Bringing one of the US’s largest electrical retailers to the UK seemed like a good idea when its was first mooted in 2008, but this week Best Buy boss Brian Dunn and Roger Taylor, chief executive of UK partner Carphone Warehouse, were counting the cost of the failed £1.3bn joint venture.
The pair announced on Monday that they were pulling the plug on the 11 big-box Best Buy stores and that Best Buy would buy Carphone Warehouse out of the profit-sharing venture for $1.3bn (£815m). Instead the pair will launch Global Connections, a business that will advise retailers around the world on how to boost the performance of their mobile products, businesses and services.
Taylor said: “The 11 Best Buy UK big-box stores have performed exceptionally at the level of customer satisfaction, but they do not have the national reach to achieve scale and brand economies. Due to the lack of an acceptable rate of return on historical and future potential investment, we have decided against rolling out more big-box stores and we will be closing our existing stores, subject to consultation with our employees.”
Taylor, who took over as chief executive of Carphone Warehouse in 2010 after 10 years as chief financial officer, is responsible for new business development and strategic initiatives, but the launch of the Best Buy Europe came at the worst possible time in the market.
In the year ended 31 March, Best Buy Europe racked up losses of £62m, the loss for the six months ended 30 September totalled £47m, and Taylor expects further losses of £25m-£30m before the end of the year, when it hopes to have closed all 11 stores.
Closure costs in cash terms are expected to total around £70m, with non-cash writedowns adding a further £45m. For Carphone Warehouse, this will mean a total net cash investment in the business of around £100m.
Best Buy says it expects to incur total pretax charges of between $250m and $270m related to the restructuring of the business, of which around half will be non-cash charges. The US firm says it expects about $200m of the charges to be recorded in Q3 of fiscal 2012, with the remainder recorded in the fourth quarter.
It will also assume a charge of $1.2bn to write down Best Buy Europe goodwill.
However, Best Buy Europe was not a complete washout. The two partners collaborated on Best Buy Mobile in the US, in which Carphone Warehouse has earned substantial income from a profit-sharing deal.
And for ever-optimistic Best Buy boss Dunn, who joined the firm in 1989 and has led it since 2009, a positive spin – the debut of the Global Connections business – was put on the closure of the venture. True to form, Best Buy was also quick to announce a positive deal with the $167m acquisition of mindSHIFT Technologies, a managed service provider for SMEs.
For Best Buy, it seems that as one door – or shop – closes, another opens.
