Implications of Bell's purchase of The Source

Yesterday's announced purchase of the 750 stores of The Source is likely just the first of retail M&A activity we will see in 2009.  And this is a biggie and frankly I did not see this one coming.

The Source is Circuit City's rebranded Radio Shack locations in Canada, having been acquired from InterTAN five years ago this month.  It has been on the block since late last year - not due to weak performance itself, but due to the receivership and collapsed support of Circuit City in the U.S..

Known suitors were The Brick, Best Buy Canada and a current management group.  However, Bell's move is a shrewd one. Prime competitor Rogers has been successfully leveraging its retail channel to be a one-stop outlet for its communications and entertainment offerings.In addition to selling, high traffic retail windows are an inherently strong brand and media channel in their own right.

Bell needed to catch up on outlets, particularly in the West.  No figures were revealed, but this must be at a significant discount given current market conditions and an expedient way to develop profound mall exposure in one fell swoop.  Not to mention the likely long-term severing of Rogers' access to consumers through the existing Source agreement.

My only caveat is the historic inability of tech and telecom companies in Canada to do great retail (Dell and Apple excepted, think A&B Sound). BCE has announced The Source will retain its brand and be run as a distinct unit with incumbent leadership and staff.

This is the right step, if they commit to in long-term. While tempting to be exclusively "Bell", the consumer may be turned off by merchandise disequilibrium this could cause. Either way, it remains to be seen if management will be able to focus on continuing its reinvention begun by Circuit City. Radio Shack had become stale and a convenience-store version of better offerings from Best Buy/Future Shop.  Even with solid refreshment and better product mix under The Source, sales growth was more muted that that of the overall electronics category. 750 stores can become deadweight fast should Bell allow it to slip back to mediocrity. 

As the NHL Trade Deadline looms, this is the biggest "deal" so far in 2009. Watch for more rescues and hostile takeovers as part of retail consolidation in over the course of the next 12-16 months.  

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Andrew Willis' blog makes additional point that this may also strain relationship with Bell Mobility franchisees (but that would never be a deal-breaker for Bell)...  http://www.theglobeandmail.com/servlet/story/RTGAM.20090303.WBstreetwise...