Best Buy Co (BBY) Risk Analysis

We have wholly-owned legal entities registered in various foreign countries, including Bermuda, Canada, China, India, Luxembourg, the Republic of Mauritius, the United Kingdom and Vietnam. Additionally, most of our exclusive brand products are manufactured by contract manufacturers based in China, Mexico and Southeast Asia. During fiscal 2026, our International segment generated approximately 8% of our consolidated revenue. In addition to the risk factors identified throughout, our international operations could be impacted by additional risks, including: - political conditions, diplomatic relationships and alliances and geopolitical events, including war and terrorism;- economic conditions, including monetary and fiscal policies and tax rules, as well as foreign exchange rate risk;- rules governing international trade and potential changes to trade policies or trade agreements and ownership of foreign entities;- government-imposed travel restrictions or warnings and differing responses of governmental authorities to pandemics and other global events;- cultural differences that we may be unable to anticipate or respond to appropriately;- different rules or practices regarding employee relations, including the existence of works councils or unions;- difficulties in enforcing intellectual property rights; and - difficulties encountered in exerting appropriate management oversight to operations in remote locations. These factors could significantly disrupt our international operations, impact our return on investment or necessitate adjustments to our international strategy, including modifying or exiting our operations in certain locations. As a result, we may experience material adverse effects to our revenue and profitability and could incur material impairments and other exit costs.

Catastrophic events, including those driven or intensified by climate change, pose a growing risk to our operating results and financial performance. The frequency and severity of natural disasters or extreme weather events (such as storms, blizzards, extreme temperatures, earthquakes, hurricanes, floods, fires and droughts) are increasing in many of our key markets, particularly in our three largest states by total sales (California, Texas and Florida). We may experience other catastrophic events beyond natural disasters, including pandemics, civil unrest, power loss, telecommunications failures, software and hardware malfunctions, terrorism (including related cyber threats) and other acts of violence. Additionally, the locations where we do business could continue to be the subject of unrest and national attention, which impacts our ability to operate. The adverse effects of these events may be amplified should multiple events occur simultaneously, such as a natural disaster during a pandemic. Such events may prevent our workforce and/or customers from reaching our stores and properties, disrupt segments of our supply chain and distribution network or impact critical third-party services. These disruptions may impact our ability to procure goods or services necessary for operating our business and may affect our information technology systems, limiting our ability to transact with customers and fulfill orders. Catastrophic events could result in significant physical damage to, or closure of, our facilities. They may also necessitate preventative investments in our facilities and infrastructure. Moreover, insufficient infrastructure investment may increase the risk that large-scale disruptive events could impact our critical infrastructure, potentially having a material adverse impact on our operations and financial performance. As a consequence of these catastrophic events, we may experience interruptions to our operations or losses of property, equipment and/or inventory, which could adversely affect our revenue and profitability.

Our performance is highly dependent on attracting, retaining and engaging appropriately qualified employees in our stores, service centers, distribution centers, field and corporate offices. Our strategy of offering high-quality services and assistance for our customers requires a highly trained and engaged workforce, which is reliant on the creation and maintenance of a positive culture that is attractive to all qualified employees and beneficial relationships between employees and the enterprise. The turnover rate in the retail sector is relatively high, creating an ongoing need to recruit and train new employees. Our ability to maintain sufficient numbers of qualified employees depends on a number of factors, such as employee engagement, our reputation, our ability to train and develop our employees, our ability to connect with and promote available talent pools, our development and maintenance of employee-desired policies and practices, unemployment rates, competition from other employers, availability of qualified personnel and our ability to offer appropriate compensation and benefit packages. Additionally, increasingly prevalent legal and regulatory restrictions on the terms or enforceability of non-competition, employee non-solicitation, confidentiality and similar restrictive covenant clauses could make it more difficult to retain qualified personnel. Further, our policies and practices may be affected by, or require changes in response to, evolving legal and regulatory restrictions on policies related to employee engagement, which may further impact our ability to retain and engage qualified employees. We operate in a competitive labor market, and there is a risk that market increases in compensation and employer-provided benefits could have a material adverse effect on our profitability. We may be subject to continued market pressure to increase employee hourly wage rates and employer-provided benefits, especially as the cost of living increases. In addition, prolonged external stressors (e.g., from violence, political unrest or customer behavior) may affect the mental wellbeing of employees and lead to fatigue, reduced engagement and/or attrition. Failure to recruit or retain qualified employees may impair our efficiency and effectiveness and our ability to pursue growth opportunities. In addition, significant turnover of our executive team or other employees in key positions with specific knowledge relating to our operations and industry may negatively impact our operations and financial results and potentially have cascading effects on our employees.

As discussed above, our revenues are susceptible to volatility from various sources, which can lead to periods of flat or declining revenues. However, some of our operating costs are fixed and/or are subject to multi-year contracts. Some elements of our costs may be higher than our competitors' because of, for example, our extended retail footprint and structure, our hourly pay structure, our differentiated service offerings or our level of customer service. Accordingly, our ongoing drive to reduce costs and increase efficiency represents a strategic imperative. Failure to successfully manage our costs could have a material adverse impact on our profitability and curtail our ability to fund our growth or other critical initiatives.

We constantly strive to offer consumers the best value in a highly competitive retail sector. We compete against many local, regional, national and international retailers (both online and brick and mortar), as well as against some of our vendors and mobile network carriers that are leveraging their own direct-to-customer channels to market and sell products. Shoppers are increasingly price-conscious when making discretionary purchases. At the same time, online and multi-channel retailers are prioritizing fast, low-cost delivery options, including curbside pickup and guaranteed shipping times. Because our strategy is based on offering superior levels of customer service and a full range of complementary services, our cost structure may be higher than some of our competitors, creating additional margin pressure. Failure to manage these factors effectively while offering competitive delivery options could negatively impact our profit margins and the demand for our products. Our ability to remain competitive also depends on effectively maintaining and growing our customer base and accurately forecasting their spending levels. An inability to drive traffic to physical and digital channels or to maintain brand relevance with target audiences could pose both an operational and financial risk. Additionally, failure to consistently meet customer expectations across stores, in-home services and online platforms could negatively impact our financial performance. Inability to quickly adapt to changes in customer behavior (e.g., AI-driven search, AI shopping bots) could have an adverse impact our financial results. Competition is becoming increasingly diverse, including through the expansion of retail media networks, such as our retail media network, Best Buy Ads, which competes for brand marketing spend and advertiser attention. Additionally, as our Best Buy Marketplace platform expands, where third-party sellers can sell products on our platform, we face the added challenge of competing not only with external sellers but also with third-party sellers on our own platform. Further, as our competitors develop and expand their strategic use of AI, our operations and profitability could be adversely impacted if we fail to execute or maintain our own focused AI strategy that drives technological advancement and innovation. Diverse competition may also arise from new entrants into the markets we serve, including unexpected players who could more aggressively leverage technologies such as AI and platform integrations. As these and related competitive factors evolve and progress, we may experience material adverse pressure on our revenue and profitability.

If the products we sell fail to meet, or are alleged to fail to meet, applicable safety standards or our customers' expectations regarding safety and quality, we could be exposed to increased legal risk and damage to our reputation. Failure to take appropriate actions in relation to product-related issues (e.g., product recalls) could lead to violations of laws and regulations and leave us susceptible to government enforcement actions or private litigation. Recalls of products, particularly when combined with lack of available alternatives or difficulty in sourcing sufficient volumes of replacement products, could also have a material adverse impact on our revenue and profitability. Our ability to find qualified vendors who can supply products that meet our internal standards of quality and safety in a timely and efficient manner can be difficult, especially with respect to goods sourced from outside the U.S. Risks such as political or economic instability, cross-border trade restrictions or tariffs, merchandise quality issues, product safety concerns, work stoppages, human rights violations, port delays, foreign currency exchange rate fluctuations, transportation capacity and costs, inflation, civil unrest, natural disasters, outbreaks of pandemics and other factors relating to foreign trade are beyond our control. These and other related issues could have a material adverse impact on our financial results. Because we have greater responsibility for products under our exclusive brand labels, recalls or safety issues involving these products may present heightened risks compared to branded goods, including: - exposure and responsibility to consumers for warranty replacements and repairs as well as product liability claims (including bodily injury or death) and government-enforced actions, some of which may require us to take significant actions, such as recalling products;- inventory obsolescence as we do not generally have return-to-vendor rights;- disruptions in manufacturing or logistics due to inconsistent and unanticipated order patterns;- our inability to develop long-term relationships with key manufacturers;- claims by technology or other intellectual property owners if we inadvertently infringe upon their patents or other intellectual property rights or if we fail to pay royalties owed on our exclusive brand products;- inability to obtain or adequately protect patents and other intellectual property rights on our exclusive brand products or manufacturing processes; and - failure to maintain consistent quality, availability and competitive pricing, which could have a material adverse impact on the demand for exclusive brand products and the profits we are able to generate from them. Most of our exclusive brand products are manufactured by contract manufacturers in China, Mexico and Southeast Asia, which may limit our ability to do the following: - seek recourse from manufacturers may be limited in foreign jurisdictions;- conform in a timely manner to new rules or interpretations of developing and often-changing labor and environmental laws for the manufacturing of products in foreign countries; and - source alternatives quickly enough to avoid interruptions in product supply due to disruptions, such as trade disputes or excessive tariffs. Our expanding Best Buy Marketplace, including our existing Canadian platform and our recently launched U.S. platform, could present additional risks. Should the third-party products sold on our Best Buy Marketplace fail to meet quality, safety or regulatory standards, it could erode customer trust and damage our reputation. Moreover, unsettled laws regarding retailer responsibility for product liability and intellectual property claims related to third-party products sold on marketplace platforms compound our marketplace risk.

We operate in a highly and increasingly dynamic industry sector fueled by constant technological innovation, advancement and disruption, including the rapid integration of artificial intelligence ("AI") into consumer products. These factors manifest in a variety of ways: the emergence of new products and categories, the rapid maturation of categories, cannibalization of categories, changing price points, and product replacement and upgrade cycles. This rapid pace of change can be hard to predict and manage. If we fail to interpret, predict and react to these changes in a timely and effective manner, the consequences may include, but are not limited to: - failure to offer, or inability to secure an adequate supply of, the products and services that our customers want;- excess inventory, which may require heavy discounting, liquidation or storage;- delays in adapting our merchandising, marketing or supply chain capabilities to accommodate changes in product trends; and - damage to our brand and reputation. Vendors may also fail to adequately invest in new technology, design, production or distribution facilities and may reduce their customer incentives, advertising and promotional activities or change their pricing policies. These and other similar factors could have a material adverse impact on our revenue and profitability.

Our business involves the collection, use, sharing and retention of personal information (including payment card information and protected health information) and confidential business information. We share personal and confidential information with suppliers and other third parties and use third-party technology and systems that process and transmit information for a variety of activities. We have been the target of attempted cyber-attacks and other security threats, and we may be subject to breaches of our information technology systems. While we engage in significant cybersecurity and data-protection efforts, criminal activity (such as cyberattacks), lapses in our controls, impersonation of individuals with proper access controls, or the intentional or negligent actions of employees, business associates or third parties may undermine our cybersecurity and privacy measures. As a result, unauthorized parties may obtain access to our data systems and misappropriate company, employee, third-party or customer information, authorized parties may use or share personal information in an inappropriate manner, or bad actors may otherwise seek to extract financial gain based on access to, or possession of, company, employee, customer or vendor information. Furthermore, because the methods used to obtain unauthorized access change frequently and may not be immediately detected, and given the potentially disruptive nature of emerging technologies, we may be unable to anticipate such attacks or promptly and effectively respond to them. The integration of AI into our operations introduces cybersecurity and privacy risks (including unauthorized or misuse of AI tools) and could lead to potential unauthorized access, use, acquisition, release, disclosure, alteration or destruction of personal or confidential information or challenge the stability of our platforms. Further, evolving consumer behaviors, such as shopping through AI-driven services, introduces growing complexity and heightened cybersecurity and privacy risks. These trends increase the complexity of bot mitigation strategies, requiring organizations to maintain robust cybersecurity controls while ensuring discoverability within agentic services and AI-powered search environments. This dual challenge amplifies our exposure to potential data privacy breaches, automated exploitation, and integrity risks in digital ecosystems. Sensitive customer data may also be present on customer-owned devices entrusted to us for service and repair. Vulnerable code on products sold or serviced, including our exclusive brands, may also result in a compromise of customer privacy or security. If our efforts to protect against such compromises and reasonably ensure appropriate handling of customer data on devices we manufacture, sell or service are not effective, we may incur potential liability and damage to our customer relationships. Increasing costs associated with information security and privacy, such as increased investment in technology and qualified staff, costs of compliance, costs resulting from fraud or criminal activity and costs of cyber and privacy insurance, could cause our business and results of operations to suffer materially. In addition, any compromise of our data security may materially increase the costs we incur to protect against such breaches and could subject us to additional legal risk. Any compromise of our customer information or other confidential information could have a material adverse impact on our reputation and/or our relationships with our customers and partners, which may in turn have a negative impact on our revenue and may expose us to material costs, penalties and claims. Additionally, newly applicable and potential new or significantly revised state, provincial and federal laws and regulations in the jurisdictions in which we do business are expanding (and may further expand) our obligations to protect and honor the privacy and security of personal information, imposing new restrictions on the collection, use, sharing and retention of data and requiring additional implementation resources, all of which create incremental risk arising from a potential breach or compliance failure. The proliferation of new and updated privacy laws and regulations, including the rise of extreme data minimization legislation, has the potential to limit our ability to collect, use or share personal information and thus hinder our strategic and marketing efforts (e.g., Best Buy Ads and Best Buy's own efforts to communicate with consumers). We could be subject to heightened regulatory investigations, penalties and fines if a cybersecurity event or privacy violation is related to data or sensitive personal information that is regulated by laws such as, for example, the Health Insurance Portability and Accountability Act (HIPAA), the Personal Information Protection and Electronic Documents Act (PIPEDA), or the California Consumer Privacy Act (CCPA).

The effective and efficient operation of our business is dependent on our information technology systems and those of our information technology service providers. We rely heavily on these information technology systems to manage all key aspects of our business, including demand forecasting, purchasing, supply chain management, transaction processing, fulfillment of products and services (including, for example, our urgent response and care center services provided by Best Buy Health), staff planning and deployment, financial management, reporting and forecasting and safeguarding critical and sensitive information. Our information technology systems and those of our partners are subject to damage or interruption from several potential sources including: - power outages, computer and telecommunications failures;- catastrophic events (such as grid failures, fires, tornadoes, earthquakes and hurricanes);- computer viruses, worms or other malicious computer programs;- denial-of-service attacks, security incidents (through cyber-attacks and other malicious actions, including ransomware and social-engineering attacks);- malicious attacks by foreign governments, criminals or other non-state actors;- configuration or usage errors;- unforeseen traffic levels;- loss of inability to access or process critical data; and - other technical difficulties or events outside of our control. These risks may be made more salient or may be compounded by a variety of factors, including: - delays in modernizing these services and technology platforms;- increasing demand and expectation for data hygiene and availability, both from internal and external partners;- criticality of our online interactions and sales;- continued hybrid or full-time remote working arrangements for many employees;- increasing use of SaaS, platform as a service and infrastructure as a service providers;- leveraging of new AI technologies in key business processes; and - use of AI by threat actors to engage in automated, targeted and coordinated attacks of systems. While we have adopted, and continue to enhance, business continuity and disaster recovery plans and strategies, there is no guarantee that such plans and strategies will be effective, which in turn could interrupt the functionality of our information technology systems or those of third parties. For example, as threat actor use of adversarial AI technology increases, vulnerabilities may be identified and exploited at a more rapid pace, which will make maintaining our system integrity more challenging. If we fail to secure these systems against attacks, or fail to effectively configure, upgrade and maintain our hardware, software, network, and system infrastructure and improve the efficiency, resiliency and capacity of our systems, it could cause system interruptions and delays and hinder our ability to accept and fulfill customer orders, provide customer service and/or perform other necessary business functions. Any interruption could have a material adverse impact on our revenue and operations, cause us to incur material costs and/or adversely affect our reputation.

For information about our legal proceedings, see Note 10, Contingencies , of the Notes to Condensed Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q.