When the world’s biggest electrical retailer, US-based BestBuy, breaks into Europe it can only mean one thing – the first step towards world domination.
BestBuy last week announced a £1.1bn deal with Carphone Warehouse, buying a 50% stake in Charles Dunstone’s retail business. Its biggest competitor in the UK, the beleaguered DSG, formerly Dixons, is already braced for a tough fight and rumour has it that the likes of Germany’s Media Markt, Europe’s biggest retailer, could also end up on BestBuy’s shopping list.
But while BestBuy enjoys market dominance across the electrical products market in the US, with more than 20% market share, can it make similar strides across Europe?Not everyone is convinced that BestBuy’s deal with Carphone Warehouse will guarantee it success. For instance, there are technical barriers to buying TV brands across Europe which could hinder BestBuy acquiring the kind of scale and volume it enjoys in the US.
Consultant Bob Reikes, of research consultancy Meko, explains: “Take the examples of digital technology used in television sets. Italy uses a different one to the UK, which is why it is hard for TV brands to win volume quickly in Europe.”
Reikes says that “BestBuy will only have any significant influence if it can roll out sufficient scale”.
He adds: “There is potential to be a pan-European player but success for electrical retailers in Europe has been dictated by national boundaries.”
The leading electrical retailer in Europe is Metro Group, which operates under its Media Markt and Saturn fascias and remains largely dominant in homeland Germany. DSG International, which is expected to announce a wave of store closures, is already planning a fightback against the impending threat. Rival Kesa, which owns Comet, has also been finding trading difficult.
Mike Godliman, of retail consultancy Pragma Consulting, says: “The entry of BestBuy will be exciting for UK customers, but the question is whether it will be able to discount its goods to the same level it does in the US. Different countries are used to different brands so there won’t be the same kind of volumes as the US.”
However, Godliman adds: “BestBuy is cash rich and in the UK consumer electronics is seen as a weak market, with the market leader Dixons struggling. This deal will give more choice to consumers both in terms of brands and prices.”
In 2009, BestBuy will start opening eponymous 15,000-30,000 sq ft stores in UK high streets and retail parks, while the range of goods currently on sale in Carphone outlets will be expanded to include a wider range of electrical items. The partnership has already seen Carphone bring the US giant’s “Geek Squad” IT support service – best known for its “informal” meet and greet of its customers – to the UK.
Allyson Stewart-Allen, an expert on transatlantic business at International Marketing Partners, warns that BestBuy will come across “cynical” European consumers it is not used to.
“Any new thing is instantly heralded as better than before in the US, but across Europe the view has always been that the greedy corporate wants to screw the customers. BestBuy will have to be very different in its style of service and so cannot hug customers,” she adds.
However, retail analyst Richard Perks of Mintel believes that BestBuy’s entry to the UK and Europe will not only give DSG a “kick up its backside” but also open a huge opportunity to sell “boys’ toys” on the high street.