Carphone's Best Buy deal at risk as losses rise
Wednesday 15 June 2011
Carphone Warehouse's foray into "Big Box" stores through its Best Buy UK partnership has been thrown into doubt after losses surged and managers admitted they were "evaluating" the future of the chain.
The venture between Carphone and the US electronics retailer Best Buy has opened 10 superstores over the past 18 months. It emerged yesterday that losses at the division almost tripled to £62.2m last year. The company expects further losses this year.
The operation suffered after "significant investment in developing the brand", as well as a slowdown in consumer electronics in the UK and fierce competition from rivals.
The company, run by Roger Taylor, said yesterday: "Following this launch period, we are in the process of evaluating the next steps for this business, and will provide further guidance once this process is complete." One analyst said the general consensus was that Best Buy "is likely to exit the UK and the superstores will be shut down".
Roger Gregory, research director at Planet Retail, said: "It would be a huge blow to Best Buy's international expansion plans if they were to walk away now."
The launch of the "Big Box" stores had been troubled from the first. The venture had planned its initial launch in 2008 but was delayed two years because of the credit crunch. When it finally opened in Thurrock, Essex, last year "the market had changed and Dixons had got its act together", Mr Gregory said. The company had targeted 100 superstores by 2013, later revised to 80. It is still unclear how the companies will proceed.
The analyst said the partnership had been hugely beneficial in other ways but Best Buy UK "was the wrong store format, in the wrong market at the wrong time".
Best Buy Mobile in the US did perform strongly, with the European business's share of profits more than doubling to £97.9m. The business, which plans to open another 150 stores this year, predicted a further 20 per cent growth in phone connections this year.
Carphone Europe did grow, with earnings before interest and taxation up 18 per cent to £134.6m in the year to the end of March. This came with the rise of smartphones, which accounted for up to 90 per cent of contract sales.
"We see internet connectivity and smartphone features becoming the norm across virtually all mobile devices," the group said. Its joint venture with Virgin in France also moved into profit.
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