Carphone deal brings US giant Best Buy to Britain

UK's struggling consumer electronics market faces fresh challenge, with joint venture planning new stores

BRITAIN'S struggling consumer electronics retailers are to face an aggressive new competitor after the American Best Buy company unveiled a £1.1 billion expansion into Europe.

The Minnesota-based giant is buying 50 per cent of Carphone Warehouse's retail business, and plans to open large format retail stores across the continent, including the UK, through the joint venture.
Best Buy, a Fortune 100 company, is the largest consumer electronics group in North America, with annual sales of more than $40 billion last year, across more than 1,100 stores. It has stores in Canada and China, but currently has none in Europe .

Announcing the deal yesterday, Carphone chief executive Charles Dunstone refused to be drawn on the number of Best Buy branded stores the joint venture aimed to open. He said only that "some stores" would be trading in 2009.

However, Dunstone said the joint venture could "transform the face of consumer electronics retailing in Europe".

Best Buy chief executive and vice-president Brad Anderson said the arrangement would need to prove it was commercially viable, but indicated the plans were for a substantial operation.

He said: "The potential, if appropriate, would be for a lot of stores."

Best Buy's UK stores will be big, selling a wide range of consumer electronics. Carphone's current estate of about 2,400 stores, will retain the current branding. The company has plans to open more than 100 new stores this year.

The new and potentially serious player in the market will add pressure on an already weak consumer electronics sector, one of the hardest hit in the credit crunch.

DSG International, owners of the Currys and PC World chains, said last month that apart from heavily discounted items, sales had slowed sharply in recent months.

The largest consumer electronics company in the UK, DSG shares have fallen 60 per cent in less than a year and analysts expect it to announce a programme of store closures.

Dunstone said he accepted there had been a downturn on the high street, but said it created opportunities for new players.

"It's easier now to get space in retail parks than it has been for the last ten or 15 years … (the slowdown] creates opportunities to get into the market," he said.

Yesterday's announcement follows a successful joint venture between the two companies for specialist mobile phone concessions within about 100 US stores.

Best Buy has built a stake of close to 3 per cent in Carphone and some analysts predict it may attempt a full takeover of the British company.

Anderson said Best Buy was attracted to the joint venture structure for a move into Europe and had been impressed with Carphone's innovative management, which it did not want to lose.

Carphone said it would use the cash from the deal to pay down debt and expand its separate fixed line telecommunications business, where it is already the third largest player in the UK through its TalkTalk and AOL broadband business.


A MEETING OF MINDS IN LINK-UP

CARPHONE Warehouse and Best Buy are very similar companies. Both are now leaders in their field but began life as small firms, led by men with big ambitions.

Chief executive Charles Dunstone began Carphone Warehouse in 1989 selling car phones from a flat in West London with just £6,000.

The firm now has around 2,400 stores across the UK and in Europe, boasting around a quarter share of the UK mobile phone market and a major slice of the fixed-line phone market through its TalkTalk business. It is a member of the blue chip FTSE-100 index. Best Buy was founded in 1965 as a single music equipment store, Sound of Music, in Minnesota by Richard Shultz, a college drop out.

In 1981 a tornado destroyed its most profitable store and almost caused the company to collapse. The resulting "Tornado Sale" has become an annual event.

The group was renamed Best Buy in 183 and transformed into a general electronics retailer. It is now the largest consumer electronics retailer in North America with a market share of around 21 per cent, and a Fortune 100 company.