May 20, 2010

Best Buy enters UK and ante portas in Europe

Apple, Best Buy, Media Markt (photoshopped by: Aki Röll)
Media Markt and Best Buy: Two global consumer electronics giants, but just one world
In today's iPod, internet and twitter-driven world, digital and information overload is such that two weeks seem like a lifetime.   

The opening of Best Buy's first UK superstore (50,000 ft²; 4,200 m²) at West Thurrock Retail Park in Essex, near London, on April 29 has already been fully covered by the international media.    

Quite rightly, the British national press see the US consumer electronic giant's new expansion phase in the UK as a direct challenge to local matadors DSG international (formerly Dixons Group) and Kesa Electricals.

In fact, Best Buy intends to open eight to ten big box stores by March 2011.    

Although Metro Group's electronics entertainment subsidiary Media-Saturn is not active in the UK, surely Best Buy has also thrown down the gauntlet to the Germans?                    

In a recent interview with Lebensmittel Zeitung, Media-Saturn Chief Executive Roland Weise clearly wants to stoke up the international rivalry: "We intend to be the world's number one home electronics retailer and to push Best Buy from the top spot."               

Wow! However, when you pick a fight in the schoolyard, it's always a good idea to judge the size of your adversary in advance. 

Media-Saturn no lightweight

At first blush, Media-Saturn isn't exactly a lightweight. Last year, the Ingolstadt-based multiple posted annual revenues of €19.7bn ($25bn; £16.7bn) and an ebit of €608m ($771m; £516m). 

The Media-Saturn store network now covers 830 outlets in 16 countries and will expand by 60 to 70 stores per year in the medium-term. Metro Group CEO Dr. Eckhard Cordes claims that all Media-Saturn's national operations are growing market share.          

Now, this sounds impressive until you see the 800-pound gorilla in the cage, Best Buy Company.

The world's largest consumer electronics group based in Richfield/Minnesota posted revenues of $49.7bn (€39.2bn; £33.3bn) and operating cash-flow profit of $2.2bn (€1.7bn; £1.5bn) for its 2009/10 operations in the US, Canada, Mexico and Europe.          

But who's growing more quickly? Since 2000, Media-Saturn has increased annual revenues two-and-a-half times. This is first-class, until one remembers that Best Buy has quadrupled sales during the same period with a CAGR of around 15 per cent.

Geek squad – a secret weapon          

How about the comparative strengths of the two business models? In an interview with Lebensmittel Zeitung, Bob Willett, CEO of Best Buy International, makes an interesting comparison: "We are much more about the experience; they are much more about the product."        

Although the Best Buy assortment also includes solar panel charging laptops, electric bicycles, motor scooters and even an electric sports car, Willett sees customer service as the company's real trump card because it is an "underdeveloped art" in Germany, Continental Europe and the UK.

He even calls his blue polo-shirted staff, centred around the so-called "Geek Squad", its "secret weapon".        

However, this does not mean that Best Buy is likely to take the war to Media-Saturn's home territory. Our question, whether Best Buy could enter Germany with its own stores, was flatly denied in writing: "Germany is not in our plans."       

The Americans know that they could only gain a real hold in Germany via a major acquisition, and big takeovers are not in their corporate DNA. Willett: "Most acquisitions involve huge integration and considerable change in the management culture...In fact, 95 per cent of most mergers & acquisitions fail."

Carphone Warehouse - European radar station       

Willett can afford to take a relaxed view because he already has a radar station on the German market via Best Buy's 50:50 joint-venture with the UK's Carphone Warehouse which operates 2,453 stores throughout Europe.       

Last year, The Phone House (TPH), Carphone Warehouse's subsidiary in Germany, added notebooks, net books and a large selection of smart phones to the assortment of its 200 outlets. 

Thus, The Phone House has evolved from a mere mobile phone service provider to an expert for mobile communication, smart phones and notebooks. This was exemplified by the opening of the company's first "XXL"-size outlet in Europe's largest shopping centre, CentrO. in Oberhausen, last year.           

Well, then, how about growth models? For the sake of argument, let us take two areas generally regarded as strategic: online business and China.          

As a multiple retailer, Best Buy has a structural advantage over the decentralised Media-Saturn group with its Media Markt and Saturn fascias. The store managers at Media Markt have considerable local autonomy, including the right to set their own prices.     

The flexibility is obvious, but it doesn't exactly make for a coordinated national online business. Metro Group CEO Eckhard Cordes has therefore demanded that the Media Markt empire tests online. Thus, its first online shop opened in the Netherlands at the end of April and in Austria last week.

The Chinese question

In the meantime, Best Buy.com goes from strength to strength. In 2009/10, online revenues at the US behemoth rose 20 per cent to approximately $2bn (€1.6bn; £1.3bn).  

And China? Best Buy has opened six branches in Shanghai and Beijing since 2006 and acquired a further 159 outlets from local Five Star Appliance Co., Ltd.     

Meanwhile, Media Markt has been reconnoitring sites with Taiwanese partner Foxconn since 2009. The first Media Markt store is due to open in Shanghai this autumn. Eckhard Cordes wants the test phase to last till 2012 before making a strategic expansion as to whether the company intends to power away in China, or not.   

Heigh-ho, are you really quite sure Best Buy will wait that long...?


Related article in German: By Mike Dawson in
Lebensmittel Zeitung, no. 18, 07.05.2010


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