Dixons moots ad budget cuts as job axe falls on 800

Dixons Group has put its UK marketing and advertising budget under the microscope in its determination to shave £30m of costs from the business and offset the impact of rent increases, increased price deflation, a fall in consumer spending and

It is also laying off up to 800 staff across the business as it rationalises its distribution depots and information systems at head office.

The group experienced an eight per cent fall in pre-tax profits to &£336.8m for the year ending April 30, although underlying profits before tax were up four per cent to &£343.1m and group sales rose eight per cent to &£6.9bn.

Because growth is mainly coming from its overseas business, the holding company’s name is to change to DSG International to better reflect this position. Detractors would say the name change distances the company from the performance of the Dixons brand in the UK, where sales were down 14 per cent to &£688m, partly due to 106 loss-making high street outlets that were closed during the period. Like-for-like sales for the year were up four per cent.

Steps are being taken to turn Dixons around: a television branding campaign is planned for the first time in three years drawing on “The future for less” advertising campaign (MW September 30, 2004); the management and promotional strategies of sister brands Currys and Dixons are to be integrated; and new formats, such as Dixons XL, are being tested in cheaper edge-of-town sites.

Evolution Beeson Gregory retail analyst Nick Bubb says: “The company has to get the Dixons format right. Better marketing and management has helped a bit.”

But like its sister brands Currys, PC World and The Link, Dixons is operating in a slow UK electrical market. According to Verdict, the electrical market grew 3.7 per cent in 2004 to &£22.2bn, maintaining the same growth levels as 2003, but at a weaker rate than at any other time in the past decade. This is partly accounted for by price deflation in the PC sector.

According to Verdict, Dixons’ brands accounted for a 20.8 per cent share of the electrical market in 2004 when combined, down 0.7 per cent from 2003, but still more than two and half times ahead of its closest rival Comet, at 7.8 per cent. However, Argos, which has a 6.3 per cent share, and the supermarkets, with their 3.9 per cent share, are making inroads into the sector, helped by their low-price and convenience offering.

Only last week, Asda slashed prices on its own-brand Durabrand range of electricals (MW June 16).

The internet is also undermining specialist retailers like Dixons, although Dixons chief executive John Clare is said to believe this represents an opportunity for the retailer.

One other major concern is the slowdown in consumer spending, a factor affecting most retailers, but in particular those selling high-cost items. Clare said last week: “The outlook for the year is uncertain, but we are anticipating a challenging trading environment, particularly in the UK and Italy.”

Industry players have long warned against cutting corners in marketing when times are tough, saying advertising is more important than ever when there is a slowdown in consumer spending levels. It remains to be seen whether the electrical retailer will take this advice.

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