|
Following the recent news about the closure of 11 Best Buy stores the SnapShop team investigates what could have gone wrong? Is the market shrinking or did the concept just not appeal to the target market. Was the retailer thwarted by a global recession or can the failure be attributed to the cultural differences in how people like to shop here in UK or is it to do with the competition from discounters and online rivals?
When Best Buy initially laid plans to expand in UK in 2008, it had aimed to open 80 Best Buy stores across the UK by 2013 – but in the subsequent 3 years, things proved to be very different.
During its first full year of its operation the business lost £62.2m. In June it was reported that the retailer was on the verge of stopping further European expansion due to weak consumer demand and changing shopping habits. Roger Taylor, Carphone Warehouse’s chief executive had estimated that it would cost about £40m to exit property leases on Best Buy UK’s 11 stores. In February 2011, Best Buy closed stores in China and Turkey. It is now exploring ways to reintroduce the brand in China after it failed to get the right connection with the customer.
With decreasing disposable incomes, it seems shoppers have cut spending on discretionary items like electrical goods, but is this the case across the sector? SnapShop information shows a mixed picture:
Dixons Retail reported margins and underlying profit before tax, at £85.3m, maintained for the year ended 30 April 2011. Total underlying group sales down 2% to £8,154.4m (2010 £8,320.0m) and over 80 megastores across the group, including 40 in the UK and 25 in the Nordics were reformatted by peak 2011.
Homebuy achieved a turnover of £24.8m and an operating profit of £974,000 for the year ended 17th September 2011. On the other hand, Ask Electronics sales fell only by 6% for the year ended 30th April 2010, group operating profit fell from £388,925 to £227,088.
For the year ended 3rd July 2010, Superfi turnover fell by 1.2% and the company recorded an operating profit of £21,509 (2009 £152,043).
Anthony Chukumba, an analyst with BB&T Capital Markets said that Best Buy has made mistakes, by announcing its expansion plans so openly giving rivals the opportunity to respond. Dixons opened a series of megastores by combining its existing Currys and PC World outlets not only imitating Best Buy's strategies but often targeting similar locations, said the analyst.
The store closures puts 1,100 store jobs at risk, but the firm said it hoped to find the "large majority" alternative work. The closure of the Best Buy shops is not expected to bring to an end the Best Buy tie-up and it is expected that Best Buy will continue to supply gadgets to be sold in Carphone Warehouse shops.
For more up to date news, analysis and statistics on Best Buy and over 2000 UK retailers, please subscribe to SnapShop - or signup to receive SnapShop Monthly for free for three months by signing up for FreeZone here.
|