Carphone pulls plug on Best Buy ‘big box’ stores
07 November 2011 12:40
As part of a series of strategic initiatives and trading results announced today Carphone Warehouse (CPW) has said it intends to close its 11 'big box' Best Buy stores, leaving more than 1,000 employees with an uncertain future.
The closures are to be made by the end of the calendar year.
Best Buy's UK venture has faced an uphill struggle from the start in an electricals market squeezed particularly hard by the financial climate and cash-strapped consumers turning away from big ticket purchases.
Losses in the six months to the end of September stood at £46.7 million, up from £28.8 million in the same period last year.
However the company said that it was "confident that it will be able to offer alternative roles to the large majority of the employees affected, within other areas of its UK business."
Chief executive Roger Taylor commented: "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 visibility 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."
Instead, the company said it was to focus its growth strategy around connectivity within CPW Europe stores and its multi-channel proposition.
While the 'big box' format stores have struggled, the group indicated that stores offering a wider range of mobile and other 'connected' devices have blossomed. As such it is looking to accelerate the development of these wider product format CPW stores.
The interim trading figures from CPW show performance largely in line with expectations, with earnings impacted by the company's shift from 18-month to 24-month contracts in the UK and a £4.4 million reorganisation charge in Germany. Six-monthly earnings at CPW Europe stood at £20 million, down from £44.2 million in the same period last year.
Revenue at Virgin Mobile France (in which CPW is a 47% partner with Best Buy) increased 22% over the period, with net customer acquisitions of 88,000 all of which generated headline earnings of £8 million.
Commenting, Roger Taylor said: "While the announcements we are making today substantially alter the future profile of Carphone Warehouse, our first-half performance in our continuing businesses is firmly in line with our expectations and means we can reaffirm the guidance we have already given for the full year to March 2012.
"The predicted impact of the shift in the UK to 24-month contracts and a continuing relatively weak prepay market accounts for CPW Europe's like-for-like numbers, but we expect the effect of 24-month contracts to be less significant in the second half of the year and we also anticipate the first material impact of renegotiated network commercials, which provide the business with a greater share of revenues beyond the customer contract term.
"In parallel, we continue to enjoy an exciting product pipeline across smartphones and tablets and we are accelerating our development of Wireless World stores.
"Overall, another solid performance despite the macroeconomic concerns and low consumer confidence in the marketplace."
CPW has also announced that it is selling its stake in Best Buy Mobile US and Canada for £838 million in cash, while simultaneously unveiling a new 'Connected World' joint venture with Best Buy that will seek to replicate the Best Buy Mobile model outside of America and Western Europe.
Lastly, the strategic review also touched upon the future, long-term ownership of Best Buy Europe. The agreement reached sees CPW and Best Buy granting each other the option to acquire their respective 50% stakes in Best Buy Europe.
Both options will be exercisable from March 2015, with Best Buy having the first opportunity to purchase the company's stake at fair market value.
If Best Buy chooses not to exercise this option, then the CPW will have the right to purchase Best Buy's stake at a 10% discount to fair market value.
If neither party exercises their call option, then both options will roll forward every three years.
Commenting on the transactions, Roger Taylor, said: "We have undertaken a comprehensive strategic review. Our overall vision remains the same: to inspire and guide customers through the Connected World and the increasingly complex areas of technology that this represents. We intend to pursue this vision on an increasingly global basis.
"Overall, our review delivers clarity on our future growth strategy, immediate shareholder value and clarity on our future relationship with Best Buy. We have a wide Connected World to pursue."
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