Best Buy Makes Smart Call in Europe

The move by Best Buy to acquire half of the Carphone Warehouse–a European phone retailer–may look like a strange one. After all, the markets are not much better over there, and the mobile phone market is just as saturated; plus, they are rivals already entrenched with big brands in their respective regions.

But the move is a smart one by Best Buy. Having been rumored for the best part of eight months (since Best Buy announced it was investing in Carphone Warehouse last September), Best Buy has (just about) managed to keep it under wraps, helping to avoid any unwanted rivals upping the price by making competing offers.

Also, while the markets in Europe are suffering a slight wobble, they are still growing, and growth of any kind is, after all, growth. And, yes the market is saturated, and some analysts are saying the electronics retail market is done for, but this is Best Buy’s core market, it is its business. Short of completely changing its product set and business strategy, Best Buy has to continue along this path, despite the difficulties at present, and expanding into a region with Europe’s potential can help it at least maintain some growth.

Although Best Buy spent $2.1 billion on the deal, that is still a lot cheaper than starting from scratch in the region, and it takes much of the risk out of a new starter strategy. Carphone Warehouse has a good brand in Europe and also has experience and knowledge of the local markets a–a vital and priceless component of this deal.

The main competitor to the deal, DSGi, which owns PC World Business and several other brands, is likely to make a worthy adversary. However, DSGi has struggled of late, reporting several quarters below expectations, and Best Buy will compete on its quality of service–something DSGi will now attempt to double its efforts in no doubt.

The move will certainly shake up the European market–smaller retailers will feel the pinch and larger rivals such as DSGi and Media Markt in Germany and also the larger supermarkets such as Wal-Mart and Tesco’s are likely watching the move cautiously. The success of Best Buy will depend on whether it can do what all of these rivals do–only do it better.