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By | Paul Kunert 8th November 2011 11:23

Best Buy UK spent £200m on failed megastores

Consumer meltdown, delays and Dixons forced closure

Best Buy's efforts to win over UK consumers were an expensive failure, costing some £200m to set up just 11 big box stores.

The stakeholders of the joint venture US retailer Best Buy and the UK's Carphone Warehouse (CPW) yesterday pulled the plug on the business, as investing more capital in the roll-out of another 90 stores was not economically viable, the firms said.

"From a purely financial perspective, it was clearly very hard for us to see how we can carry on investing at the rate we have been doing with any visibility of a reasonable rate of return," said Roger Taylor, CEO at CPW on a conference call with analysts.

As a result, Best Buy has paid $1.3bn for CPW's share in the joint venture.

In half year results for CPW, Best Buy UK made EBIT losses of £46.7m, compared to £28.8m in the year-ago period. The JV is expected to post another loss of up to £30m as the operation is shuttered by the end of the year.

The exceptional costs of the closure are £65m to £75m, the larger majority of which is related to the 11 store leases, half of which can be sold easily while the other "half may not be so easy," said Taylor.

Taylor said that from "start to finish", the overall investment was "circa £100m each in terms of ourselves and Best Buy that we've sunk into the opportunity".

But Taylor defended the outlay, saying it had taught CPW some lessons and led to the Wireless World concept, which is where the joint venture will focus energies – selling a range of devices including tablets and smartphones with connectivity.

"We are converting eight [CPW] stores a week," he said. The firms are also to launch a JV called Global Connections, advising retailers on how to boost sales of mobile hardware and services.

CPW CEO Charles Dunstone conceded that delays to the launch of Best Buy in the UK was part of the reason for the failed bid.

"We were a bit late to launch them and in that time clearly consumer confidence has fallen significantly, the product cycle is quite tough to be trying to launch a big box model," he said.

The postponement also gave Dixons a window of opportunity to up its game and accelerate some improvements around its price-led product biz and failing services operation, said CPW.

"It's fair to pay some tribute to John Browett and the team at Dixons in that their improving proposition, improving stores and improving service has filled some of the void we were going to target," said Dunstone.

Dixons displayed a very British trait yesterday, not wanting to crow about the pending exit of Best Buy, and refusing an interview.

But in a statement sent to El Reg, a triumphant John Browett, boss at the retailer, said: "We are winning in the UK consumer electronics market."

So maybe Best Buy will not be around in the big box format to influence UK consumers, but its costly experience on this side of the pond could just have made a lasting impression on indigenous retailers. ®

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