Bestbuy (4-22-09)

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Presented by Evan Zaletel Gray Bigler Alex Knecht Jesse Kedy

Best Buy Profile Specialty retailer: consumer electronics, home‐office  products, entertainment software, appliances &  related services  Competition: other electronics stores, mass‐merchants,  home improvement stores Store development program Primarily in existing markets •Presence: 23 stores in VA •Goal: increase market share (18%)

Main Issue & Goals • • • •

Expanding Market Share Reaching Under-served Markets Strategic Locations (i.e. major intersections) 2007 Expansion Goals – 90 New Stores in U.S. & Canada – Leveraging Existing Infrastructure

Problem with Initial Regressions Reg. IV’s PSport;  #1

Problems

M40‐49; F40‐49

Multicollinearity (M40‐49 &  F40‐49) 

#2

PSport; Income M40‐49; 

Adjusted R Square too low  (0.943)

#3

PSport; Income; Mobile; M40‐49

Adjusted R Square (0.949);  Mobile Beta (‐0.086)

#4

PSport; Income;  Housevalue M40‐49;

Adjusted R Square (0.950);  PSport Beta (0.072)

Regression # 5

No Multicollinearity Problems!

Regression # 5 95.2% of the variance in the  number of electronics and  appliance stores is explained by  the variation in the IVs. All IVs are significant.

Interpretation of IVs Coefficients a

Model 1

(Constant) Number of males 40 to 49 years of age Median household income in 1999 Median value of owner-occupied housing units Median year structure built

Unstandardized Coefficients B Std. Error 417.055 102.058 .002

.000

.000

.000

8.14E-005

.000

-.211

.052

Housevalue: As the median value  of owner occupied housing units  increases by $100,000, the  number of electronics stores  increases by 8. 

M40‐49: As number of males 40‐49  increases by 1000, the number of  electronics stores goes up by 2. Income: As median household  incomes increases by $10,000, the  number of electronics stores  increases by 2 (0.0002) Yearbuilt: As the median age of a  structure decreases by 10 years (i.e. the  newer the structure), the number of  electronics stores decreases by 2 

Summary:  Regressions & Disregarded Variables

1

Electronics

PSport, M40‐49,  F40‐49

Multicolinearity (Males & Females)

2

Electronics

PSport, M40‐49,  Income 

Removed Females 0.943  (Males=main target) (Prefer > 95% )

3

Electronics

PSport, M40‐49,  Income, Mobile

Added Mobile (least  0.949 important IV)

4

Electronics

PSport, M40‐49,  Income,  Housevalue

Replaced Mobile (least important IV)

0.95

5

Electronics

Housevalue,  M40‐49, Income, Yearbuilt

Replaced PSport (least important IV)

0.952

NA

Final Answer!

Sorting Procedure Retail Potential Calculated by comparing expected number of electronics stores in a  county to actual number of electronic stores in a county •Saved from regression as ‘unstandardized residuals’ •Result shows to what extent stores are “missing” •more negative = higher potential for a new store

•Sorted counties by retail potential •Seeking greatest retail potential while  fulfilling other criteria

Top 10 Counties in Virginia  by Retail Potential 1. Augusta County         2. Portsmouth City  3. Chesterfield County 4. Bedford County       5. Prince William County 6. Hampton City 7. Roanoke County       8. Richmond City         9. Clifton Forge City   10.Norfolk City

Selecting a County Six Main Criteria 1. Retail Potential:  At least 5 less stores than expected All 10 counties qualified

2. Population (sufficient size):  Above 100,000

3. Income (sufficient means):  Above $45,000

Selecting a County (cont) 4. PElectronics (demand):  between 2% and 4% To demonstrate a market exists for electronics in that county

5. PSport (Music/ DVD demand):  between 4% and 7% To demonstrate a market exists for music/DVDs in that county

6. PMales:  at least 48 percent Best Buy stores tend to target males more than females

Selecting a County (cont) Tabulated criteria to evaluate based on multiple factors

Augusta

‐9.84006

1

5,696

$43,045

65,615

Portsmouth city 

‐9.38079

7

6,737

$33,742

100,565

Chesterfield

‐8.40461

36

22,262

$58,537

259,903

Bedford Prince William Hampton city Roanoke Richmond city         Clifton Forge city   Norfolk city       

‐8.1322

2

5,281

$43,136

60,371

‐7.84942

38

22,726

$65,960

280,813

‐7.22696

17

11,203

$39,532

146,437

‐6.80851

7

6,955

$47,689

85,778

‐6.34982

28

13,620

$31,121

197,790

‐5.90242

0

279

$26,090

4,289

‐5.65534

30

14,603

$31,815

234,403

Selecting a County (cont) And the Winner is… Chesterfield county Only county to satisfy all requirements

Augusta

4.67%

50.29%

0.47%

$110,900

1977

Portsmouth city 

4.41%

48.31%

2.37%

$81,300

1961

Chesterfield

6.18%

48.71%

3.84%

$120,500

1982

Bedford

4.35%

49.87%

2.17%

$127,000

1982

Prince William

7.76%

49.88%

4.15%

$149,600

1983

Hampton city

6.42%

49.56%

3.31%

$91,100

1969

Roanoke

4.46%

47.26%

3.47%

$118,100

1974

Richmond city        

7.31%

46.55%

2.76%

$87,300

1955

Clifton Forge city  

0%

44.11%

0%

$52,800

1939

6.43%

51.12%

3.27%

$88,400

1959

Norfolk city       

Selected County: Chesterfield

Refining the Selection Based on Tract‐Level Census Data:

Criteria ‐ Males/ 100 females (>= 85) ‐ Median Household Income (>= $49K) ‐ Median Value, Owner‐Occupied Housing Units (>=  $90K)  ‐ Persons per square mile (>= 1,250)

Males per 100 Females, Tract Level Eliminating tracts based on each criterion

Males per 100 Females, Tract Level

Median Household Income, Tract Level

Median Household Income, Tract Level

Median Value of Owner‐Occupied  Housing Units, Tract Level

Median Value of Owner‐Occupied  Housing Units, Tract Level

Persons Per Square Mile, Tract Level

Persons Per Square Mile, Tract Level

Two Possible  Locations

And the  Winner is…

Existing Best  Buy Store  Locations…

Census Track 1009.15 Males/ 100 Females: 86–93 Males per 100 Females  Median Household Income: $52,167  Adjacent to highest income area

Median Value, Owner‐Occupied Housing: $102,800  Adjacent to highest value area

Persons Per Square Mile: 1,976–2,976  Adjacent to large, underserved area

Median Age: M: 37.8 years | F: 41.1 years Average Household Size: 2.36 people

Approximate 12 min  drive from nearest BB 

Limitations

Any Questions?

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