"Failure to thrive" is a medical term applicable to individuals who aren't healthy enough to maintain themselves. Best Buy Co., the American consumer electronics chain, has found itself in a similar situation following years of disappointing sales from its partnership with Carphone Warehouse Group, one of Europe's largest mobile phone franchises.
This deal began in 2008, when Best Buy sought to generate additional sources of revenue due to slackening demand in the United States. Despite some promising signs at the start of the venture, consumers in Europe never took to Best Buy's big-box store approach. According to The Wall Street Journal, the American retailer increased its Carphone Warehouse investment from 3 percent to 50 percent in June 2008 for a price tag of roughly $2.15 billion.
Signs of strain in the transatlantic relationship began to appear in 2011, when Best Buy publicly abandoned its plans for a string of big-box stores. It shuttered shops in the United Kingdom and sold off European assets over the next 18 months, an action that culminated with an investment withdrawal that will cost Best Buy hundreds of millions of dollars. Included in this transaction is a $45 million fee to end a mobile-phone program and $200 million on second-quarter earnings shared between the two organizations.
"This transaction allows us to simplify our business, substantially improve our return on invested capital and strengthen our balance sheet," Hubert Joly, Best Buy's CEO, said in a press release.
Best Buy's decision to reinforce its balance sheets reflects the grim reality of the global economy, where consumer demand isn't keeping up with expected investment returns. Because of this, investors ought to take steps to protect themselves financially by acquiring income-generating assets like cash flow real estate. Learn more by downloading a "Free Game Plan Report" today.