International Expansion Key for Best Buy - TheStreet

NEW YORK (

TheStreet

) --

Best Buy

(BBY) - Get Report

, which competes primarily with

Wal-Mart

(WMT) - Get Report

and

RadioShack

(RSH)

after the closure of Circuit City during the recession, is the largest specialty retailer of consumer electronics in the U.S. The retailer enjoys a market share of more than 22% in the U.S. consumer electronics market.

With signs of an improving economy, Best Buy is trying to improve its market share in the U.S. However, we believe there is a greater opportunity for expansion in international markets. We estimate that international stores constitute around 18% of the $42 Trefis price estimate for Best Buy's stock. Below we discuss the potential opportunity for Best Buy to expand internationally.

Developing Economies Present a Huge Opportunity for Best Buy

Best Buy's international expansion began with Canada and later extended to China, Mexico and Europe. Emerging markets in Asia and Latin America provide Best Buy a good expansion opportunity.

Best Buy had only 1% share in the $80 billion+ consumer electronics market in China at the end of 2007, which means that the company still has a huge opportunity to gain share in this market. Best Buy is planning to open several hundred stores over the next 5-10 years in China. Best Buy accounted for only about 1.7% to 1.8% of the international consumer electronics sales (excluding the U.S.), giving it a lot of scope to expand.Currently, we forecast that Best Buy's international store count will increase from nearly 400 in 2010 to more than 550 by the end of our forecast period, representing an average growth rate of 5.5%. You can modify the forecast below to see how higher international store growth can boost Best Buy's stock.

Best Buy Set to Expand in Europe

Best Buy plans to focus on expanding in the U.K. before spreading to the rest of Europe. The retailer maintains that its level of customer service is much better than any of its competitors in the U.K. like DSGi and Comet, and that its stores offer a broader range of products, making it attractive to different customer groups. We believe that Best Buy can leverage its strengths and grab a significant share of the European consumer electronics market going forward.

Acquisition-Based and Dual Branding Strategy to Help in Expansion

Best Buy has traditionally expanded through acquisitions, both within and outside of the U.S. Besides acquisitions, the retailer has maintained brand equity of the acquired brands which carry with them established customer relationships. For example, Best Buy acquired Future Shop in Canada and Five Star in China, which were already established brands among consumers. Best Buy will continue to open new stores under these acquired brand names as well as under the Best Buy brand.

This dual branding strategy has proved to be successful over the years and offers the consumers an experience which is unique to each store type. The success of this strategy is likely to help Best Buy in faster expansion.

You can see

the complete $42 Trefis price estimate for Best Buy's stock here.

Trefis

is a financial community structured around trends, forecasts and insights related to some of the most popular stocks in the U.S.