Best Buy Halts Expansion Into New Overseas Markets

Best Buy is halting expansion into new overseas markets as it focuses on an existing base in Canada, China, Europe, Mexico and Turkey, International Chief Financial Officer Dave Deno said Wednesday at the Oppenheimer Consumer, Gaming, Lodging and Leisure conference.

The Minnesota-based chain grown rapidly in international markets, in buying Five Star Appliances and Future Shop in China and Canada, respectively. It also forged an alliance with Carphone Warehouse in Europe. Along the way, Best Buy has issued strict requirements for international markets and “businesses have to earn the right to get more capital” to fund growth, Deno said.

"We are going to focus on profitable growth and corresponding return on invested capital expansion internationally,” Deno said. “We don’t expect to go into new countries until we have demonstrated a customer proposition we can expand and we have the targeted economics going. We don’t need to go forward and expand beyond the countries that we already have."

Best Buy opened its first two U.K. stores in Thurrock and Southampton earlier this year and will have 4-6 outlets there by February 2011, Deno said. Other U.K. stores will be added in Aimtree, Croydon, Liverpool and Merry Hill, Best Buy has said (CED April 27 p2). It also has five stores in Mexico and two outlets in Turkey, the first of which opened in Izmir in December. In Canada there are 144 Future Shop and 66 Best Buy stores. Best Buy has 2,430 Carphone Warehouse outlets in Europe and 1,086 in the U.S. China has provided mixed results. While Five Star has expanded to 158 outlets, Best Buy has seven in Shanghai, Deno said.

Under the Best Buy banner the chain isn’t at “the rate we would like to” be in China, CEO Brian Dunn told shareholders last week at the company’s annual meeting. The retailer’s branded stores in China aren’t “currently accretive” to earnings and “we have been a little too far out in front of” what Chinese customers want in terms of Internet connectivity, Dunn said. Best Buy in China also hasn’t “done a good job of marketing” its concept, he said.

Meanwhile, Best Buy revamped its store design to better highlight its CinemaNow video download service, said Bill Seymour, vice president of investor relations. CinemaNow, which is based on a Sonic Solutions platform, will be “more prominent in stores in the coming weeks” as it’s demonstrated on TVs and Blu-ray players, he said. Best Buy also will promote 3G and 4G wireless broadband services in the PC section, Seymour said. The growth on Internet services will help expand Bestbuy.com sales. Bestbuy.com posted $2 billion in revenue in the fiscal year that ended in February, company officials said. Bestbuy.com sales rose 26 percent in fiscal Q2 and 40 percent of customers that purchased products online, picked them up in a store, Seymour said.

So far, 3D has been a “pretty small proportion” of Best Buy’s sales, Seymour said. Best Buy got a 30-day exclusive in March on selling Panasonic’s 50-inch 3D plasma TV. The technology is “definitely a driver” of customer traffic, but “it will take a while for this to ramp,” Seymour said. It will become “more and more prominent on higher-end TVs toward the holiday season,” Seymour said. “In the interim it is a traffic driver, but then it will become pretty interesting going forward,” he said.