Best Buy (NYSE:BBY) is cutting its losses in Europe, ending its partnership with U.K. retailer Carphone Warehouse and walking away with about $775 million, the chains said on Tuesday (April 30). The joint venture, which was formed in 2008, will end up costing Best Buy about $2.5 billion. The good news? The U.S. chain got Best Buy Mobile out of the deal.
The partnership's original plan was to open big-box stores across the U.K. and Europe, co-branded with the Best Buy and Carphone Warehouse names. But the timing couldn't have been worse: The economy was already in recession when the two chains cut the deal in 2008. In 2012, Best Buy's U.K. stores were shuttered, and Carphone Warehouse said it will close its stores in France once the separation is finalized in June.
That leaves the one real bright spot for Best Buy: the small-footprint U.S. Best Buy Mobile stores that Carphone Warehouse designed and operated for the partnership. Best Buy paid its partner to walk away from that role last year, but the stores are so successful that they provide 30 percent of Best Buy's operating profits. Best Buy also used the associate training from the smaller stores to retrain associates in its big-box stores last year, which may have helped the chain to better-than-expected sales during the holiday season.
From a long-term financial point of view, the five-year deal was a catastrophe for Best Buy. But if it's really true that the Carphone Warehouse-developed training is what helped Best Buy survive the holidays, there may be a useful lesson here—two lessons, in fact.
The first is that retail partnerships don't always provide their value in money. It's nice that the small Best Buy Mobile stores generate profits, but it's life-or-death that the training could keep Best Buy's big-box stores from cratering. That $2.5 billion loss on the deal may be the price of Best Buy's ultimate survival.
And the second lesson? If you can possibly get the financial and non-financial benefits of that kind of partnership without burning through $2.5 billion in the process, that's good too.
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