How Dixons is reinventing itself
Dixons Carphone recently announced a record annual profit of more than half-a-billion pounds. In an exclusive interview, Steve Ager, group commercial director of Dixons Carphone, tells Sean Hannam how it’s getting it right and gives his views on the state of the electrical retailing market, selling the smart home and the challenges ahead
Q: In a tough retail climate, why is Dixons Carphone doing so well and how is it bucking the trend?
Steve Ager: We’ve had a bit of an advantage as competitors like Amazon came into our market some time ago, so we’ve got used to adapting our trading model to compete with pure-play retail.
For a number of years, price has been the hygiene factor – we’ve learnt that you have to offer the customer the price and benchmark it.
In our industry, Amazon pretty much sets the retail price, and then you have to focus on where you deliver value versus a number of competitors, including independents. They all do a pretty good job – I can’t really think of anybody that I consider to be a weak competitor. What we have to do is really think about how we continually reinvent ourselves, remain relevant to customers and deliver that value.
Over the past few years, we were strong in stores but weak online, so we spent some time improving our online proposition and we continue to invest in that.
Service has always been important to us, but recently it has become more important – integrating our service proposition into our core offering and trying to differentiate ourselves through service.
A number of our pure-play competitors don’t have the conversation with the customer in the same way that we do. We try to accentuate the things that they find difficult to compete with us on.
Going forward, our focus is very much on how we join stores and the online journey together. This is at the very early stages for us, but, increasingly, the customer expects to be able to start the journey online and then pick it up in stores. They expect us to know that they’ve started that journey online. What we know from our data is that 90 per cent of customers will start their journey online, but 80 per cent will, at some point, come into the stores. They see real value in being able to go in-store, touch and feel the products and have a conversation.
That’s a big challenge for us going forward and we believe that in the future the combination of having stores and being strong online will differentiate us.
AO, Argos and Amazon are all really good retailers and we’ve learnt a lot from what they do – their innovations – and we’ve tried to build that into our proposition.
Selling the benefits of new technology, new products and more premium products is really important – when products are new, you can make a higher margin than when they’re established.
Services are very much what we do – we put a huge amount of focus on how we sell services with products, whether that’s repairs or installation. While we’re all volume junkies – every electrical retailer I’ve ever met is a volume junkie – what we try and do is moderate that by looking at the quality of the sales that we’re making and how we can add value to the customer through services.
Q: Your business is doing well, but how are you finding the electricals market? Is it tough out there?
SA: I can’t remember a time when electricals wasn’t tough – as it stands at the moment, I can’t say that I’ve found the market to be any tougher than the tough market that it is.
What we are seeing is that people are using ways to pay more than they have done the past – customers are buying on credit and we’ve seen that increase.
We have seen that in some parts of the market, where price points have moved up, we’ve seen some decline in volume, but for most retailers that has been offset by other categories that are in growth. A category like TV below £400 has struggled a bit – we’ve seen a volume decline in that space where the average retail price has gone up – but it’s been offset by the growth of super-screen sizes.
We’re planning our business to achieve our numbers this year – we’re not planning for there to be a major decline in the [overall] market. It’s important that you recognise that and then adjust your model to support what customers are buying.
Q: Amazon Prime Day earlier this month was a record-breaker. How much of a threat is it to your business? Is it a challenge?
SA: We are very respectful of Amazon – we think they’re a great retailer. They offer a great combination of price, convenience and their Prime membership scheme is very appealing to a number of their customers.
We can’t be Amazon, so what we have to do is accentuate what we do that’s different from Amazon.
Amazon Prime Day was very big for us and I expect Black Friday to be a very big shopping day this year. Amazon has very successfully created events through huge above-the-line investment and through search.
When you read marketing magazines, they say retailers are spending too much money above the line on TV advertising to drive customers and that they should be spending more money below the line on Customer Relationship Management (CRM) and search. The biggest growth in TV spend has been from Amazon – they’re spending a huge amount of money on TV to drive events like Amazon Prime and to drive sales of their hardware products. In some ways, you could argue that they’re driving the market for us.
We have to get over the fact that they’re doing that and say, ‘great – how do we make sure that we leverage that. Thanks for spending money on TV and creating an event – how do we make sure that if customers are in the market, we get our share of them?’
If people are spending money to drive our industry, that’s genuinely a good thing. We have to embrace it and make sure that we’re relevant to customers at those times.
Q: What’s your view on Black Friday?
SA: Black Friday is an event that’s embedded in our business. Do I think that Black Friday grows overall Christmas sales? Probably not. Do I think it’s important to be competitive and to get your fair share of Black Friday because that’s when people are going to spend? Yes I do. It’s very important – a lot of customers will spend at that time, but there are still opportunities outside of it, like gift sales and the traditional Boxing Day sale. We have to participate – if you don’t, certainly in the electricals market, you’re going to lose.
‘I can’t remember a time when electricals wasn’t tough – as it stands at the moment, I can’t say that I’ve found the market to be any tougher than the tough market that it is’
Q: The smart home is the next big battleground in electrical retailing. What’s Dixons Carphone’s approach to selling it? You’re not going down the smart-home showroom approach like John Lewis is, are you?
SA: We’re very positive about smart home. It’s interesting that when we merged our two businesses [Dixons Retail and Carphone Warehouse Group] we made a big investment in about six stores – an ‘in-home’ experience, similar to what John Lewis did. What we found out was that nobody was thinking about the smart home as an entirety.
We were putting all the products together and trying to have a conversation with the customer about the smart home, when, really, what the customer was interested in was smart security or voice activation. Putting all the stuff together didn’t really work for us – it may be working for John Lewis, but I don’t know.
Voice activation has really started the sales of other smart products – when Amazon Echo launched, we saw a big step up in smart lighting, like Philips Hue. The next thing we saw was [an increase in sales of] smart security – Amazon and Google are seeing voice activation as an enabler. We believe that audio brands like Sonos and Sony will have their products enabled for Alexa and Google Home.
You’ve got to make the most of new launches in-store and online. You need to ensure that you’re the best-in-class at merchandising and that you can build a service proposition around that.
We believed that customers had a huge amount of knowledge, but when we researched it, the level of knowledge was really quite low. We’re moving smart home and voice activation to the front of our stores – we’re getting Google and Amazon very interested in us and in doing combined executions of their products linked to others in-store.
I think you’ll see more of that. We’re selling Amazon and Google voice-activation products in-store – we take the view that while Amazon is one of our biggest competitors, this [Amazon Echo] is a product that people want to buy. It would be very odd if you came into our stores and you couldn’t buy it. It also brings other product categories to life.
We’re still at the early stages – lots of products are being smart-enabled, like refrigeration, but, at the moment, I don’t think they’re particularly relevant to customers. I think they will become more relevant and we will have to work out how we make them relevant to the customer and what the customer journey will be in-store.
Smart is an important enabler within our business and, increasingly, customers want to understand more about the smart home. Do I think anyone is going to come in and say, ‘what I really want to do is to spend all my money on completely smart-enabling my home’? I don’t think they will – they will buy it bit by bit and they will buy what’s relevant for them. Our job is to make it as easy as possible for them to be able to do that and to advise and support them as it comes more into the mainstream.
‘Do I think anyone is going to say ‘what I really want to do is to spend all my money on completely smart-enabling my home’? I don’t think they will – they will buy it bit by bit’
Q: What are the main challenges facing Dixons Carphone?
SA: All the usual ones. The ones that worry me are when the market throws a curve ball at you that you hadn’t planned for. The things I worry about the most are – have we got really good new products coming out that are going to put some value into the market? Are we really at the cutting-edge with our suppliers in terms of digital engagement?
The one that scares me the most is will suppliers look at the UK as being a risk in the future? Will they not look at the UK, but focus on other markets?
If new products are coming, what allocation will the UK get? Europe is third on the list – suppliers always invest in the US and in Asia, but when they get to Europe – the third biggest market – I’m worried they’ll focus on Europe, then the UK. I’ve got no evidence that that’s happening but these big companies in the US and Asia are influenced by the media in terms of what they think is happening versus what is actually happening.
We want suppliers to continue to be confident in the UK and in UK retailers and consumers, so that we get our fair share of anything that’s really exciting and new.