George Cope has made his first big move to boost Bell Canada's wireless business, snapping up a national electronics retailer to leapfrog his rivals' presence in shopping malls across the country.
Mr. Cope, chief executive officer of both Bell and BCE Inc., struck a deal yesterday to acquire The Source by Circuit City, which adds 750 stores to the company's retail portfolio.
In what one analyst described as a daring yet risky move, Canada's largest phone company is hoping more storefronts will translate into more cellphone sales, Internet accounts, satellite TV connections and residential home phone lines.
In the past few years, Rogers Communications Inc. and Telus Corp. have moved quickly to open a total of 300 stores that sell their products and services. In contrast, Bell fell behind its competition, only opening 19 of its own branded outlets in the same period.
"This is a great opportunity for us to expand the distribution channel for our products and services," Wade Oosterman, president of Bell Mobility and chief brand officer of Bell Canada, said in an interview. "The Source will continue to sell the broad array of products and services that it does today."
While Bell did not disclose how much it has agreed to pay for the chain, Mr. Oosterman said the amount was "considerably less" than the $334-million that Circuit City Stores Inc. paid for the company in March, 2004.
The Source now has an exclusive contract to sell mobile phones for Rogers, and that deal expires at the end of the year. It means that if the Bell takeover deal closes as expected in the third quarter, Bell won't be able to sell its own products through the chain until January.
Yesterday's move has the added benefit of closing down a sales channel for Rogers, which, according to one source, had expressed interest in the retailer.
Kaan Yigit, president of telecommunications consultancy Solutions Research Group, called the move by Bell a "gutsy" one that will get noticed.
"But electronics retail is cutthroat at best - a highly commoditized category," he added. "That's the risky part of it."
The consumer electronics market in Canada is dominated by Best Buy and its Future Shop division, as well as Wal-Mart Canada Corp., which together account for about 60 per cent of electronics purchases in this country, Mr. Yigit said. The Source, despite its many stores, has less than 5 per cent of the market, he said.
"This is a quick way to gain access to a lot of retail locations," he said, adding that The Source stores are located in both big and small malls across the country.
The Source provides a complementary line of products to Bell's wireless, internet and satellite television service, said Jim Danahy, managing principal at retail consultancy CustomerLab.
The retailer has built a quirky mix of electronics products - from toy cars to power adapters - much like Canadian Tire Corp. has developed its own mix of items, he said.
And despite an unsuccessful U.S. parent, which - unable to find a buyer - collapsed into bankruptcy protection last year and later closed its stores, The Source has been well run and is a destination for its "nerd lines," Mr. Danahy said.
Men browse the stores' aisles looking for cables and connectors for their electronic projects, and those are products with relatively high profit margins, he said.
The Source stores provide Bell with high-profile, billboard-like marketing in the malls, said Tony Chapman, chief executive of marketing agency Capital C.
It's an important opportunity for Bell to draw younger people and more women to its products because they are the main shoppers in many malls. Women want their own smart phones to connect with their social network, he said.
The Source has a track record of profitability over the past seven years, the company said. In the 12 months ended Dec. 31, it had revenue of $643-million and EBITDA (earnings before interest, taxes, depreciation and amortization) of about $27-million, it said.
Circuit City, at one time the second-largest U.S. consumer electronics retailer, filed for bankruptcy protection last November and in January began liquidating its stores.
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