The official announcement should be made later today, but if the talk is right, Carphone Warehouse is set to announce a £1.1bn investment from US retail giant Best Buy. The expected announcement would appear to quash rumours that its boss Charles Dunstone was ready to step down, but, more to the point, could leave Carphone beautifully poised to take advantage of the credit crunch.
Opportunity is when others are panicking. While it is obvious that fortunes can be lost during economic downturns, they can be made too. At least a part of Google’s success can be put down to the dotcom crash – since it was able to pick up server technology at knock-down prices. For that matter, AT&T’s meteoric rise from 100 or so years ago, occurred after a crash in the bubble for providing telegraph wires across the US. Too many were laid – it was unsustainable, and with all that cheap infrastructure, AT&T threw itself onto the corporate stage.
Warren Buffett understands this, which is why he recently announced plans for a big investment spree.
Alas, regulators don’t, and will often force pension funds to sell equities at the time of a falling market.
This is the time when some companies could put in place the means to clean up in their market place. And maybe Carphone Warehouse could be such a company. Its boss is one of those types who can charm the press. A couple of years ago the company stared PR disaster in the face – with its move into broadband via the Talk Talk service. Programmes such as Watch Dog saw blood, the consumer backlash, as the company’s failure to live up to its promises threatened to engulf it, but Mr Dunstone showed how to handle crisis. He put his hand up, “It’s my fault,” he said, “I underestimated demand,” and the press turned from would-be executioners to social workers, as they sided with the British entrepreneur.
But the consumer electronics market is oversaturated. Satiated consumers can not keep up. We may be ready to migrate to new technology every ten years or so, but the rate of change in consumer electronics is leaving most of us breathless. LCD TVs which would have cost an arm and a leg two years ago, are now going for prices you can count on the fingers of one hand.
This is bad news for manufacturers, but for retailers, falling prices at a time of massive supply could be good.
Okay, admittedly Currys is not exactly doing a fine trade at the moment, but in the US the Best Buy stores are amongst the few US retailers to be announcing improvements in like-for-like sales. And that’s the idea for Europe – new consumer electronics stores – across Europe, typically of similar dimensions to mid-sized supermarkets. Best Buy and Carphone Warehouse are jumping into bed, with a joint venture to replicate the US Best Buy business model.
Maybe Charles Dunstone has hit the nail right on the head. He reckons we are confused – and that’s where the new venture will come in. Computers are talking to each other – computers and consumer electronics products are becoming the same. There are products such as the BBCi player, to be launched soon, which will be designed to facilitate watching TV programmes downloaded from the Net in your living room.
The Internet is moving into the living room – maybe the kitchen too, and that’s where Dunstone sees the opportunity.
Carphone itself will keep its broadband business separate from the deal, and the £1.1bn welcome is very handy, both to pay off debt, and to fund buying at a time when companies are cheap.
Talk is Dunstone has his eyes on Tiscali – no doubt, thanks to the credit crunch, he will pick up the company for a bargain – you can imagine the headlines now: “I know, a broadband company for just £….”
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