Electricals market leader Currys is preparing for another year of supply chain difficulties following a peak period hit by disruption and shortages.
While retailers ranging from Tesco to Dunelm have increased their profit forecasts after strong festive trading, life was harder for Currys. The electricals giant shaved £5m off its earnings, now expected to come in at approximately £155m.
However, despite a 5% slide in group like-for-like sales over Christmas, Currys chief executive Alex Baldock says the retailer’s specialist strengths came into their own during the period and he is “super-excited” about building on enhanced customer appeal.
The sales slip was a result not of failures by Currys, but wider turbulence in a market that had previously been one of the retail sector’s winners over the past two years.
Covid-prompted shifts such as working from home boosted sales of technology and associated entertainment products. But over Christmas, there were shortages of popular products such as games consoles – an issue that was exacerbated by high demand.
Supply chain problems such as freight disruption and staff shortages have taken a toll on many retailers, but in the case of electricals a dearth of the microchips essential to many products – as well as the products themselves – has had an impact.
Currys’ rival and Argos owner Sainsbury’s reported a 10.6% slump in general merchandise sales over the festive period, which it attributed in part to “the ongoing impact of global supply chain challenges on product availability”.
Overall, during Currys’ peak period – the 10 weeks to January 8 – the market was down 10% by sales year on year according to GfK data cited by the retailer.
Baldock believes supply chain turbulence could have some way still to run. He says: “We’re not counting on it improving; we’re preparing for another year of disrupted supply.
“Preparing is not necessarily the same thing as what we expect, but we’d rather be ready for it if it happens. The chipset shortage is at the root of this. We’re not counting on that easing any time soon.”
“Being number one is super-important to make sure we get preferred access to scarce stock. That’s allowed us to grow market share and customer satisfaction”
Alex Baldock, Currys
Nevertheless, Baldock is confident that Currys will be the best in the market. Despite softness over Christmas, the retailer’s like-for-likes rose 4% on a two-year basis and by the same measure was up 11% in the year to date. The retailer has also gained market share.
As the market leader and following a raft of improvements led by Baldock over the past few years, Currys is a crucial route to market for suppliers.
Baldock says: “Being number one is super-important to make sure we get preferred access to scarce stock. That’s been one of the things that’s allowed us to grow market share and customer satisfaction.”
So even though supply may be disrupted, Currys should be able to get at least its fair share of product.
The new essentials
Baldock acknowledged that the rising cost of living could affect shopping habits and prompt consumer belt-tightening, but was certain that Currys would continue to draw trade because of permanently changed living conditions – a shift the retailer could monopolise on via its consumer finance packages.
He said: “How discretionary is this product, really? Our belief is the pandemic has accelerated technology’s journey to the centre of people’s lives.
“You can make a strong case for many of these products becoming increasingly essential to consumers. They need it to keep connected to family and friends, they need it to work from home, they need it for home-schooling the kids – none of that feels very discretionary.
“People have kitted out their homes now, they’ve got used to everything this new tech can do and they’re not going to forget that post-pandemic, so there’s a strong case to be made for this market being sustainably larger.”
As part of his strategy over recent years, Baldock has also focused on Currys’ credit proposition. Over peak, credit adoption was up 350 basis points to almost 14%.
He says: “The stuff we sell is not cheap – but it’s cheaper than anywhere else because we won’t be beaten on price.
“We can help [customers] afford it through responsible credit. The advantage for the customer and for us of using the credit is very large – we get higher satisfaction scores on credit customers versus other customers, and for us, the customer tends to spend more and they come back more. They’re stickier as well as more valuable.”
The pandemic also accelerated trends such as online shopping and Baldock believes Currys’ omnichannel offer will continue to distinguish it from competitors.
“What we can do in omnichannel in 2022 is arguably as exciting as anything”
Alex Baldock, Currys
Services such as ShopLive, rapid delivery and speedy collection improve the customer experience through service, convenience and access to the online catalogue in store.
He says: “We’re super-excited about what we can do. As the growing number one with the business model that clearly wins, what we can do in omnichannel in 2022 is arguably as exciting as anything.”
Following Currys’ Christmas report, Investec analyst Ben Hunt noted: “While this is a disappointing trading update, it is reassuring that the downgrade to this year’s profits is modest.
“We continue to believe that Currys has transformed itself into a cleaner, more cash-generative business with defendable margins.”
Disruption may continue for some time, but Baldock is confident that it will not short-circuit Currys’ long-term strategy and success.
Currys head of omnichannel development Simon Peck spoke more on this, and the partnerships the retailer is investing in to navigate disruption at Strategy Week. Watch on-demand now.