Best Buy's strategy to keep customers connectedby Martin Moylan, Minnesota Public Radio
St. Paul, Minn. — Best Buy officials were clear today they believe the company's greatest opportunities are in wireless devices. The consumer electronics retailer will buy out a British partner that got a share of the profits from Best Buy's mobile phone business in the U.S.
Buying out its joint venture partner, Carphone Warehouse, will cost Best Buy $1.3 billion. But the move will give Best Buy all the profits from its U.S. mobile phone business. CEO Brian Dunn said the deal helps the company capitalize on consumers' desire to be constantly connected.
"Everything we have announced today is grounded in our deep commitment to light up the connected world, connecting customers to what's most important in their lives," Dunn said.
Best Buy has the expertise to help customers connect on the mobile platform — not just with phones, but also with notebooks and tablets, Dunn said.
"You start to see that really these employees of ours become connections experts," he said.
The Carphone Warehouse buyout will increase Best Buy's annual pretax profits by $120 million to $140 million initially, and by much more in further years.
Best Buy is hungry to find more revenue and profits. Slumping TV sales and competition from Amazon.com, Walmart and other rivals have led to sales declines in five consecutive quarters at stores open at least 14 months.
Morningstar analyst R.J. Hottovy said Best Buy has to be in the high-growth wireless business, but also that there's no way the company will lord over the sector. In the wireless world, Hottovy said Best Buy competes against Walmart, Target, Costco, Amazon, the wireless carriers themselves and their own stores.
"Smartphones and the wireless category in general are going to be one of the most competitive retail categories for the next several years," Hottovy said.
Eventually, Hottovy expects AT&T, Verizon and other providers may decide to cut out retailers like Best Buy.
"At some point, the wireless providers themselves will want to pull back and keep control of the profits they're seeing from this, as well, which is going to be a tough situation that Best Buy finds itself in," Hottovy said.
For now, sales of mobile phones, related devices and wireless service is a big deal for Best Buy. During a conference call with analysts, the company indicated its mobile business produces almost 30 percent of its domestic operating profits. Because of that, some analysts applaud the Carphone buyout.
"The big announcement was getting full control of that Best Buy Mobile business," said Peter Keith, a research analyst with Piper Jaffray.
"Their joint venture passed on half of the profits of best buy's mobile phone business."
Best Buy also announced two other moves. The company is closing 11 big-box outlets in the United Kingdom and taking a non-cash accounting hit on the stores in the form of a $1.2 billion write-down.
Best Buy also agreed to pay $170 million for mindSHIFT Technologies, a provider of information technology services to small and medium-sized businesses.
All told, the tab for the day ran about $2.6 billion.
Best Buy hopes to help offset that cost with a strong showing on Black Friday, the big shopping day after Thanksgiving. The company plans to open it's stores on midnight Friday, as will many other retailers, including Target and possibly WalMart. Investors weren't thrilled with all the announcements, sending Best Buy's shares down 3 percent Monday.
- All Things Considered, 11/07/2011, 5:51 p.m.