Positive short-term results may grab the headlines, but the real story is how longer-term transformation is positioning Dixons Carphone for future success.
Given the potential pricing and downward margin pressures of Brexit, investors were pleased with Dixons Carphone’s enviable full-year results and impressive 10% pre-tax profit growth.
While the top-line numbers headline the financial achievement of chief executive Seb James and his team, it is the retailer’s long-term transformation plans that capture the imagination, and forecast the pillars of future success.
James highlighted transformation strategies focused on building a long-term future for Dixons Carphone, including channel agnostic, service as a core offer and differentiator, transition from ownership to consumption and lifetime value relationships.
Creating lifetime value
The commentary highlighted the transformation of how service is now a core offering, not just an attachment to the sale of a product.
Services such as warranty, maintenance, and repair are creating a predictable, profitable revenue stream and a deep ongoing relationship with consumers.
While mobile and phones were highlighted as one of the most challenging categories due to the rise of SIM-free phones, James’ commentary emphasised how there is an aggressive plan for both financing and leasing to increase phone replacement.
To differentiate service, Dixons Carphone will roll out same-day phone repair services. Plans also indicate a breakthrough seven-day repair promise compared to 28-day market standard.
“National tech retailers are seeing a bright future in services both as a differentiator and profit stream to offset product margin pressures”
These strategies not only differentiate Dixons Carphone, but create positive lifetime relationships beyond the sale of a handset. A Net Promoter Score in the 90s is particularly noteworthy and evidence of positive customer response.
Last year, James pledged to increase service income from £500m to £1bn. We did not hear any specific numbers at this update on progress towards this goal.
At £1bn, services revenue would represent 10% of today’s revenues, and would outstrip Best Buy currently at 7%.
Clearly, both national tech retailers are seeing a bright future in services both as a differentiator and profit stream to offset product margin pressures.
Dixons Carphone will profit as the ‘digital plumber’
One of the most exciting and innovative long-term developments is Dixons Carphone’s journey to becoming the digital plumber of the nation in its joint venture with energy supplier SSE, briefly referred to in the presentation.
It is all about occupying a place of trust in people’s homes, making life easy for the customer through leveraging the Knowhow expertise of Dixons Carphone and supporting SSE’s five million smart-meter customers.
If the two companies can make this work, they will have moved the point of sale from the store and the smartphone into the home, a new offline revolution for tech retail.
The store as destination for new technology
There is one area where Dixons Carphone is lagging the market, and that is making the store a destination for experiencing new technology.
Given that virtual reality (VR) headsets Oculus Rift and HTC Vive were launched at the end of last year, not enough has been done to create experiences for customers.
“The price-point of VR is evidently beyond the purse of most consumers but they are looking to retailers to take a lead in demonstrating this”
The price-point of VR is evidently beyond the purse of most consumers but they are looking to retailers to take a lead in demonstrating this and other new technology, such as the smart home.
We did note, however, that in next year’s plans Dixons Carphone will be introducing a new in-store gaming proposition and look forward to seeing what they do for this growing category.
Beyond the top line numbers, reaching more than £1bn in online electrical sales is a significant milestone.
The projected 24% average annual growth in home delivery, and one day delivery coming in the next year, Dixons Carphone is strategically positioned to first, capitalise on one of the largest customer bases, second, to be more profitable than a pure play business, with the capability to leverage its personalised ’My Account’ approach, and third, to sustain customer relationships that translate into profitable lifetime value.
- Adam Simon is global managing director for retail at Context