Electrical retailing has been more reminiscent of the slaughterhouse than the high street in recent months.
Dixons, Currys and Comet have all shed retail outlets in the past year. Dixons, with 354 stores throughout the UK, saw sales drop two per cent to 520.5m between 1994 and 1995. Comet, the Kingfisher-owned chain, is the second-largest in the market but last year posted a 2m loss.
Rumbelows shut up shop and its stores reopened as Escom and four of the main regional electricity companies pulled out of retailing altogether. The now Hanson-owned Powerhouse, owned by three of the RECs has suffered losses of 7m in the past year. Even market leader Dixons has had a difficult time, relying mainly on warranty insurance sales to make a profit.
The only bright spot came with Currys posting an eight per cent rise in sales to more than 860m for the 12 months to June, from its 190 superstores and 199 high street stores.
In the midst of this retailers are again looking at the issue of own-label. Tandy is expanding into own-label by introducing its US retail brands through the RadioShack name (MW November 24). It is closely followed by the Co-operative Retail Service which is testing its own-label Harwood electrical brand in 55 stores with the intention of rolling it out nationally in the new year (MW December 1).
But while Tandy and the CRS are ploughing ahead, market analysts say that Dixons, Currys and Comet are all stepping back from own-label ventures.
Tandy managing director Eamon Bradley took over at the retailer in July having quit as chief executive at Powerhouse in March. He is embarking on the RadioShack launch after purchasing the UK licence from an unnamed company.
Direct sourcing and “cutting out the middle-man” are among the benefits driving Bradley’s decision to expand the instore own-labels, including the hi-fi brand Optimus.
He is a firm believer that electronic retailers cannot continue to exist in today’s market through simply sticking to branded products. “People already know the Radio-Shack name because many of them have holidayed abroad – it’s an established brand,” says Bradley. But only in the US.
However, by introducing the RadioShack brand and relaunching Optimus, Tandy has decided to drop dozens of middle-market brands, while keeping premium names like Aiwa, Nokia and Sony. Bradley’s enthusiasm is not shared by all observers. Verdict Research retail consultant Clive Vaughan believes electrical retailing is one of the worst sectors to test own-label products.
“It doesn’t work unless you get the co-operation from one of the global multinationals like JVC or Panasonic and that would be pretty difficult,” he says. Tandy, he claims, has dabbled in own-label before with little success.
“I don’t see why it will work now. I don’t think RadioShack is as strong a brand as Tandy says it is. American tourists might know what it is, though ,” says Vaughan. “It’s a market dominated by the big brands.”
He believes the fact that Dixons and Currys are playing down their own electrical brand Matsui and placing more emphasis on big name lines – to the extent of in-store dedicated sites – supports the proposition that it is difficult to make own-label electrical goods pay. Dixons was reluctant to comment about the brand’s positioning.
The theory, expounded by Vaughan, is that innovation in electrical manufacturing is so critical and expensive that own-labels cannot compete. But that is not deterring CRS, which is testing Harwood in its Living and Homeworld department stores. CRS’s national electrical manager, Mike Munday, hopes the own-label brand will help CRS capitalise on the seasonal boost in electrical goods sales before Christmas.
“The market is still price-led and shoppers will respond to the feature rich, value for money,” he says.
Sara Pearson, managing director of the SPA Partnership, which represents a number of brown and white goods clients, warns that middle-market players in electronic retailing risk being squeezed out. “Most business cycles tend to trade down to reach a position, rather than up, and this effectively squeezes out the middle market. It will be survival of the fittest.”
Pearson believes that falling profit margins is forcing electrical retailers down a similar road to that faced by their counterparts in the white goods sector. Five years ago, 25 per cent of all washing machines on the market were on sale for less than 300 – that has now risen to 40 per cent.
Bradley disputes the notion that all of the mid-market will “fall by the wayside”. But says the mid-market players will have to become more specialist and target niche markets.
Although the bloodletting in the electrical retail sector has eased, observers are warning the worst is not yet over in what remains a global market. Retailers and manufacturers do battle at the premium end of the market with manufacturers holding the whip hand.
Retailers want to regain supre-macy and some at least see more own-label – as has been the case in food, clothing and other consumer sectors – as the best way to achieve that.