Best Buy went from local Hi-Fi store to the S&P500

On August 22, 1966, St. Paul, Minnesota was home to the opening of a new audio store selling Hi-Fi stereos – Sound of Music – founded by Richard M. Schulze, later founder of Best Buy, and a business partner. The venture required Schulze to invest his entire life savings and take out a second mortgage on his family home. Thankfully for him, the ascent to success was fast-moving.

Fast-forward to 2016, and Schulze ranked number 722 on the Forbes list of the world’s billionaires, with a net worth of $2.4 billion. In 2018, Best Buy (formerly Sound of Music) was ranked number 72 on the Fortune 500 list of the largest U.S. corporations by total revenue.

From Sound of Music to Best Buy, a tornado of success

Rewinding to the late 60s, after a successful first year with $1 million in revenue and $58,000 in profits, Sound of Music acquired Kencraft Hi-Fi Company and Bergo Company in 1967.

By 1969, the company had grown to three stores, and Schulze bought out his business partner. By 1978, this number had increased to nine stores throughout Minnesota, but the tornado of success was yet to come.

Tornado is not a metaphor; in 1981 a physical tornado destroyed half of Sound of Music’s Roseville store, the most profitable branch at the time.

Schulze decided to make the best out of a bad situation by hosting a “Tornado Sale” in the store’s parking lot. He sold excess and damaged goods at extremely low prices.

He marketed the event as “best buys,” and the campaign proved highly successful. Sound of Music made more money during the four-day sale than it did in a typical month.Hence the inspiration for the name Best Buy which was officially adopted in 1983 and remains until this day.

Expanding beyond Hi-Fi to the NYSE and S&P500

In the 1980s, Best Buy expanded its product range to include home appliances and VCRs, aiming to reach beyond its initial 15- to 18-year-old male customer base. In 1983, it opened its first superstore in Burnsville, Minnesota, with a high-volume, low-price model that was highly successful. The company went public in 1985 and was listed on the NYSE in 1987.

In 1988, Best Buy introduced “Concept II,” a new store format that emphasised a brighter, more self-service shopping environment, eliminating commissioned salespeople. Despite initial resistance from suppliers, the format proved successful, leading to increased sales.

Best Buy continued innovating with “Concept III” stores in 1994, offering larger spaces, expanded product offerings, and interactive kiosks. By 1998, the company launched “Concept IV” stores with a more streamlined layout.

In 1999, the addition of Best Buy to the S&P 500 marked a significant milestone in its growth.

00s: Carphone Warehouse, Napster, Geek Squad, and in-store shops

In the 2000s, Best Buy made significant acquisitions and expansions. It launched Redline Entertainment and acquired Magnolia Hi-Fi in 2000, followed by Musicland Stores in 2001. The company also entered the international market by acquiring Future Shop in Canada.

In 2002, Brad Anderson succeeded Richard Schulze as CEO, and Best Buy continued to grow with the acquisition of Geek Squad and the opening of its first Canadian store. By 2003, Best Buy surpassed 600 U.S. stores and introduced new initiatives, including the “Reward Zone” loyalty program.

In 2004, the company started its “customer centricity” program and expanded Geek Squad services. It also began eliminating mail-in rebates in favour of instant rebates.

In 2006, Best Buy acquired a majority interest in the Chinese appliance retailer Jiangsu Five Star. The company then opened its first store in Shanghai in 2007.

In 2008, it expanded into musical instruments, started selling Apple’s iPhone, and acquired Napster. The company also opened its first stores in Puerto Rico and Mexico. In 2009, Best Buy launched its Best Buy Mobile stores and partnered with Roxio’s CinemaNow for on-demand streaming.

It continued its global expansion with stores in Turkey and the UK but faced challenges. By 2011, Best Buy exited the Chinese market and purchased mindSHIFT Technologies for IT support services.

In 2012, the company began a “transformation strategy” due to declining revenues, introducing redesigned stores with centralised service desks. That year, personal misconduct allegations led to CEO Brian Dunn’s resignation, and Hubert Joly became the new CEO.

Joly’s tenure gave birth to initiatives such as price matching and establishing “store within a store” sections for major brands such as Apple, Google, Microsoft, and Samsung. He also emphasised more product training for employees.

In 2013, Best Buy sold its stake in The Carphone Warehouse and exited the European market. With increasing online shopping competition, Best Buy faced declining sales, prompting closures such as the shutdown of its Future Shop chain in Canada in 2015 and the Best Buy Mobile stores in 2018. In 2019, Corie Barry replaced Hubert Joly as CEO, marking a new chapter for the company.

Modern challenges: the pandemic, e-commerce, and streaming services

Due to the nature of its product, Best Buy is a company that has had to adapt in the face of technological evolution on multiple fronts. CD and DVD players had their hay days, but visual and audio consumption began to change as online streaming services such as Spotify and Netflix gained popularity. And the effect rapidly multiplied during the pandemic.

Another consequence of the pandemic was the shift from in-store shopping to online shopping. With so many physical branches globally, Best Buy was forced to seriously consider how to restructure its medium of sales.

This became evident in August 2022 when Best Buy announced plans to lay off employees nationwide after projecting weaker sales and lowering its forecast for the rest of the year. And on October 13, 2023, Best Buy revealed it would stop selling physical home video media in early 2024.

Trading Best Buy shares and the S&P500 index

Despite challenges faced due to ‘disruptions’ in the tech industry, Best Buy are perhaps one of those companies that were already too big to fail. They remain one of the largest brands in the world, with a strong share price and part of one of the most famous trading Indices in the S&P500.

In terms of trading speculation, Best Buy remains a popular option among traders, still trading under the symbol BBY on the New York Stock Exchange and with brokers such as IronFX.

Disclaimer: This information is not considered as investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.