Business Case Studies, Leadership Case Study, Tata Group,Ratan Tata

Code :BSM0029

Year : 2005

Industry : Retailing

Region : USA

Teaching Note:Not Available

Structured Assignment :Not Available

Introduction:BestBuy and CircuitCity are two of the US' top three consumer electronics retailers. Both have cavernous stores that stock every electronics gadget from Apple's iPod and Samsung's giant DLP television sets to Dell's computers. In the mid-1990s, CircuitCity was the market leader in the electronics segment, and BestBuy was the smaller, debt-ridden follower. Adecade later, their positions have been reversed. BestBuy leads the consumer electronics field while CircuitCity is facing tough times. Competition is fierce as relentless commoditization of electronics goods cut profit margins and affects the balance sheet of these companies. Both the companies rely heavily on the sale of extended warranties on electronics products to generate profits. Warranties are associated with upscale electronics goods.

Wal-Mart, the world's number one retailer, is the other company making up the top three. At the end of 2004, Best Buy had a market share of 31%, Wal-Mart controlled 20%, and CircuitCity had a 14% share of the electronics market. For Wal-Mart, a known retailer of low-end products, selling warranties is not a part of the company's business model. However, in October 2005, as part of its strategy to move into the upscale market, Wal-Mart announced plans to start selling warranties. Wal-Mart offered warranties at prices that deeply undercut those of the competition. The entry of Wal-Mart into the most profitable business division of BestBuy and CircuitCity, poses amajor threat to the revenue models of these two companies.