Best Buy Failure in England
An attempt by Carphone Warehouse founder Charles Dunstone to shake up the wider electronics retail market has ended in failure with the company forced to admit it is closing the 11 stores it operates in the UK with the American chain Best Buy. Best Buy Europe was formed in 2008 when Best Buy paid £1.1bn to buy a 50% stake in Carphone Warehouse's retail division.
In the face of mounting losses, the joint venture had already scaled back its ambitions in June. The original plan was for 200 out-of-town "big box" shops around Europe by the end of 2013, selling everything from washing machines to laptops. That was reduced to 100. Now the entire venture has been cancelled. Carphone Warehouse Group said it would seek to redeploy more than 70% of the 1,100 staff.
Problems:
· Brand recognition
Best Buy is a major retailer in the United States. In the UK, some shoppers think it is a discount grocer, according to research by one rival retailer. Awareness has spread slowly, perhaps because while most people shop at supermarkets every week, they buy an electrical item only two or three times a year. The advertising may not have helped. The latest TV spot, narrated by an actor with a US accent, led to comments like "Why is it so American?"
· Too few stores
Dixons Retail operates more than 600 stores under brands including Currys and PC World. Comet has about 250. With just 11 stores in out-of-town locations with no passing trade, Best Buy was slow to make an impact.
· Over-ambitious sales targets
When the grand plan was unveiled to investors in 2008, Carphone predicted the stores would eventually generate an average of £600 to £700 a square foot which is significantly more than market leader Dixons, whose shops make on average £500 a square foot. The original target was that Best Buy Europe would be generating revenues of £6-7 billion by the end of 2013, with £300-350 million in ebitda earnings, including profit share from the US stores. City broker Oriel Securities estimated the revenues for Carphone's European operations by 2011 of £3.6 billion, with earnings including the US of £194 million. With that in mind the target was still too far
· Location
Best Buy was Carphone's first major move to the high street. Securing planning permission for out-of-town locations can be a slow and tortuous process. Britain has the smallest number of such retail sites in Europe. France has twice the space per capita; Germany three times.
· Underestimating the competition
Carphone's research showed electrical retailers had a reputation for dirty, disorganized shops staffed by rude, poorly trained "kids" who were under pressure to earn commission by selling extras such as insurance and who had no passion for the product. Such accusations were often leveled at Dixons. But its chief executive, John Browett, who took over in 2007, has overhauled stores and staff training, and claimed yesterday to be offering "world-class" customer service while increasing the group's market share. Also, the market was too small for three big retailers to compete.
· Current situation
Carphone is returning to the world it knows best, selling phones and expanding into related internet devices such as tablet computers. New CEO of Best buy Europe Andrew Harrison explained "We've got 21 years of history in connectivity "and we've decided that rather than playing in the world of washing machines and dishwashers were are going to focus on the higher-margin products. We don't want to invest our resources in two formats and two categories."
At the end of 2012 Carphone had enough capital to buy back Best Buy’s share and negotiations are still in process.
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