While cameras flashed in Millbank Tower as Charles Dunstone outlined the £1.1bn deal between Carphone and Best Buy in the UK, Best Buy Mobile was closing in its 500th store concession, with another store opening with little fanfare, on the other side of the Atlantic.
The transatlantic partnership is in full swing, and Carphone looks set to succeed where M&S, Sainsbury’s, DSG, WHSmith, HMV and Next have all failed: to expand a UK retail business in America.
Allister Jones, retail director of Best Buy Mobile and former Carphone marketing man, was holding court in a town hall in the small town of Raleigh Durham in North Carolina, a few weeks ago.
He introduced himself and told the audience of locals how Best Buy Mobile will be a major local employer, and the town is the testing ground for standalone Best Buy Mobile stores, and how the enterprise has already exceeded expectations.
Raleigh Durham is a small American town, and is seen as the litmus test for investing in the stores across the country.
Best Buy is so convinced by the trials that it has brought forward the target to introduce a Best Buy Mobile concession in each of its 935 stores this year, instead of in 2009. Concessions are opening at a rate of 50 per week.
Dunstone told analysts earlier this month: ‘With the Americans, if they like something they just get on with it.’ It is a retail business estimated to earn Carphone between £25m and £30m by 2011.
There are nine standalone Best Buy Mobile stores, and plans are already being hatched to take the concept out of New York and Raleigh Durham and into other major cities.
Mobile is talking to Jones from a large standalone Best Buy Mobile store in Union Square in Manhattan; over 500 miles, and what is a different world, from the town hall in Raleigh Durham. It has the familiar look and feel of a Carphone store – similar fixtures, store layout and even a Buyers’ Guide by the door.
It’s three years since Jones was dispatched to America by CEO Charles Dunstone, UK CEO Andrew Harrison and finance chief Roger Taylor.
Harrison says: ‘Both Charles and I had a fascination with the US for a while. We saw it as a market dominated by the carriers with little choice for handsets. We looked really hard at it and became very interested as we saw how much American consumers hated buying a phone.’
Jones (pictured), and everyone at Best Buy, points to surveys that show American consumers place buying a mobile phone as a less attractive exercise than going to the dentist. Consumer dissatisfaction, the lack of a specialist mobile retail chain and the 70% market penetration piqued Harrison and Dunstone’s interest.
Talks with close associates at the senior echelons of Motorola suggested there was an opportunity for Carphone, but Jones says: ‘There was so much going on in the business at the time. TalkTalk had launched, lots more stores were being opened in the UK. It wasn’t a priority.’
Cracking America alone would have strained Carphone’s already cash-strapped coffers, with the TalkTalk project already increasing Carphone’s debt. ‘We looked at Tesco’s ambitions in the US, thinking it would cost £250m per year for three years. We wouldn’t have the time or the resource,’ Jones says.
Harrison adds: ‘We wanted to bring the Carphone approach but didn’t want to follow UK retailers into the US graveyard. It was obvious it would work best with a local partner with the scale.’
Research was commissioned, and meetings were brokered with RadioShack – an electronics retailer similar to Carphone in terms of the size of the stores and its brand. Jones was talking to RadioShack and put a potential model together for Harrison and Dunstone.
The third party
A crucial third party emerged late in the process in the form of Bob Willett, CEO of Best Buy International. Willett is a former director at Somerfield and knew many of the senior Carphone team during his time at management consultancy firm Accenture. He started out as Marks & Spencer store manager.
Willett, a senior director at Best Buy, was close to another Brit, Kevin Gillan, MD of Best Buy’s Geek Squad business. Willett made the trip to Carphone’s HQ in Acton soon after. Jones says: ‘As soon as he heard about the RadioShack deal, he said: “Don’t do anything until you see what we’ve got”.’
Carphone and Best Buy management met at the Consumer Electronics Fair in Las Vegas three years ago. ‘There was a lot of mutual respect, and there was acknowledgement from Best Buy that they’ve really struggled with mobile. We’re talking moving their share from 0.5% to 3%.’
That failure frustrated Best Buy’s management team, which enjoys a 31% share in the American TV market, and 26.5% in the PC market. The network operators dominated the mobile market, with the rest picked up by WalMart and RadioShack.
Carphone sent Jones and former UK sales and marketing director Jonathan Hook to meet with Best Buy at the HQ in Minneapolis.
A deal was reached in June 2006 where Carphone would take its independent mobile retail model to America, and it would use Best Buy’s Geek Squad brand in the UK.
‘Roger Taylor told me on the plane that I needed to be based in America. It was an amazing opportunity,’ Jones says.
Jones arrived in New York in August 2006, building a team and working with the likes of current UK and Europe commercial director George Dymond, and Best Buy Mobile commercial director Jude Buckley Ð also schooled at Carphone. The CEO is David Sprosty from Best Buy.
Buckley was in charge of Carphone’s Fonehouse business in Sweden, and the two have become friends as the American operation has grown over the last year.
Both Buckley and Jones have faced tough tasks in their respective roles. In a market controlled by networks, Buckley has found it difficult to pair handsets sourced independently with networks’ tariffs.
Harrison is acutely aware of potential resistance from American operators to Carphone’s retail plan. ‘We’re not destabilising or disrupting, but adding value by educating the customer. Best Buy Mobile is a service-assisted sale environment.’
Jones adds: ‘It’s been a challenge to convince the carriers but we are already showing them the quality of customers we can bring.’
It’s the familiar Carphone model: drive footfall with the widest choice of handsets and well-located stores. ‘We’ve anticipated the risk of confrontation and been more collaborative.’
Despite the potential from just 70% of the total population having a mobile phone, Carphone’s biggest obstacle is finding opportunities among the operators, who all have their own store estates. How many UK operators would love to turn the clock back and stymie Carphone’s power?
Tariffs are virtually identical in the America market and MVNOs have tended to fail. There is also varying levels of regional power for Verizon, Sprint, AT&T and T-Mobile – the main operators.
Buckley has been heavily involved in trying to secure exclusive handsets, but some familiar frustrations are already apparent. ‘Our customers ask for things that carriers already have in their stores, so we sometimes lose a few.’
‘Jude is not buying as many manufacturer products as you would think. It’s more stuff directly from the carriers. It’s very difficult for us to leverage economies of scale.’
It is the familiar story of competing with suppliers for customers, store sites, staff and even marketing.
The other challenge has been securing premises for stan