Moving Dixons into cyberspace looks the right move for parent DSG as it faces up to declining sales, but the absence of any integrated strategy with its retail successor Currys.digital may herald a withdrawal from the high street altogether in the near future, argues Caroline Parry
After 69 years, the UK high street is waving goodbye to Dixons, the electrical goods specialist, which is now set to seek its fortune in cyberspace. In its place will come funky new sister brand, Currys.digital.
Dixons’ demise may have created a wave of nostalgia for the disappearance of the bricks and mortar operation, but it has also generated severe scepticism about the strategy of parent company DSG International.
Some observers see it as merely pragmatic rather than the fully thought-out strategy of a market leader. Richard Hyman, chairman of retail analyst Verdict Consulting, says concentrating on Currys as the main brand is the way forward, as it has always been the bigger business. He adds/ “This is less of an overtly positive move, and more one born out of practicality. It is difficult to trade as a business with such low gross margins in prime high-street sites. The gross profit on electrical goods is 25% at best, and likely to be much lower.”
Dixons, which is the third-largest electrical goods retailer behind fellow DSG-owned brand Currys and Kesa-owned rival Comet, has been struggling on the high street for a number of years. As a result, DSG has been increasingly focusing on developing its out-of-town presence since it acquired the Currys brand in 1985.
DSG, which is the UK’s largest electricals group and the owner of PC World and The Link, says that the move is intended to increase the group’s share of internet sales and create a clearer distinction between its brands. Anna Burleigh, marketing director of Currys, says that the electrical retail landscape is changing and DSG must adapt. She says: “As a market leader, we have to change and we have to change first. We want to focus each brand on either bricks and clicks, or just clicks.”
Other factors, such as a reputation for poor customer service, low consumer confidence and increased competition from new entrants – including other internet-only outfits and the major supermarkets – have contributed to a decline in sales at Dixons.
Two years ago, DSG announced the closure of 106 Dixons stores, a 27% reduction in the brand’s portfolio, following disappointing sales in 2003. Although it claimed that the chain had benefited from the changes, DSG reported a 14% decline in sales to &£688m for 2004/05. In its results for the 28 weeks to 12 November last year, the group reported sales had declined by a further 8% to &£351.8m. It attributed the fall to the continued effects of the closures, combined with tough trading conditions. The decision to move Dixons online will result in &£3m annual cost savings for the group, after an initial cost of &£7m for the rebranding exercise.
The chain had already been repositioned in 2004 with an increased focus on new digital technology and, according to DSG, a more aggressive advertising campaign with the strapline “The Future for Less”. According to Dixons, the strategy was intended to make it the “principal high-street source for new technology”. It has also been testing mid-size format stores under the Dixons xL brand.
As an online-only proposition, Dixons will retain this focus on digital technology. Currys.digital will continue the strategy on the high street, but with the emphasis on being able to “take it away”. Interestingly, given this positioning, Burleigh says there are plans to introduce white goods to the range as well.
Same products, same profits
Hyman is sceptical about Currys.digital’s potential for success. He says: “Electricals can’t live on the high street now: that is simple economics. The only way to succeed there now is to shift volume and that isn’t possible. Currys.digital will still be selling the same products with the same low profits.”
Jasmine Montgomery, director of brand strategy at FutureBrand, is also doubtful about the Currys.digital brand. She explains: “It lacks longevity as a descriptive name in this sector, which is the worst possible move. It is also rather confusing, as it sounds hi-tech, yet Dixons is going to be the online brand.”
Montgomery says that the overall strategy will bring more clarity to the business, but adds she is “surprised” that DSG has not learnt any lessons from its computer retailer, PC World, which successfully integrated its stores with its online strategy. She says: “I think that DSG is missing a trick. The retail environment can create a brand experience and it has a halo effect on the website. The website can then be used for all the product information and will create an ease-of-access halo.”
But Burleigh maintains that the decision is the right strategy for a market leader. She says: “This move enables us to expand the Currys store portfolio in the UK and will make buying electricals much easier, including buying on the high street.”
Meanwhile, Mike Tomkins, chief executive of online-only sports clothing retailer M and M Direct, says that Dixons has a head start on many pure-play dot-com retailers, as it is already a trusted brand. He adds: “The values for an online brand are the same as any other. There has to be security, a good product offer and great customer service.”
Good service is a must
But he also sounds a warning note for the increasing number of retailers that are looking to the online sector to build their sales. He says: “You have to go that extra mile with customer service if you are online because customers can’t see the whites of your eyes. If Dixons screws up the online service, if consumers do not receive their order, or if it is wrong, they will spurn you.”
Another worry is that, while DSG has pinned its hopes for Dixons firmly on the internet, the size of online retailing is overstated compared with its impact, according to Hyman. Verdict figures show the total retail market was worth &£270bn last year, and internet sales made up just &£8.1bn of the total. In turn, electrical retailing accounts for just &£2bn of that, although it is one of the fastest-growing categories.
He says: “The reason that the internet is growing relatively fast is that it is compared to a mature retail market. When you have got an industry that is fairly flat, and you drop in a new distribution channel the existing channels have to deal with, it does have an impact.” This is true for a number of high-street retailers including Dixons and HMV, which parted company with chief executive Alan Giles earlier this year after sales had been massively affected by the internet.
Retail industry insiders believe that Dixons might just make a strong online retailer providing it can fulfil deliveries and offer good service. But there is an overriding feeling that the move is an exercise in damage limitation, and heralds DSG’s full withdrawal from the high street.