions, with an average selling price of approximately $2,300 as of fiscal year-end, increased dramatically during the year, accounting for approximately 10% of fiscal 2001 television sales compared with 2% in fiscal 2000. Consumers continued the rapid transition to DVD technology from the VHS format. Sales of analog televisions and home theater systems also generated strong sales gains in fiscal 2001.
Entertainment
Software
Sales of entertainment software, which includes music and movies, computer
software and video games, were 19% of Best Buy’s total sales in fiscal
2001, unchanged from fiscal 2000. Best Buy posted its third consecutive
year of DVD movie comparable store sales gains of more than 100% due to
the continued expansion of the DVD hardware installed base and a broader
assortment of movie titles, including strong-selling new releases. Sales
of recorded music were impacted by the general absence of new releases
with strong consumer appeal and an increase in both the downloading of
music via Internet sites and greater consumer awareness of CD recording
technology. Video game hardware and software sales were weaker than
expected due to a shortage of new titles and the limited availability of
new technology products such as Sony’s PlayStation II video game
platform. Online offerings, industry consolidation, the industry-wide
decrease in personal computer unit sales volume and lower price points
continued to impact computer software sales.
Appliances
Comparable store sales of appliances declined in fiscal 2001 as a result
of an increased number of competing retail stores offering major
appliances, a lack of new products and the slowdown in consumer demand
that was experienced throughout the industry. Currently, the Company is
working with suppliers to improve its appliance business model, end to
end, and increase profitability. The primary areas of concentration
include the consumer shopping experience, marketing of products,
after-sale service and logistics.
Other
Sales in the “other” category, comprised of Performance Service Plans
(PSPs), furniture and other miscellaneous products such as batteries,
business cases and blank audio and video media, were consistent with
fiscal 2000 as a percentage of the retail store sales mix. PSP sales
decreased to 3.9% of revenues in fiscal 2001 from 4.0% of revenues in
fiscal 2000 due to the decline in personal computer and appliance unit
volume, which was offset by higher unit sales of other products.
Components of Operating Income
The following table presents selected operating ratios as a percentage of
revenues for each of the past three fiscal years.
Gross profit for fiscal 2001 improved to 20.0% of revenues, compared with 19.2% in fiscal 2000. The current-year increase was driven by improved product margins and a more profitable sales mix that resulted from increased sales of digital products and higher-end, more fully featured products. The generally lower-margin home office category, which includes personal computers, declined in Best Buy’s sales mix, while the generally higher-margin consumer electronics categories, which include most digital products, increased. However, within the home office category, Best Buy benefited from a more profitable sales mix as consumers shifted from lower- margin desktop computers to higher-margin configure-to-order and notebook computers. The Company also benefited from its “Complete Solution” selling strategy that is designed to provide customers with higher-margin accessories and services supporting their purchases. Improved inventory management contributed to the gross profit margin improvement as inventory turns for Best Buy stores increased to 7.6 turns in fiscal 2001, compared with 7.2 turns in fiscal 2000. The increase in inventory turns resulted in fewer markdowns, particularly during model transitions. The addition of Musicland’s financial results from its date of acquisition positively impacted the Company’s gross profit by approximately 0.2% of revenues, due to its higher margin sales mix.
Gross profit improved
to 19.2% of revenues in fiscal 2000 from 18.0% in fiscal 1999. The
improvement resulted from higher product margins, a more profitable sales
mix due to higher sales of PSPs and accessories, and an enhanced inventory
assortment. Improved inventory turns and continued efforts to reduce
inventory shrink also contributed to the gross profit margin improvement. 
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