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Best Buy UK stores to close by end of 2011

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Best Buy UK’s 11 Big Box consumer electronics stores are to close, it was announced this morning. The closure is expected by the end of 2011, subject to consultations with employees.

The stores are part of Best Buy UK , a joint venture between Carphone Warehouse in the UK and the US electronics giant Best Buy, and have yet to make a profit. Carphone Warehouse said today that Best Buy UK’s losses before tax and interest widened in the half-year to September 30 to £46.7m, from £28.8m at the same time last year.

Although the stores had performed in pleasing customers by delivering “exceptional customer satisfaction scores,” they had not delivered the financial returns required for future success, Carphone Warehouse said. Closing the stores is likely to cost between £25m and £30m, it said today, while asset write downs will cost another £40m to £45m. It is not yet clear whether the multichannel retailer’s Best Buy UK website will close when the stores do.

Roger Taylor, chief executive of Carphone Warehouse Group, said: “The eleven Best Buy UK ‘Big Box’ stores have performed exceptionally at the level of customer satisfaction, but they do not have the national reach to achieve scale and brand economies.

“Due to the lack of visibility of an acceptable rate of return on historical and future potential investment we have decided against rolling out more ‘Big Box’ stores and we will be closing our existing stores, subject to consultation with our employees. Our immediate focus is our people and we are confident that the large majority will be offered alternative positions elsewhere in our UK business.”

The first Best Buy UK store opened in May 2010 in Thurrock, Essex, breaking its own sales record on the first day of opening. Since then the chain has opened stores in locations including Bristol, Hayes and Nottingham. But Carphone Warehouse said in June that it would be evaluating its strategy in the light of widening losses. Today it has become clear that reevaluation has ended in closure for the 11 stores. When Best Buy first announced its UK operations it said it expected to create 8,000 jobs over five years.

But Carphone Warehouse today said its vision of a inspiring and guiding customers towards a ‘connected world’ vision remained the same. This multichannel vision will now be delivered through an expansion of its Wireless World stores, run through Carphone Warehouse Europe, the only remaining operation in its Best Buy Europe arm. Existing plans to take this ‘proven’ store format to 400 across Europe by the end of March 2012 will be accelerated, and the range of connected devices that the stores offer will increase.

Carphone Warehouse and its American partner will both have the chance to buy out the business the chance to buy the Best Buy Europe out from March 2015.

Carphone Warehouse also said today that it had sold its interest in its related US mobile phone joint venture, Best Buy Mobile, to Best Buy for £838m, of which £813m would be returned to shareholders. Meanwhile a new Best Buy and Carphone Warehouse joint venture, Global Connect, will look to take the Best Buy Mobile venture beyond Europe and North America to markets including China and Mexico.

In its half-year results, published today, Carphone Warehouse Group said its Carphone Warehouse Europe business, in which it has a 50% stake, recorded earnings before tax of £20m down from £44.2m last year, with like-for-like sales down by 3.9%. Its Virgin Mobile France business, in which it has a 47% stake, recorded earnings of £8m, down from £19.9m last year, while revenues grew at 22% to £193.0m.

Our view: The Best Buy opening in the UK was much anticipated, with expectations that the good customer service that this chain is known for in the US with be welcomed with open arms in the UK. In the event the stores and their staff have, it seems, outperformed on satisfying its customers but has not shown the profits necessary to make Best Buy stores a permanent fixture. It would be difficult to break into the UK market from scratch at any time but consumer electronics sales have been hit particularly hard during the financial downturn.

It’s a sad day for Best Buy’s employees, although it seems most will be offered alternative Carphone Warehouse jobs, but we fervently hope the Best Buy legacy of good instore service will continue to be felt. Certainly, it has had a welcome effect on the competition to date, with the well-trained and knowledgeable instore ‘geeks’ that Best Buy was known for now a feature, in theory at least, of more than one consumer electronics brand in the UK. Long may that continue, since at Internet Retailing we remain convinced that the kind of exceptional customer service Best Buy is seen to have delivered is key to success for all retailers in this market.

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