Business Watch: Best Buy turns into big loss for Carphone


Dominic White looks at why Carphone Warehouse’s move into electronics megastores didn’t pay off

Carphone Warehouse’s hubristic venture into electronics megastores will go down as a business school classic when they teach students about the global financial crisis in years to come.

The retailer is shutting the doors to its 11 Best Buy-branded big box megastores in a move that will cost it between £65 million and £75 million.

CEO Roger Taylor could never have guessed that he would be putting up the shutters just three years after Carphone and its US-based joint venture partner Best Buy first unveiled their move into the UK.

The pair had wanted to conquer Europe, starting with a chain of up to 100 massive outlets in Britain. But they barely reached 10 per cent of their UK target, and now 1,100 employees face an uncertain future.

While some eyebrows were raised when Taylor first announced the ambitious roll-out plans, there was also a deliciously counter-intuitive logic to the scheme.

The collapse in the property market meant that rents on out-of-town space had become much cheaper. At the same time, incumbents like Dixons Stores Group, which had enjoyed a near monopoly for so long, had begun to look a little vulnerable, with tired formats that needed shaking up.

It was classic Carphone, an audacious move into a new sector that had a few dominant players who had grown complacent.

Taylor and Carphone founder Charles Dunstone (pictured) had done something very similar a few years earlier when they made a surprise move into broadband.

That business, TalkTalk, eventually became its own separately listed company, within just a few short years.

Dunstone and Taylor timed their broadband foray to perfection. It came just as the former monopoly, BT, was forced by the regulator to hand over the keys to its home phone network to rivals, including upstarts such as TalkTalk, paving the way for a slew of fresh competition.

In contrast, the timing of their move into megastores has proved to be ill fated.

To be fair to them, no one knew just how deep the recession would get in three years, or that another GFC could be looming – this time with whole countries, rather than just banks, on the edge of bankruptcy.

It is about the worst possible economic environment in which to try and persuade consumers to shell out for ‘big ticket’ items such as TVs, personal computers, fridges and washing machines.

Some of those items have continued to do relatively well because, well, people can’t get enough of TV for instance.

But none of those product lines has proved to be as recession-proof as the mobile business, which, while not as buoyant as before, has benefited from the rise of the smartphone, our seemingly insatiable appetite for broadband on the move and the fact that networks are still giving away must-have phones for free to consumers on long-term contracts.

At the same time, the use of the Best Buy brand has failed to gain traction here. It is a household name in the US, where it bestrides the world of consumer electronics retail. But in the UK and Europe it’s a different matter.

Introducing a new brand from scratch is a challenging and expensive business: ask Hutchison Whampoa, which has splurged a fortune building the Three brand in the UK, where it remains decidedly sub-scale.

On the other hand, brands such as Currys, Comet and PC World remain the established default destinations for out-of-town shoppers. Those business have had ample time to react to the threat posed by Best Buy’s well-telegraphed roll-out plans, responding in their own way at much less expense per store thanks to the fact that they are already incumbent.

Full article in Mobile News issue 502 (November 21, 2011).

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