Over stocked and over here

If Tesco flexing its muscles in the PC and consumer electronic arena last month wasn?t enough to make the UK retail sector wince, then Best Buy?s declaration that it is to stage a full scale European invasion certainly will have done just that. Andrew Wooden reports?
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Drive-in movies. The chilli-dog. Neo-conservatism. Baseball. Flamboyant eighties rock band Kiss. Literally crying with joy at the mere mention of the national anthem.

What do all these things have in common? They all do very well in the US of A, but have been met with relative indifference everywhere else.

There are more than a few reasons for this. Even in the corporate world, cultural translations and idiosyncratic national identity are sometimes just too big obstacles to overcome. While US food and drink outlets like McDonalds and Starbucks have spread the globe with the unrestrained fervour – usually only observed in the most aggressive of mutated pathogenic viruses – retailers haven't found it quite so easy.

RadioShack, for example, does hugely well in the US, but couldn't translate that success across the Atlantic with its Tandy brand – eventually selling up to Carphone Warehouse in 1999. Even relative successes have been tempered: supermarket giant Wal*Mart, while certainly present in the UK retail sector through Asda, certainly didn't dominate the competition like it does in the US and many predicted it would.

The first of the Best Buy 'proper stores' will arrive in early 2009. According to Carphone Warehouse, these stores will be between 4,000 and 6,000 sq m (43,000 and 65,000 sq ft) in size (by comparison, Tesco Extra stores are 60,000 sq ft upwards), certainly living up to the high bar set by the retailer's existing US mega-stores.

Getting to know the locals

Lack of success in foreign markets can usually be attributed to lack of local knowledge. The advantage of partnering with Carphone Warehouse is, of course, that this knowledge will be there in place already. This is certainly something that the Carphone Warehouse itself is highlighting as a key strength of the Best Buy push.

"Staff knowledge has always been strong to our strategy and will continue to be so," said a Carphone Warehouse spokesperson. "Brad Anderson (CEO of Best Buy) is very wary of transferring business models as they don't always work without change. Carphone Warehouse gives it the local knowledge, and we get the support of Best Buy. In 2009, the first larger Best Buy branded stores will arrive in the UK. They will be bigger and better than the competition."

It will come as no surprise that Best Buy's new European ally is confident of the expansion's success, but while analysts agree the local knowledge provided by Carphone Warehouse will be vital to the success of Best Buy in Europe, some warn of the uphill struggle the venture represents.

"Best Buy has the size, scale and power to challenge the incumbents in Europe, but the difficulty of attacking multiple languages and cultures can make it extremely challenging for US retailers, especially beyond the UK," said Alastair Edwards, senior analyst at research and analyst firm Canalys.

"Best Buy will be reliant on the European retail expertise of Carphone Warehouse to be successful, so maintaining the existing management team will be crucial. Having said that, CPWH doesn't have experience of the consumer electronics market, so that is an issue. Best Buy will not find it easy, I'm sure. The other issue is that the weak dollar makes investing in Europe very expensive for US retailers, although the benefit will be in deriving a greater share of revenue from abroad in the long term."

DSGi under fire?

Early chatter following the news of the deal was whether or not Best Buy would make a swoop for DSGi. Such a move would give the retailer an incredibly strong presence in the UK, and significantly enhance its chances of succeeding in non-English speaking countries on the continent.

"That would tick many of the above boxes, in particular how to reduce the risk of establishing green field large format CE stores in Europe," continued Edwards. "It would give reach across most of the major markets in Europe and established local brands. But it is still a risky move for Best Buy in the current environment. DSGi also wouldn't give it great strength in France or Germany, the two most important markets after the UK. The real value in DSGi for Best Buy would be in establishing its UK presence.

But buying a number of smaller but locally established retailers across several countries over a period of time might be a more effective approach and less risky than the cost and challenge of integrating DSGi across Europe. Ultimately, Best Buy wants to build its own brand in Europe I believe.

Given the growing importance of online retail, I think investment here is also important (and less risky) by Best Buy in the short term. An intensive brand building campaign around its web offering would make it easier to introduce Best Buy branded stores in the future."

Speculation over such a bid for DSGi is of course a little premature, since the deal with Carphone Warehouse has barely had its i's dotted and t's dashed. However, what is clear is that the UK's leading PC chain, which has had its share of tumultuous times recently – not least of which a string of profit warnings – will have to pull out all the stops if it is to fend off the newly established retail superpower and retain its leading position. At the prospect of this, the firm remains confident of its position, and points to a stepping up of its game.

"For now at least they [Best Buy] will be growing organically," said Mark Webb, head of media relations at DSGi. "That pits them against the likes of DSGi, with an end-to-end service offering in place, 700 UK (or 1,400 including Europe) stores, an unrivalled and modernised distribution network and strong, established European supplier relationships.

"We have a number of inherent strengths that we can demonstrate – i.e market-leading positions; powerful supplier relationships, substantial delivery and after-sales structure, and a significant and profitable multi-channel and pure-play internet business. Going forward we have announced a customer-focused strategy which we expect to deliver an unbeatable combination of value, choice and service."

While the huge monetary weight Best Buy has at its disposal will hold it in good stead for the European push, it seems that it won't be plain sailing by any means. Few would argue, however, that the retailer's hugely ambitious plans have the potential to dramatically transform the landscape of European PC and technology retail forever.

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