What is a Business Segment?
A Business Segment (or a Strategic Business Unit) is a subsection of a company’s overall area of operation in which there is an established separate product line. A business segment can be identified by the product(s) sold or services provided or by geographical locations that the company operates in.
Senior management typically divides the overall company into business segments to understand which areas of the company need improvement and which areas are doing well.
Example of Business Segments: Walmart
Walmart Inc (WMT) is an American multinational retail corporation incorporated on October 31, 1969, that operates through the following business segments:
- Walmart U.S. segment consists of retail stores and digital retail operations in the United States. Of the three business segments, Walmart U.S. has the highest gross profit as a percentage of net sales.
- Walmart International segment consists of operations outside of the U.S. and involves retail, wholesale, and other. Due to the merchandise mix, the overall gross profit rate for Walmart International is lower than that of Walmart U.S. The segment grows primarily through acquisitions.
- Sam’s Club segment consists of membership-only warehouse clubs. Sam’s Club operates with a lower gross profit rate and lower operating expenses.
(Source: Walmart Corporate Investor Relations Website)
Example of Business Segments: Amazon
Amazon.com Inc (AMZN) is a global technology leader in the provision of online retail products and cloud computing. The company was founded in July 1994 by Jeffrey P. Bezos and is headquartered in Seattle, Washington. The company operates through the following business segments:
- North American segment includes retail sales of consumer products and subscriptions through North American focused websites such as www.amazon.com and www.amazon.com.mx.
- International segment includes retail sales of consumer products and subscriptions through internationally focused websites such as www.amazon.com.au, www.amazon.com.br, www.amazon.cn, www.amazon.fr, www.amazon.de, www.amazon.in, www.amazon.it, www.amazon.co.jp, www.amazon.nl, www.amazon.es, and www.amazon.co.uk.
- Amazon Web Services (AWS) segment involves global sales of storage, databases, and AWS service offerings for startups, enterprises, government agencies, and academic institutions.
(Source: Amazon Corporate Website)
Example of Business Segments: Apple
Apple Inc (AAPL) is an American multinational technology company that designs, develops, and sells mobile communication and media devices, personal computers, computer software, and online services. The company was founded on April 1, 1976 and is currently headquartered in Cupertino, California. The company operates its business segments on a geographical basis:
- Americas segment includes North and South America.
- Europe segment includes European countries, the Middle East, and Africa.
- Japan segment only involves Japan.
- Greater China segment includes China, Hong Kong, and Taiwan.
- Rest of Asia Pacific segment includes Australia and Asian countries excluded from the other business segments.
- Retail segment operates Apple retail stores in 13 countries.
Each segment provides similar hardware products and software products, and similar services.
(Source: Apple Corporate Website)
Example of Business Segments: Starbucks
Starbucks Corporation (SBUX) was incorporated on November 4, 1985 and is a roaster, marketer, and retailer of coffee. The company is headquartered in Seattle, Washington, and operates through the following segments:
- Americas segment includes the United States, Canada, and Latin America and has achieved significant scale.
- China/Asia Pacific segment (CAP) is currently in the early stages of development.
- Europe, Middle East, and Africa segment (EMEA) is currently in the early stages of development.
- Channel Development includes products sold worldwide through channels such as grocery stores, warehouse clubs, specialty retailers, etc.
Starbucks also operates several non-reportable segments such as Teavana retail stores, Seattle’s Best Coffee, and other developing businesses.
(Source: Starbucks Corporate Website)
CFI offers the Financial Modeling & Valuation Analyst (FMVA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following resources will be helpful: