Best Buy, Carphone Warehouse JV To Tap Strength Of Brands

Consumer electronics retailer Best Buy reported Thursday it will acquire 50% of The Carphone Warehouse's retail business for about $2.1 billion (£1.1 billion) to take advantage of the company's expertise in mobile products, bundle services, and ability to operate smaller stores.

The combined companies will create a joint venture that attempts to tap the strength of both brand names. The goal is to expand a wider selection of consumer electronics and services throughout Europe. The deal, subject to shareholder approval, should close by Aug. 30. The courtship has been ongoing since 2004.

The Carphone Warehouse will continue to operate under the brand name. New stores that open in the UK under the joint venture will brand as Best Buy. "The Carphone Warehouse is an established brand in the UK, so I think that's a good move," says Anthony Chukumba, senior research analyst at FTN Midwest Securities.

Kelly Groehler, Best Buy spokeswoman, says it's too early to discuss the branding strategy for the joint venture. "We have not given the combined company a name or finalized any branding decisions," she says.



Best Buy International CEO Bob Willet takes the helm as chairman of the new company, alongside The Carphone Warehouse CFO Roger Taylor, who steps in as CEO. Consumers should begin to see Best Buy stores in the UK beginning 2009, and consensus among industry insiders suggests the joint venture will move into other countries as well.

The new company combines The Carphone Warehouse's retail business, including more than 2,400 stores in nine European countries under The Carphone Warehouse and Phone Warehouse brands, with Best Buy's nine brands, 150,000 employees and an array of products and services.

The Carphone Warehouse's financial interests are in Best Buy Mobile in the U.S., as well as the Geek Squad in the UK and Spain. The deal does not include The Carphone Warehouse's UK fixed-line Internet service provider operations comprising TalkTalk, AOL Broadband and Opal; or its share in Virgin Mobile France joint venture.

Best Buy Mobile, which Best Buy developed through its relationship with The Carphone Warehouse, offers U.S. consumers twice the assortment of mobile phones previously offered in Best Buy stores. The company says it has been producing higher customer satisfaction scores in retail stores that offer Best Buy Mobile, compared with those that do not. The new concept is being introduced into all of Best Buy's stores in the U.S this year. The two companies also have been collaborating to bring Geek Squad, a 24-hour computer support task force, to European markets.

Technology, meant to make life less stressful and more fun, has become complicated and unmanageable for some. Best Buy tries to communicate the message of simplicity across in-store, radio, television and online ads for all services offered, from Geek Squad to order-on-the-web and in-store pickups.

The Carphone Warehouse stores will start offering in June a broader range of products, such as laptops. Beginning in 2009, the joint venture also introduces the Best Buy web site across Europe. The consumer tendency to spend online across all product categories is much higher in the UK, compared with the U.S., according to executives speaking to analysts. The companies plan to take advantage of information technology they created separately to sow together IT backend systems and store platforms such as customer relationship management software to serve consumers better.

The Carphone Warehouse's small-store format and Best Buy's big-box format will likely remain separate, which makes sense today, says Pali analyst Nick Bubb. "The big deal is the rollout of the Best Buy [store] format in Europe, beginning with the UK," he says. "The UK consumer slowdown means that retail properties are really soft, so this is a great time to get good sites in retail parks."

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