Best Buy make transatlantic crossing

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The US’ largest specialised consumer electronics retailer looks set to shake up the market in Europe as it takes a 50 percent stake in Carphone Warehouse.

While Staples battles away with its hostile takeover bid for Corporate Express, there were no such problems for US consumer electronics retailer Best Buy as it agreed a £1.1 billion ($2 billion) deal to acquire a 50 percent stake in the retail operations of UK-based Carphone Warehouse.

The deal involves Carphone Warehouse’s 2,400 stores, its web and direct businesses, insurance operations and its airtime reselling businesses, and is expected to be approved by its shareholders in August.

The two companies have already had a working partnership for the last 18 months – Carphone Warehouse has helped Best Buy develop its Best Buy Mobile concept which is being rolled out in all of Best Buy’s US stores in 2008, while Carphone Warehouse has brought Best Buy’s Geek Squad technical support unit to the UK and Spain.

While Best Buy has said that there will be some benefit to its US operations such as Carphone Warehouse’s expertise in sourcing mobility products, bundling services and operating smaller stores, it is the deal’s impact in the European market which has attracted the most attention.

The new company plans to grow Carphone Warehouse’s existing retail business in Europe, which includes the Phone House banner in continental Europe, with new store openings and a wider range of products, including more private label products, where purchasing and sourcing synergies are expected to boost profitability.

However, more significantly, there are plans to roll out larger stores under the Best Buy banner, beginning with the UK next year, sending out alarm signals to current market leaders DSGi, whose operations include Currys, Dixons, PC World and Pixmania, and Kesa which operates Comet in the UK and Darty in France. Best Buy’s greater product range, aggressive pricing and reputation for service present a real threat.

DSGi, in particular, is under pressure to get its act together following two profit warnings in the last six months. As he announced a new turnaround plan, CEO John Browett accused his company of falling behind the times and admitted that staff were poorly trained. Some retail analysts even speculated that DSGi could be a takeover target for Germany’s Metro AG, owner of leading German consumer electronics retailer Media Markt, or even for Best Buy itself.

The timing of the move by Best Buy has raised more than a few eyebrows – the low value of the dollar and the current retail downturn which has now spread to Europe would appear to provide an uncertain backdrop for a US company to enter the European market at the moment. But Carphone Warehouse founder Charles Dunstone doesn’t see it that way.

"It presents us with an opportunity," he said. "Our large format stores will be Best Buy. We want to bring the brand over here and get the yellow tag well known in Europe. The slowdown means we can get space in the market place at competitive prices."

And Best Buy sees Carphone Warehouse’s local presence and knowledge as a key factor.

"We have seen great companies fail because they thought they could simply export their current business model to new geographies," said Bob Willett, CEO of Best Buy International who is expected to be the chairman of the new venture.

"We intend to plan our European entry strategy carefully, focus on customer needs and with on-the-ground help from our trusted partner, The Carphone Warehouse."

The arrival of ‘the big blue box’ could spell bad news for Best Buy’s competitors, but should ultimately benefit European consumers.