The Joplin Globe, Joplin, MO


June 26, 2012

Best Buy’s European joint venture could be history

MINNEAPOLIS — The clock is ticking on Best Buy Europe.

As Best Buy Co. Inc. weighs further cost cuts, the fate of its $2.1 billion joint venture with Carphone Warehouse, or CPW, remains murky at best. Over the past year, Best Buy has closed all of its branded big-box stores in the United Kingdom and Turkey. It also exited its contract with CPW to develop Best Buy Mobile stores, a hit format, in the United States.

What remains are 2,393 smaller-format Carphone Warehouse and the Phone House stores Best Buy operates in partnership with CPW in recession-racked Europe. Given Best Buy’s preoccupation with finding a new CEO for its U.S. operations and its struggling North American business, analysts say it makes sense to exit the joint venture because there is little financial upside in the long term.

“The best element of the partnership with CPW was (launching Best Buy Mobile) in the United States,” said Matt Arnold, a retail analyst with Edward Jones near St. Louis, Mo. “What’s left is the lowest-return part (of Best Buy Europe).

Even CPW leaders privately expect Best Buy to pull out of the 50-50 joint venture, according to a source close to the London-based phone giant. Best Buy Europe sales make up about 10 percent of Best Buy’s annual sales of $50 billion.

A Best Buy spokesman declined to comment.

Best Buy Mobile has been a big hit, generating about 30 percent of Best Buy’s domestic operating profits, according to Carphone Warehouse filings. The company operates about 305 stand-alone Best Buy Mobile stores in the United States and plans to open 100 more this year.

Best Buy Europe’s uncertain fate comes at a time when Best Buy leaders have vowed to redirect its limited capital to more profitable and efficient businesses. Instead of building stores, interim CEO G. “Mike” Mikan said the company will move to a “return-on-investment orientation.”

“We’re also going to make some tough decisions about shrinking the company’s physical footprint,” he told investors during the annual shareholders meeting last week. “Total square footage will go down as we make decisions about the best use of resources.”

“We need to focus on both the physical and virtual customer experience, and our capital investments must reflect that accordingly,” he said. “All future investments need to meet - or exceed - our return expectations.”

Best Buy has made money overseas and plans to expand its successful Five Star chain in China. But as a whole, the international segment has mostly underwhelmed Wall Street analysts, especially when they measure return on invested capital. That’s what investors use to determine how well a company is using its money to generate profits.

Best Buy’s return on invested capital in the United States is about 4 percent, said Jeremy Brunelli, an analyst with Consumer Edge Research in Stamford, Conn. None of its international businesses comes close, he said.

“When you think of capital efficiency, you do wonder just how much time they are willing to give international to get a good return,” said Arnold of Edward Jones.

At the very least, Best Buy will try to limit how much money it invests overseas, Jones said.

“International will be kept on a much shorter leash,” he said.

Europe has been particularly rough. When Best Buy and CPW formed Best Buy Europe in 2008, the plan was for the new company to build Best Buy branded big boxes and operate Carphone Warehouse stores in countries like Spain, France and Portugal. But Europe’s economic woes have weighed heavily on the joint venture.

Nowadays, Best Buy seems more interested in CPW’s brainpower than its physical stores. As conceived by former Best Buy International CEO Robert Willett, the joint venture called for CPW to help the company develop the Best Buy Mobile format in the United States.

Before the joint venture, Best Buy dominated sales of personal computers and televisions but lacked expertise in mobile devices. CPW, on the other hand, operated small mobile phone shops throughout Europe.

Last year, Best Buy paid CPW a hefty $1.2 billion fee to end their agreement to split profits from Best Buy Mobile in the United States. At the time, Best Buy said it decided to buy out CPW’s original contract so both sides can move beyond smartphones and focus on selling and connecting to other mobile devices such as tablets, electronic readers and laptops.

But CPW will continue to help Best Buy to develop Best Buy Mobile stores around the world, particularly within Best Buy’s Five Star electronics chain in China.

To prepare for the holiday shopping season, Mikan said 50,000 employees in the United States will receive the same intensive customer service training given to Best Buy Mobile employees.

“Our people will offer advice and insight,” Mikan said during the annual meeting. “They will be problem-solvers, and they will unlock the knowledge our customers need to take full ownership of their technology.”


Text Only
  • Express Scripts expansion could mean 1,500 jobs

    The nation’s largest company that manages pharmacy benefits is opening a new office building in St. Louis County as part of an expansion expected to add 1,500 jobs over the next few years.

    July 28, 2014

  • 5 things to know about coal trade, global warming

    As the Obama administration weans the U.S. off polluting fuels blamed for global warming, energy companies have been sending more of America’s unwanted energy leftovers to other parts of the world where they could create even more pollution.

    July 28, 2014

  • US rig count up 12 to 1,883

    Oilfield services company Baker Hughes Inc. says the number of rigs exploring for oil and natural gas in the U.S. rose 12 this week to 1,883.

    July 25, 2014

  • Business Visa, Amazon pull stock market lower

    Disappointing news on the American consumer, reflected in the results of retail giant Amazon and credit card processor Visa, dragged down the stock market Friday, putting two major indexes on course for a weekly loss.

    July 25, 2014 1 Photo

  • Aviations Bad Week.jpg Very bad week: Airline disasters come in a cluster

    Nearly 300 passengers perish when their plane is shot out of the sky. Airlines suspend flights to Israel’s largest airport after rocket attacks.

    July 24, 2014 1 Photo

  • Dave Ramsey: Keep hands off the 529 money

    Should we use money from our son's 529 plan for college to pay off debt?

    July 24, 2014

  • New Jersey sues over Florida pizza shop logo

    The New Jersey Turnpike Authority wants a Florida pizza shop to pay a big toll for using a logo similar to the Garden State Parkway’s green and yellow signs.

    July 24, 2014

  • Laclede Group gets nod to buy Alabama company

    The Alabama Public Service Commission this week voted to approve the acquisition of Alabama Gas Corp. by The Laclede Group from Energen Corp.

    July 24, 2014

  • France: Air Algerie flight vanishes over N Mali

    An Air Algerie flight carrying 116 people from Burkina Faso to Algeria’s capital disappeared from radar early Thursday over northern Mali after heavy rains were reported, according to the plane’s owner and government officials in France and Burkina Faso.

    July 24, 2014

  • Business US stocks rise as investors weigh earnings

    Stocks mostly rose in early trading Thursday as several big companies across industries reported second-quarter earnings, including Facebook, Ford and equipment maker Caterpillar.

    July 24, 2014 1 Photo


A new provision by the U.S. Department of Agriculture allows qualifying districts with high percentages of students on food assistance to allow all students to eat free breakfasts and lunches. Would you agree with this provision?

     View Results
Twitter Updates
Follow us on twitter
NDN Video
Raw: Corruption Trial Begins for Former Va Gov. The Carbon Trap: US Exports Global Warming UN Security Council Calls for Gaza Cease-fire Traditional African Dishes Teach Healthy Eating 13 Struck by Lightning on Calif. Beach Baseball Hall of Famers Inducted Israel, Hamas Trade Fire Despite Truce in Gaza Italy's Nibali Set to Win First Tour De France Raw: Shipwrecked Concordia Completes Last Voyage Raw: Sea Turtle Hatchlings Emerge From Nest Raw: Massive Dust Storm Covers Phoenix 12-hour Cease-fire in Gaza Fighting Begins Raw: Bolivian Dancers Attempt to Break Record Raw: Israel, Palestine Supporters Rally in US Raw: Air Algerie Flight 5017 Wreckage Virginia Governor Tours Tornado Aftermath Judge Faces Heat Over Offer to Help Migrant Kids Kangaroo Goes Missing in Oklahoma More M17 Bodies Return, Sanctions on Russia Grow Raw: Deadly Tornado Hits Virginia Campground