Not The Best Buy After All: Carphone Warehouse JV To Shut UK Shops

Best Buy is one of the biggest and most influential retailers of mobile phones and other gadgets in the U.S. — impacting pricing for other retailers and influencing what products people buy — but it has stumbled in its effort to take that formula and repeat it elsewhere. Carphone Warehouse, the UK retailer that had entered a JV with Best Buy that extended to stores in the U.S. as well as a new Big Box venture in the UK, today announced that it would be closing the unprofitable UK stores, and separately selling Carphone’s stake in the Best Buy Mobile U.S. operation back to Best Buy for $1.34 billion, as part of a bigger strategy to cut out less profitable parts of its business.
The news, which first started to leak out yesterday, was finally confirmed by the company today, as Carphone Warehouse (CPW) separately reported a decline in its earnings for the first half of the year.
The Best Buy UK closure could impact over 1,000 jobs, although CPW says it will be looking to reemploy as many people as possible in its own retail operation.
The change in strategy for CPW and Best Buy has demonstrated that what might click with U.S. consumers will not necessarily click elsewhere. In 2008, when first announcing its intention to extend into Europe with its Big Box format, Best Buy and CPW said they intended to employ 8,000 people and have 100 stores open by 2013.
But today news does not signal the end of the relationship between the two companies altogether. CPW says they will be looking at further joint global expansion outside of Europe and the U.S., under a new venture called Global Connect.
They also plan to remain 50-50 partners in Best Buy Europe, but the plan now will be to refocus its retail strategy around CPW’s existing stores — some of which already had concessions displaying Best Buy products. Today CPW has some 2,453 stores in Europe (805 in the UK alone).
Many of these are small “high street” outlets but there are plan to convert up to 400 of them to “Wireless World” stores, which will be larger and have more space to show off a wider range of gadgets. (CPW already has several Wireless World stores in place in the UK.)
The two will be hoping that this formula will sit better with UK consumers.
Whether it is a consequence of the current economic climate, the impact of internet-based shopping, the buying habits of UK consumers — or a combination of them all — the end result has been the same: people have not been flocking to the larger stores as much as the JV had hope they would.
In their first year of operation, 2009, the 11 Best Buy UK stores lost £62 million ($100 million), and the expectation was that this loss would widen this year, with the first half of the year seeing a loss of £35 million.
As part of the organization, Best Buy now also will have first option to buy out CPW from Best Buy Europe when the agreement comes up again for review in three years.
U.S. assets: Carphone Warehouse says that its stake in Best Buy Mobile will be sold back to Best Buy for £838 million ($1.34 billion) in cash. CPW plans to pay the proceeds out to its shareholders, with up to £813 million of that amount will be returned upfront, and the other £25 million in deferred consideration.
Best Buy Mobile, which has been around since 2006 and was the first fruit of the partnership between CPW and Best Buy, runs the mobile retail operation in all of Best Buy’s 1,106 Big Box stores in the U.S., and it also has 247 standalone stores. Taking advantage of the huge interest in smartphones and other wireless gadgets, there are plans in place for that number to grow to 325 by February 2012, with further aims to grow the total number of standalone stores to 600-800.
Today it accounts for five percent of all mobile sales in the U.S. But it nevertheless reported negative like-for-like revenues in its last results, “in part due to issues surrounding the product cycle,” CPW notes in its statement.