The threat posed by US giant Best Buy’s UK launch to electricals specialists DSGi and Kesa has been overblown, believes broker Shore Capital.
Shore analyst Kate Calvert said that despite DSGi and Kesa’s shares trading on lowly valuations, the electricals sector is not a “value trap” and the pair have time to “get their houses in order” before Best Buy builds scale.
Best Buy Europe, a partnership with Carphone Warehouse, expects to open its first British stores next spring and expand to about 80 shops within three years.
But Calvert downplayed the idea that Best Buy’s touchdown here would transform the market, recalling Wal-Mart’s acquisition of Asda. She said: “Commentators were exclaiming that it was the end of the world for UK food retailers and the shares were sold off. The reality was very different, though it did result in long overdue consolidation.”
Originally Best Buy had intended to launch this year and Calvert questioned whether it would realise its ambition for store openings.
She argued: “History shows that few retailers ever deliver on target store numbers. While we would agree that there has never been a better time to roll out a new concept, as the rental market is very depressed, we are sceptical that Best Buy will achieve its 80 sites in the next three years.”
She also raised doubts over the ability of Best Buy’s UK arm to benefit from the US retailer’s buying scale. Calvert said: “We would not expect Best Buy’s big box arrival to have an instant impact on the electricals market as it will lack critical mass for some time.
“Also, we remain sceptical over whether Best Buy Europe will be able to leverage its US buying power. Many an international retailer has strived for cross-border buying synergies and failed as the manufacturers organise their sales teams on a country basis and it is not in their interests to change. Both DSGi and Kesa have been trying to do this on a pan-European basis for years.”
DSGi and Kesa both update in early September.
Shore Capital analyst Kate Calvert said: “We believe it will be too early for either management team to be more upbeat on the outlook as they will be mindful of the tough Christmas comparative.
“However, we do expect DSGi’s share price to possibly respond to the update on the trading performance of its refurbishments.”