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.”
The clock is ticking on Best Buy Europe.
US stocks fall on Portugal worries
Worries about the soundness of a European bank pushed U.S. stocks lower Thursday and sent global investors hunting for less risky assets.
Alcoa helps lift market after 2 days of declines
Corporate earnings season got off to a positive start Wednesday, helping lift the stock market after two days of declines.
Oil on 2-week slide even with Mideast turmoil
The price of oil fell for the ninth straight day Wednesday as global supplies continue to flow despite unrest in the world’s most important oil-producing region.
Luxury Rolls-Royce car sales soar worldwide
They are rolling symbols of wealth and excess, starting at $263,000 a pop, with most buyers choosing custom options that can easily double the price. And they are more popular than ever before.
Corinthian Colleges seeking to reassure students
A for-profit education company sought to reassure nervous students Tuesday that they’ll be able to finish their degrees even though their campuses were being closed amid concerns from the Education Department about its practices.
US, China vow to improve cooperation
The United States and China vowed Wednesday to improve their economic and security cooperation, saying they wouldn’t let persistent differences over maritime claims, cyberhacking and currency hamper a relationship critical to global peace and prosperity.
Stocks creep up after 2 days of losses
Stocks inched higher in early trading Wednesday, reversing a two-day decline, as the quarterly earnings season got underway with some positive news from the giant aluminum company Alcoa.
Stocks fall for a second day; Nasdaq slumps
Investors unloaded all manner of stocks Tuesday as they wait for corporate earnings reports to help them determine whether a recent run-up in the market is justified. Internet companies bore the brunt of the selling.
Joplin council hears update on job expansion programs
Economic development projects underway should bring about 500 new jobs to Joplin by year’s end, Rob O’Brian, president of the Joplin Area Chamber of Commerce, members of the Joplin City Council on Monday.
SWEPCO will need until January to answer Arkansas regulators query about need for power line
Fifteen months after asking the Arkansas Public Service Commission to approve a high-voltage transmission line along the Arkansas-Missouri border, the Southwestern Electric Power Co. has filed a letter telling the commission it will take until January to demonstrate need.
- More Business Headlines
- US stocks fall on Portugal worries