Best Buy 10Q Statement

You probably study this stuff and already know it, but here is the most recent Best Buy 10Q Statement (click here).

On page four, you'll see that Best Buy sold $21.0 billion dollars of merchandise in the first six months of their fiscal year. And you'll instinctively (and correctly) think "that's ... a ... lot".

However, gross margin dollars aren't all that and a bag of chips.

• $21.0 billion in sales.
• $4.6 billion in gross margin dollars.
• 21.9% gross margin percentage.

In other words, when Best Buy sells a $1,000 television they generate $110 of gross margin.

And then it costs a lot of money for Best Buy to support the $110 they made.

• Selling, General, Administrative Expense (which includes marketing and stores and the website, and pick/pack/ship and salaries all that good stuff) was $3.8 billion.
• Best Buy, because of the business model they chose, cannot afford to spend a ton of money on marketing because there won't be any earnings before taxes if they spend marketing dollars unprofitably.

In other words, Best Buy sold $21.0 billion worth of merchandise to make $0.8 billion in EBIT ... about 3.8%.

Best Buy cannot afford to spend a lot of money on marketing. They have to create traffic in different ways, they have to create traffic organically. They have no choice.

The merchandise you sell ... the periodicity with which customer purchase it ... that dictates what your marketing strategy will be.