Best Warehouse: Best Buy / Carphone Warehouse Deal: Analysis

Best Warehouse: Best Buy / Carphone Warehouse Deal: AnalysisFollowing on from the announcement of the proposed deal between Best Buy and Carphone Warehouse‘s retail operation, we thought this was such a significant deal, we’d carry an analysis piece on it.

It’s been under consideration for quite a while
It’s appears to us that Best Buy must have been considering a deal move into UK and Europe for quite a while.

Beyond that fact that you don’t rush into a £1Bn+ deal, there’s other pointing factors.

Seven months ago Best Buy made an investment in Mydeo, a UK-based secure video sharing site.

While we all understand that Internet services don’t need to reside in a particular country, it did slightly confuse us that a US retail giant would pick a UK online video comapny to work with. Clearly they must have felt that the Mydeo service was a strong player, or they wouldn’t have done the deal, but most partnerships are normally done with companies in the same country as the investor.

Today’s ‘Best Warehouse’ announcement makes the logic behind the Mydeo deal clearer. Expansion in the UK and Europe will significantly benefit from having a UK-based video sharing partner.

Best Buy sells over 40% of all video cameras sold in the US, and would be likely to want to replicate that in Europe.

The UK CE retail impact
We’d imagine that there’ll be significant concern at Electronic retailers around the UK and Europe today.

If the Best Warehouse deal completes — which we should find out at the CW EGM in August this year — they plan to start making changes to the shops as early as 2009.

‘Best Warehouse’ will have a great start point with nearly two and a half thousand shops around the UK and Europe, mostly in strong retail positions.

The entrance of Best Buy will have a large impact on Currys and Dixons, the currently dominant CE retailer in the UK as well as others.

CE retail in Europe
Media Markt is Europe’s dominant CE retailer with 506 superstores across 15 countries – Austria; Belgium; France; Germany; Greece; Hungary; Italy; Netherlands; Poland; Portugal; Russia; Spain; Sweden; Switzerland and Turkey – Phew!

Founded in Germany with their first shop opening in 1979, Media Markt, have clearly grown considerably to the point where over 40% of their sales volume now come from outside Germany.

Although currently the shops that Carphone Warehouse have in Europe are relatively small in number, and importantly format — CW have small, in-town shops, whereas Media Markt focus on Superstores — the Best Buy shop format is predominantly super stores.

To date, there’s been no dominant CE retailer across both Uk and Europe.

CW Use of the Best Buy investment
Speaking on Radio 4’s Today programme, Charles Dunstone said the £1.1Bn would be used to pay down the debt that they have built up and leave them with credit in their bank account, “a good position to be in the credit crunch,” he said.

It’s also understood that some of the money will be used to invest in the growth of Carphone Warehouse’s broadband customer-base and infrastructure.

CW has been — despite a few hiccups in the early days of their broadband service — building their fixed-line and broadband services successfully.

With a bundle of cash, and importantly the focus of the management team — they won’t be distracted with the retail shops — Current providers broadband and fixed-line comms in the UK will be feeling the heat.