Retek Case Study : BestBuy Launch Pad to Customer Centric Supply Chain

The BestBuy Evolution Best Buy Co., Inc is founded in 1966, North America's number-one specialty retailer of consumer electronics, personal computers, entertainment software and appliances. Operates 830 retail stores across US and Canada. Annual sales $27,433.00 end of Feb, 2005 ©2005 Retek Inc. CONFIDENTIAL

Launch Pad project started from the crisis in 1996 Growth ≠ Profit 1996年、BBYはACと契約、新システムの導入・ビジネスプロセス改善を目指す。 改革の4本柱は、在庫・アソート・調達・販促。 粗利益率が前年に比べて改善しているにも関わらず、営業利益が落ち込み・最終利益が赤字となった理由は主にSGAを押さえられなかったことと10Kレポートでは説明している。この年のSGA%は12.9%で前年の11.3%に比べ1.6%の増加。 既存店売上が前年を下回ったことに加え、固定費の増加(設備・物流・店舗サポート)傾向が続いたことを上げている。 より大型の店舗をより良い立地に出店する戦略をとり続けたことで、1店舗あたりの出店コストが膨らみつづけていた。売上に対する営業経費の割合も上昇を続けていた。また競合の激化から販促コストも前年に比べ増大。 ©2005 Retek Inc. CONFIDENTIAL

Project ‘Launch Pad’ Company Transformation project was named as ‘Launch Pad’ (1997-2000) In 1996, Best Buy, the largest name-brand consumer electronics retailer in the United State, faced one of the greatest challenges in its history. This $8 billion retailer had grown furiously, tripling its size in three years. But it had done so with very few changes to its operations and business processes. As a result, profitability was dwindling. In 1997, they started ‘company transformation project and set up four strategic goals: Optimized Space and Assortment Promotion Effectiveness Precision Pricing Strategic Sourcing and Vendor Relations Value Goal for Implementation Retek Modules implemented at Best Buy Build world class infrastructure Provide ‘real-time’ visibility to inventory Improved customer service Improve top line growth Increase data accuracy Repeatable, scaleable model that extends to all current and future business entities RMS Retek Merchandise System ReSA Retek Sales Audit ReIM Retek Invoice Matching ARI Active Retail Intelligence RSS Retek Store System* *RSS has been renamed as Retek Store Inventory Management ©2005 Retek Inc. CONFIDENTIAL

Implementation Strategy: Phased in enterprise functionality over time Implementation Time line 16 – 24 month with phased approach: Phase 1 RMS Foundation Data - May 7, 2001 (Item, Location, Hierarchy) Phase 2 RMS Zone Level Pricing - July 10, 2001 (Permanent, Promotional, Competitive, Cost) Phase 2A RMS Store Level Clearance Pricing - October 7, 2001 (Clearance) Phase 3 RMS / ReSA Dot Com Integration - October 18, 2001 (eSKU conversion, Sales Audit Readiness) Phase 3 ReSA Sales Audit Pilot - November 4, 2001 (Trickle Posting, Sales Audit) Phase 3A ReSA Sales Audit Rollout - February - March 2002 (Trickle Posting, Sales Audit, High Volume, Automation, Restart / Recovery) Phase 4 RMS Purchasing and Inventory - June 4, 2002 (POs, Perpetual Inventory, Stock Ledger, Vendor Deals Phases Currently In Development Phase 5 RSW Store Pilot - September 2002 (Receiving, Transfers, RTVs, Inventory Management, Item Inquiry) Phase 5 RSW Store Rollout - February - June 2003 (Receiving, Transfers, RTVs, Inventory Management, Item Inquiry) Value Goal for Implementation Build world class infrastructure Provide ‘real-time’ visibility to inventory Improved customer service Improve top line growth Increase data accuracy Repeatable, scaleable model that extends to all current and future business entities ©2005 Retek Inc. CONFIDENTIAL

Why We Lead Richard M. Schulze Founder, Chairman & CEO Mr. Richard Schulze, Founder, Chairman & CEO stated their strengths and competitive advantages as ‘Why We Lead’ at the analyst meeting and Shareholders meeting in 2002. Mr. Schulze resigned CEO later, so these are his last message for investors as CEO of Best Buy. Richard M. Schulze Founder, Chairman & CEO Innovative Store Design Process to Profit Ad Effectiveness Analysis SOP (Standard Operating Platform) Culture Knowledge Management Efficient Logistics Financial Strength ©2005 Retek Inc. CONFIDENTIAL

New Approach to Customer Centricity New Approach – CRM in 2002 defined as Customer Centricity In 2003, BestBuy defined their CRM as ‘Customer Centricity’ and put it at the center of their growth strategy. Comprehensive analysis and research had been processed through BestBuy.com、promotional coupons analysis, BestBuy defined targeted customer segments and build new offering based on Lab stores and pilot stores. FY2004 FY2002 FY2003 In 2002, Best Buy announced that they would focus CRM as next step to leverage their competitive advantage and continue company transformation ©2005 Retek Inc. CONFIDENTIAL

New Approach to Customer Centricity 1.Discovering potential customer segment and clear definition Comprehensive survey held through store customers, promotional coupons, market research company (2002 – 2003) Based on survey and Lab store analysis, 5 customer segment groups were defined (2003) 2.Defined merchandise assortment and new service offering Though Lab store operation, merchandise assortment and new service offering were defined for each customer segments (2003) This is still on going. 3.Launched 68 Pilot Stores 　 68 stores located in California converted to Pilot stores aimed at five specific customer segments. (2004) 4.Training and building store associates as specialist. Located associates by segments such as shopping assistant and technology experts. 5.Transform proto type stores to customer centric stores 　Plans to accelerate the conversion of its stores to its customer-centricity operating model. 150 – 200 in this year and first Lab stores in China. ©2005 Retek Inc. CONFIDENTIAL

New Approach to Customer Centricity CCSC Customer Centric Supply Chain: New product and service offering with professionals Business Professionals ‘Supporting small business’ Magnolia Home theater Consultants ‘Custom installation’ Personal Shopping Assistants Appliance Experts ©2005 Retek Inc. CONFIDENTIAL

New Approach to Customer Centricity Pilot stores, Lab stores and Customer Segment Customer Segment Pilot Stores 1 Small business customer who has specific needs related to growing sales and increasing the profitability of his or her business. 24 2 Affluent professional who wants the best technology and entertainment and who demands excellent service. 16 3 Family man who wants technology that improve his life – and that lasts. 4 Busy suburban mom. 12 5 The young, active early-adopter. 11 Comparison based on 32 Lab stores and Existing BestBuy Stores Comparable Sales Growth Rate Lab Store 17% vs. Existing Store Average 10%　・・・ 7%+ Average Transaction Volume Lab Store $104 vs. Existing Store Average $100　・・・ 4%+ Conversion Rate Lab Store 57% vs. Existing Store Average 51% ・・・6%+ ©2005 Retek Inc. CONFIDENTIAL

Best Buy Requirements: Customer Centric Supply Chain Planning Summary --Future State Footprint-- Rollups on hierarchy and alt- hierarchy Reconciliation with financials Unit Planning Collaboration (CPFR) Store Orders Demand forecasting Demand aggregating Inventory Planning Event Planning Transition Planning Cannibalization Sales forecast collaboration Receipt forecast collaboration Tolerance levels Trigger point Forward buy analysis Frozen forecast period Store sensitivity Location activation Presentation and display management Profile management Store Allocation Demand forecasting Time phased inventory planning Lead time forecasting Min / Max Fringe (buy one sell one) Rapid replenishment Space capacity constraints Returns to DC New store modeling DC Allocation Vendor Purchase Orders Demand forecasting Demand aggregating Inventory balance Understock Overstock Space capacity constraints Time phased inventory planning Shipment detail Order point / Order to logic Incorporate safety stock, lead times, cycle stock Lead time forecasting Returns to Vendor Reporting Lead Time DC/store balancing Forecast error Projections Promotional Operational measures Price moves Category build comparisons ©2005 Retek Inc. CONFIDENTIAL

Best Buy choose Retek again Best Buy choused Retek again to support their Customer Centric Supply Chain Selected Retek Modules: Forecasting (Went Live on Oct. 2004) Allocation (Went Live on Jul. 2004) ASO Item Planning Financial Planning AIP Plan to CRP and implement the full footprint, shift business to the new platform over time How the deal was won: Why did they choose Retek? “elevator”/background story of the deal? What potential benefits are they expecting? Duration of Sales Cycle What are their future plans? What areas/products are potentials for up-selling/cross-selling? What is the client’s implementation strategy? ©2005 Retek Inc. CONFIDENTIAL

Best Buy choose Retek again Why did Best Buy choose Retek? Best Buy was an existing Retek customer and knows well about Retek. Retek was seen as the default software vendor for Best Buy’s Customer Centric Supply Chain program Best Buy heavy focus on implementing “vanilla” product with configuration versus custom development and found good fit for Retek’s Planning, Forecasting & Optimization Platform. What potential benefits are they expecting? CCSC, Customer Centric Supply Chain is planning to drive $450M in benefit from the supply chain How the deal was won: Why did they choose Retek? “elevator”/background story of the deal? What potential benefits are they expecting? Duration of Sales Cycle What are their future plans? What areas/products are potentials for up-selling/cross-selling? What is the client’s implementation strategy? ©2005 Retek Inc. CONFIDENTIAL

Summary of Retek Modules at BestBuy Summary: The BestBuy Evolution Summary of Retek Modules at BestBuy Launch Pad Project 2000-2002 CCSC Program Project 2004-2006 RDF (Retek Demand Forecasting) Allocation (Allocation) ASO 　　　 (Assort Optimization) Item Plan (Item Life Cycle Plan) Financial Plan (Merchandise Financial Plan) AIP (Advanced Inventory Planning) RMS　(Merchandising System) ReSA (Retek Sales Audit) ReIM (Retek Invoice Matching) ARI (Active Retail Intelligence) RSS　(Retek Store System) Best Buy Customer Centric Transformation ©2005 Retek Inc. CONFIDENTIAL