What do Dixons Carphone’s record results mean for the wider electrical retailing market and who will be the winners and losers in the battle for smart-home supremacy? Eleanor Parr, retail analyst at GlobalData, shares her views
Dixons Carphone’s results demonstrate that large market players continue to perform well thanks to the ongoing consolidation of market share away from smaller independent retailers.
Despite challenging market conditions over the past two years, all major electrical retailers grew or maintained market share. This highlights that the majority of sales losses are coming through independents or smaller niche market players, where vitally important economies of scale do not play in their favour.
Dixons Carphone offers outstanding customer service – which is vitally important for electricals – a market-leading delivery proposition and it also communicates its good value for money to consumers successfully.
Independent retailers are struggling for three main reasons. Firstly, they have reduced power to negotiate with brands because of the comparatively small quantities of goods they buy.
The inability of independent retailers to buy in bulk has become more detrimental, as brands have recently increased cost prices following the devaluation of the pound since the UK voted to leave the EU in 2016. Secondly, smaller players do not have robust logistical infrastructure or the ability to invest in this, in order to make their delivery proposition competitive.
Consumers are spoilt for choice with delivery options offered by large retailers. For example, Currys offer free next-day delivery on the majority of products. As independents will often sell similar or the same products as large retailers, it is doubtful that consumers will be prepared to wait longer than necessary.
Finally, independents may not always price-match products, unlike key competitors John Lewis, AO.com and Dixons Carphone.
Smaller players do not have the complex software or manpower to change prices daily and they are less able to absorb losses or ask for support from brands when price-matching is unprofitable. Due to the homogeneous nature of electrical goods, consumers’ choice of retailer will often be motivated by the lowest prices in the market.
Retailers, in particular independents, need to invest in customer service, as most retailers will not be able to compete with Dixons Carphone in terms of delivery options or price.
Independents have the advantage of not adhering to large corporate management, meaning they can offer a personal touch, something many consumers will buy into. Independents should build on this by offering an in-store repair service, if demand is warranted, so they can compete with the likes of Dixons Carphone’s Knowhow service.
Additionally, as consumers’ real income continues to be squeezed, shoppers are increasingly being forced to make electrical purchase decisions based on the level of discount offered.
Retailers should acknowledge this and negotiate promotional plans in advance with major brands. This is particularly important for exclusive products, where national promotions may not apply. Value-added promotions, such as free gifts with purchases, trade-ins, cash back, free extended warranties and discount codes, will attract consumers, while maintaining high selling prices and therefore maintaining margin.
The first half of the year was tough for electrical retailers, as it was the first time consumers were faced with retail price increases across the board. Additionally, a strong Black Friday and the anticipation of these price rises resulted in consumers pulling forward H1 2017 purchases.
The second half will be a stronger period for electrical retailers, although the market is still forecast to decline. The highly-anticipated launch of the iPhone 8 will give the electrical retail sector a much-needed sales boost.
Additionally, the Project Scorpio launch – Microsoft’s Xbox One X – will lift dwindling sales in the games console market, particularly given the Nintendo Switch’s underperformance due to stock limitations.
However, given the housing market slowdown, coupled with the uncertainty caused by the snap election, this will not be enough to stop the overall market from declining.
Growth is, of course, coming from the smart home – in particular smart speakers. Within the past year, the smart speaker market has been revolutionised, firstly by Amazon and then Google releasing rival innovative smart speakers.
These are the most advanced smart-home speakers in the market and, since being released, have been extremely successful.
The speakers showcase advanced technology – acting as a hub to control other smart-home product, as well responding to users’ voice commands.
Furthermore, with both speakers retailing for under £150, and the Amazon Echo dropping to only £79.99 on Amazon’s Prime Day this year, these affordable price points make this new technology accessible. Smart speakers will be the driving force in the audio market, which is forecast to grow by almost 16 per cent over the next five years
In 2017, the smart home will become a more significant proportion of electrical sales. Brands are investing heavily in smart-home technology, ensuring products are more secure, affordable, and compatible for multi-brand and platform use.
Looking forward, I believe we will see more stores dedicating more physical space to smart home products and investing in own-brand smart-home technology.
I think the smart home will become more of a feature in everyday life, rather than a novelty product for tech-savvy millennials. This was enhanced by the recent Amazon Alexa adverts, demonstrating how the smart speaker can enhance everyday family life.
More importantly, there is potential for the smart home to improve the lives of people with disabilities, allowing them to live life more independently. For example, Dundee council has recently announced plans to develop smart houses specifically designed for people with disabilities, with smart touch-screen devices that enable customers to order shopping online, switch on connected electrical devices and smart door bells, helping the consumer to communicate with anyone at their door from a smartphone or tablet. I believe this area of the market will continue to develop, resulting in opportunities for retailers.
For retailers to remain relevant in the market, they will need to make smart home a focus for their future strategy, ensuring they dedicate multichannel space to the category.
John Lewis and Maplin will continue to grow share in the smart-home market, as both retailers have already dedicated space and investment in this category. AO.com will lose out in potential smart home sales, as they do not currently offer any smart products and have made no indications as to when they will do so.