In a fairly flat electricals market, how has Dixons Carphone been able to hoover up so much market share?
It is never easy to piece together the electricals market share jigsaw, not least as Dixons Carphone doesn’t supply its sales figures to research organisations like GfK and is coy about what it tells the BRC-KPMG Retail Sales monthly survey, because of its market dominance.
But reading what Dixons’ competitors have been saying you could be forgiven for thinking that the electricals market has been struggling since Christmas: Argos has complained about the collapse in the tablet PC market, John Lewis has been about 3% down like-for-like in electricals/technology sales over the past 17 weeks and the much-hyped online player Ao.com has admitted to finding the UK trading environment “challenging”.
Yet Dixons Carphone seems to be hoovering up market share, as it blew away expectations for today’s fourth-quarter trading update (for the 17 weeks to May 2). The City consensus was for UK like-for-like sales growth of 5%, but the outcome was an amazing 13% rise in like-for-likes (“with both electricals and mobile trading strongly and gaining market share”).
Management have not been drawn into splitting the 13% like-for-like growth between the two big divisions, but they have admitted that mobile phones saw well above 13% sales growth in the fourth quarter, with only 2% to 3% of growth coming from the highly successful Carphone Warehouse “shop in shops” inserted into Currys and PC World stores.
Capitalising on Phones 4u’s collapse
Of course, the key factor here is that Carphone has benefited disproportionately from the demise of the Phones 4u chain last September, as it had hoped, so there is some one-off element to the recent growth and Carphone has been investing a bit of gross margin to make doubly sure it grabs those spare customers.
However, even if you take Carphone Warehouse out of the picture, the core UK business of Currys and PC World is trading strongly and like-for-likes must have been up more than 5% up in the fourth quarter, which is good going.
To his credit, the estimable Seb James, the chief executive of Dixons Carphone, did not gloat today over the problems of Ao.com, but the fact that Currys’ online white goods trading has been so strong says a lot about how the business has improved its product pricing (to match the big online players like Amazon) and its home delivery options.
“Even if you take Carphone Warehouse out of the picture, the core UK business of Currys and PC World is trading strongly”
And Seb James always said that the valuation of the much hyped Ao.com IPO was crazy, because the electricals market was moving away from online pure-plays in favour of multichannel retailers like Dixons Carphone and, based on recent trading patterns, he looks to have been absolutely right.
But it is not just Ao.com that is under pressure from the strength of Currys.com. It also seems to be the case that Currys PC World is now attracting more upmarket customers, classically the John Lewis customer, because of its improved service and improved stores.
One factor that also helped Currys is a successful push on free warranties on high-end TVs and brands, for example TVs costing more than £1,000. But that trial is being extended this year to TVs over £500, which will put more pressure on the competition, as Dixons Carphone is getting plenty of support from suppliers to enable it to hold gross margins broadly steady overall.
Inevitably, it would be wrong for Dixons Carphone to get complacent, because this is still a very competitive market, but at the moment it seems to have the competition on the run, with the Net Promoter/Advocacy scores of the business at all-time highs. And that is before big new markets like ‘wearables’ take off and before the vision of a connected world becomes reality, when the newly merged Dixons Carphone should really come into its own.
- Nick Bubb is an independent retail analyst