Analysis: Can Dixons Carphone get its spark back?

Share prices increased nearly 7% at the time of writing as Dixons Carphone stays on track with its three-year transformation plan, and Citigate analyst Adam Cochrane increased its full-year outlook for the business 2.5% to £205m based on ”the cost savings coming through and the better sales achieved from transformation projects”.

One year into its transformation plan and chief executive Alex Baldock says there is “plenty done and plenty more to go”.

On a statutory level, the electrical retail narrowed its pre-tax losses from £440m for the same period the previous year to £86m this year.

During a tough period for the electrical market, Dixons has managed to gain market share and strengthened its position as the UK’s number one electrical goods retailer.

But as Baldock says there is still “more heavy lifting to go”.

Retail Week looks at how Dixons Carphone plans on getting its spark back.

Employee investment

Baldock announced earlier this year that the retailer would be investing £200m into its staff. During the period, Dixons has quadrupled its training budget, which includes the launch of its Fort Dunlop training academy – opened in September – to provide new staff with a combined 400,000 hours of training per year.

Baldock emphasises how important the Dixons colleagues are and as a “progressive employer” continues to encourage staff to get behind a “common vision” of culture and values.

Following a successful launch earlier this year, Dixons has now awarded every colleague “at least £1,000 worth of shares”.

“We’re pleased with the result of getting everyone to act and think like owners so we’re making it a permanent thing.

“You qualify [for shares] when you’ve been in the business for 12 months – it vests after three years,” Baldock explains.

Both full- and part-time staff will qualify for the shares at a cost of £30m for the company.

Experience today, spend tomorrow

Although 100 smaller Carphone Warehouse stores have shuttered over the last year, Baldock is still committed to ploughing money into its other store concepts. The electrical retailer’s boss hasn’t ruled out smaller store concepts in higher footfall locations – similar to the likes of Timpsons, which has stores inside supermarkets. 

“We like shops and we’re investing tens of millions of pounds into the bigger stores,” he says.

The retailer’s big-box stores, which house a PCWorld, Curry’s and Carphone Warehouse in one, are a particular priority for Baldock.

The electrical retailer has refurbished around half of its 300 bigger format stores to provide experience zones to entice customers to visit, linger longer and ultimately spend more.

To date, 81 stores have been fitted out including 40 gaming battlegrounds, 52 TV experience zones and 72 domestic appliance zones. Dixons is set to roll out those experience zones to another 64 locations before the end of the financial year.

However, offering experiential elements to its stores has been a learning curve for Baldock and his team.

“Some of the experience zones do bring in different types of customers. When we did the gaming battleground you can imagine some of the store managers initially thought it was a public order issue – overrun with teens and millennials coming into the game,” Baldock says.

“We’ve learnt from this to be pretty relaxed about customers coming in, using us as a showroom and then leaving again so long as when they do come to buy, they buy with us.”

Competing on cost and credit

Alongside various changes to its store set up, Baldock is focusing his attention on increasing the loyalty and value of its relationship with its customers.

The electrical retail giant has pledged to not be beaten on price both online and in-store, unlike John Lewis, which only price match in stores.

“Price is important because it’s pretty easy to compare prices on the things we do, and we want to be trusted on price so now we have a pretty clear unambiguous price promise to customers,” he says.

“We simply won’t be beaten on price and that’s taken some investment. A couple of competitors have tried to take us on and they’ve backed away from us.”

Even with unbeatable prices, Dixons is going with the Zeitgeist and now offers various credit options to its customers.

Baldock says two-thirds of customers of people in the UK now pay for technology goods using some form of credit – and 11% of Dixons sales now come from credit offerings.

“It’s the becoming the norm for how customers want to pay for this stuff, which after all is expensive, so it helps spread the cost,” he says.

“We intend credit to be a sustainable and permanent part of what we offer customers going forward.

“In customers minds, we want to encourage people to enjoy and choose tech. It’s here to stay as a sustainable part of the business,” he adds.

“What that means is that we are going to do this carefully and responsibly and safely because otherwise, it won’t be sustainable – and that’s coming from someone who’s been an FCA [Financial Conduct Authority] approved person since 2005.”

“I feel that responsibility pretty personally,” he adds, explaining that the business has “trained 21,000 colleagues to sell [its credit offering] responsibly”.

Baldock says Dixons Carphone has no plans on partnering with the credit payment platforms such has Klarna or Clear Play despite their increasing popularity but does offer its own version of ‘buy now pay later’ credit options through BNP Paribas.

One business

Since the £3.8bn merger of Dixons and Carphone Warehouse back in 2014 Baldock says the two legacy businesses were “never truly integrated beyond some corporate functions” and sets to bring them both together as part of its One Business strategy.

As part of the programme, Carphone Warehouse will be fully integrated into the core business.

“That’s people, ways of working, processes, data, technology, all of it,” Baldock says.

“We’ve flagged that will generate about £100m of mobile-related cost benefits by the financial year 2022 and we’re standing by those numbers today and we’re on track with that integration.”

Although Baldock declined to comment on its current trading period - which includes the recent Black Friday and Cyber Monday promotions – its full-year guidance is unchanged. 

The early signs from Baldock’s strategy give some indication of growth igniting across the struggling retailer, but Dixons Carphone has a job to do to get the business firing on all cylinders.