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Dixons Carphone Group (UK)

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Dixons Carphone Group was created in 2014 from the merger of rival electronics retailers Dixons Retail and Carphone Warehouse. Dixons has long held a leading position in the UK as its most influential champion of mass-market electronics. For more than 50 years until 2005, the chain served as the principal gateway into British homes for the introduction of cameras, audio equipment, computers and more recently the internet and DVDs. However the main brand within what was then Dixons Stores Group was increasingly overshadowed by sister chains Currys and PC World, and also by a push into Europe. Those developments prompted a change of corporate name to DSG International in 2005, as well as a phasing out of the original Dixons brand in favour of Currys. The DSG name, however, failed to chime with customers, and the group eventually changed its name back to Dixons Retail Group in 2010. The combined Currys PC World business is still the UK's biggest bricks and mortar electronics retailer by some margin. However mainland Europe has proved much more challenging, and most businesses outside Scandinavia had been divested or closed by 2014. That year, the group agreed terms for a merger with mobile phone seller Carphone Warehouse to create a giant new group with revenues over £12bn a year.

Advertising

At the beginning of 2014, following a review, Dixons transferred its advertising account from longtime incumbent M&C Saatchi to AMV BBDO. Click here for a listing of Dixons Agency Account Assignments from Adbrands.net.

Competitors

DSG's principal bricks and mortar rivals in the UK are Home Retail Group's Argos and department store chain John Lewis. Direct competitor Comet went out of business in 2012. Elsewhere in Europe it competes with Metro's Media Markt/Saturn division. However the biggest threat by far is online giant Amazon. See also Retail Sector index for other companies.

Brands & Activities

The merger of Dixons and Carphone Warehouse was approved by UK regulators in June 2014. Completion took place in September the same year.

Dixons' strength in the UK electrical goods sector translated with varying degrees of success into some other countries, but the company faces strong competition as well as severe price deflation across most major sectors including computing and TVs. The group has taken care to avoid big markets such as Germany in favour of smaller territories where competition is more fragmented. However, several of these proved consistently difficult, such as Italy, France and more recently Spain. The core UK market is also fiercely competitive. As a result, financial performance has been disappointing for several years, with the group delivering an annual profit only once in the five years from 2008. There were at last signs of improvement, however, towards the end of 2013.

United Kingdom: Dixons Retail is the UK's largest electrical retailer, and #2 in Europe (behind Metro), with more than 1,200 stores. No other UK retailer can claim to have been as influential in introducing the mass market to new technology. For more than 50 years, the group served as the main gateway for the take-up of cameras, hi-fi, televisions and computers by ordinary British households. Among its greatest triumphs was the introduction of the internet to a mass market with the Freeserve ISP, which it launched in 1998. (That business was sold to what is now Orange in 2000).

Traditionally its UK business was split between the core Dixons brand, known for so-called brown goods (televisions, video, audio etc) and grey goods (computers and peripherals); and Currys, best known for white goods (household appliances such as fridges, washing machines, cookers etc). However the market has changed dramatically in recent years, reflecting the penetration of high-tech electronics into the average British home. The main beneficiary of this was the group's third main brand, PC World, which experienced rapid growth, largely at the expense of the Dixons chain. As a result the group announced a new strategy in 2004, with the closure of many smaller urban Dixons outlets in favour of bigger out-of-town Dixons xL superstores. Following a further decline in sales for Dixons chain in 2005, the brand was dropped altogether by the retail estate in 2006, with all remaining stores rebranded as Currys.

That change marked a further advance for the group's biggest general electrical appliances brand. Currys is the UK's largest electrical retail brand, and the dominant business within the group. It sells a full range of white, brown and grey electrical goods. Larger stores also sell Hygena kitchen systems, and the group began stocking a limited range of exercise machines for the first time in 2008. All mainland Dixons outlets were rebranded as either Currys or CurrysDigital. A separate division, Mastercare, provides delivery, aftersales service and extended warranties on goods, with more than 12.2m agreements currently in force. Partmaster is a specialist service offering a wide range of accessories and spares for electrical products. The Dixons name has been retained for the time being as an online service and for the group's airport duty-free outlets.

PC World, originally a distinct and separate business within the group, has increasingly become a close partner to Currys, and almost all larger stores now trading under a shared 2-in-1 branding as Currys PC World. All remaining outlets will be combined during 2016. PC World was originally the UK's leading chain of specialist computer superstores, selling an extensive range of PCs, laptops, printers, software, peripherals and accessories. In 2006, the group launched a new consumer-oriented installation and technical support service under the name The TechGuys (along similar lines to Best Buy's Geek Squad). This has gradually evolved and an expanded service relaunched in 2011 under the Knowhow brand.

The group also has a number of business-to-business or support operations. In 2004 it acquired leading computer products reseller MicroWarehouse, whose brands included Inmac, MacWarehouse and Technomatic. These are all now consolidated under the umbrella of DSGi Business. The group's newest venture is Black, a new concept store spun out of the PC World and Currys business, designed to be "the ultimate place to get up-close with the most wanted gadgets around". So far, two outlets are under trial. The group has enjoyed significant benefits from the collapse of its main rival Comet, as well as booming demand for tablets.

Until 2006 the group also housed specialist mobile phone and communications retailer The Link, a joint venture with O2. There were just under 300 outlets in March 2006, mostly located on the high street. DSG sold its 60% shareholding to O2 mid-2006. Genesis Communications, a business to business mobile phone service provider acquired in 2002, was also sold in 2006. In 2014, the merger with Carphone Warehouse reintroduced the group to the specialised mobile handset market.

Its different retail operations give Dixons a dominant position in the UK. It has market share of around 20% for all electrical goods, and it dominates the computer market with 50% share. That lead prompted government regulators to launch an investigation in 1998 into the group's sales margins, following accusations that its volume purchasing discounts were not being fairly reflected in the prices charged to customers. The investigation was later dropped. Another investigation was launched in 2002, this time into the group's extended warranty service.

Store numbers were 405 outlets in the UK as of Oct 2015, with an additional 23 Dixons Travel duty free stores and 29 outlets in Ireland. Carphone Warehouse had 734 outlets in the UK and another 90 in Ireland. For the first year post-merger, UK & Ireland sales for ye Apr 2015 rose 8% to £6.45bn, with a headline profit of £306m.

International: More recently, Dixons has looked to the international market for further expansion, establishing a foothold in several European markets. All outlets in Northern Europe are now consolidated under the banner of Elkjop Group, headquartered in Norway. Elkjop is Norway's leading electrical retailer, and operates 374 owned or franchised stores throughout Scandinavia, under a variety of brands including Elkjop and Lefdal in Norway, El-Giganten in Sweden and Denmark, Gigantti and Markantalo in Finland and Elko in Iceland. Revenues from what is now grouped as the Nordics region were £2.72bn in ye 2015.

Southern European markets have been considerably more challenging. The group took the decision to pull out of France in 2007 as a result of declining share and the effects of a £10m fraud at one of its local warehouses, and its PC City-branded stores in Italy and Sweden were also sold or closed. In 2011, it announced plans to exit Spain as well, where PC City had been the leading PC reseller. In Italy, the group was already the #2 electrical retailer through UniEuro, in which acquired an initial stake in 2001. It took full control of the business in 2002, but UniEuro struggled to stay profitable, and has undergone significant restructuring since 2006. In 2008 DSG wrote off a substantial impairment charge against the business, and finally transferred its ownership in 2013 into a new company controlled by rival Italian retailer Marco Polo. Dixons retains only a 15% holding. As a result, the old group's last remaining subsidiary in the region is the dominant electrical retailer in Greece, Kotsovolos, acquired in 2004. It sells goods under the Radio Athinae, One Way Informatics and Electrocity brands, though 93 stores. The merger with Carphone Warehouse reintroduced the group to Spain through the absorption of CPW's 507 Phone House outlets in Spain. Remaining operations in Southern Europe contributed revenues of £637m in ye 2015.

Divsted operations: Several other regional operations have been divested. The group created a new general electrical hyperstore brand in Eastern Europe in 2002 under the name Electro World, with 23 stores in the Czech Republic and Slovakia. These were sold in 2014. Another nine stores in Hungary were sold in 2009 for a nominal sum, and outlets in Poland were also shuttered. Electro World's operations in Turkey were sold off in 2013.

Until 2013 these mainly bricks and mortar chains were partnered by PIXmania.com, a pan-European e-tailer of digital photographic and consumer electronic goods. Based in France, at its peak it supplied goods to 26 countries across the region, and also operates e-commerce platforms for other retailers including Carrefour's non-food products. DSG purchased a controlling 77% shareholding in 2006, and the remaining shares in 2012. However this business proved to be a major liability, with performance plunging during 2011 and 2012. Combined sales from Pixmania were £358m in year ending 2013, with losses of £31m. The group began exiting 12 weaker markets during that year, before seizing the opportunity to offload the business that summer to German investor Mutares. It received no payment, and instead paid Mutares €69m to take Pixmania off its hands.

Financials

Financial performance has been under pressure for several years. After several years of steady decline in the 2000s, reported turnover for the year ending April 2010 rose by 4% to £8.5bn, and the group reported pretax profits of £113m, following two years of pretax losses as a result of restructuring and impairment. Since then, the market has again proved more challenging. Revenues to April 2011 slipped back by 2% to £8.3bn, and a large impairment charge resulted in full-year losses of £224m. Closures and disposals prompted a further slide in the year to 2012 to £8.1bn, while pretax losses reduced to £119m. That figure included a charge of £196m for impairments as well as £113m of finance costs. There were further impairments in ye 2013, resulting in pretax losses of almost £119m (later restated to £172m to cover discontinued operations). However revenues recovered by 3% to £8.44bn.

For the year to Apr 2014, revenues were £7.22bn, excluding divested or non-continuing operations. Although the statutory figure was down sharply, continuing operations showed a 3% increase year-on-year. Another set of charges resulted in a net loss of £70m. However the group claimed underlying pretax profit for continuing operations of almost £116m.

First year results from the merged group were strong. Revenues for the year to April 2015 were £9.94bn, up 6% on a like-for-like basis, while pretax profits jumped 21% to £381m. Pretax profits for ye 2016 jumped 17% to £447m, despite a marginal comparable decline in revenues to £9.74bn as a result of currencies. The previous year included several businesses since divested.

Background

Dixons has come a long way since 1937, when young entrepreneur Charlie Kalms opened the business as a photographic studio in the seaside resort of Southend. (He selected the Dixons name at random from the phone book). During World War II, his Dixons Studios business expanded rapidly as servicemen hurried to have a family portrait taken before they went off to war. But the end of hostilities caused demand to fall away, and Kalms' chain of six photographic studios was eventually reduced to just one in North London. But there was still a market for photography. Kalms' teenage son Stanley persuaded his father to start selling cameras for home use instead, and the shop caught the crest of a new consumer boom. By the 1950s, Dixons was the UK's leading photographic retailer, supported by a busy mail order division. The younger Kalms was quick to see the potential of the technological advances being made in post-war Japan, and he began buying Japanese cameras and accessories at low prices, reselling them under Dixons' own Prinz brand for sale in the UK.

The company floated in 1962 as Dixons Photographic, and set about buying up other photographic retailers, boosting store numbers from 16 to 60 within three years. The mail order division, which now concentrated mainly on developing and processing customers' films, was expanding fast and the group built a huge new laboratory outside London to cope with the demand. As his Japanese suppliers began to diversify their product range, so too did Kalms. In 1967, Dixons began stocking audio and other electrical appliances. The addition of TVs in 1971 was a key step. As with cameras, Dixons caught the crest of a new consumer wave, as the arrival of colour broadcasting led to a huge boom in sales of television sets. Dixons' profits increased twenty-fold in just five years. In the early 1980s, the company launched its own electrical appliance brand, Saisho, covering a range of video, audio and TV products.

In 1984, the group took over larger chain Currys. This business had originally been set up in the 1880s as H Curry & Sons to manufacture and retail bicycles. During the early 20th century it moved into toys and games, later into gramophones, and eventually into household appliances in the boom years following World War II. It continued to make and sell bicycles up until the 1960s. The acquisition of Currys quadrupled Dixons' store numbers, and extended the group into a new area of white goods such as washing machines and dishwashers. Currys also brought with it a nationwide service operation, Mastercare, employing 900 engineers. The Supasnaps chain of photographic developers was acquired in 1986. The group also became the primary distribution outlet for a new range of low-cost computers manufactured by start-up Amstrad. These proved to be a massive success, becoming many British businesses' first experience of affordable computing. It was a measure of Dixons' booming confidence that the company mounted an unsuccessful bid the same year for rival retailer Kingfisher, owner of Comet and Woolworth's.

But the group was beginning to over-extend itself. In 1987, it took a risky leap into the US market, acquiring Silo, then America's #3 power products retailer for $320m. But the US operation was a disaster, running up annual losses of £22m and placing a massive drain on the company's resources. Suddenly over-confident Dixons was in trouble. In 1989, Kingfisher took advantage of Dixons' weakness to return the compliment of three years earlier, and mounted its own hostile takeover bid. Seeing an exit route from the problems in America, Dixons' shareholders accepted Kingfisher's offer, but the deal was later blocked by regulators. Instead Dixons began to sell off parts of its business to cover the losses. The film processing laboratory was sold to management in 1989, and Supasnaps was sold to dry-cleaning chain Sketchley. Finally Silo was sold off in 1993 to rival US electrical retailer Fretter, owners of Yes! electronic superstores. Dixons kept a 30% stake, but was subsequently forced to write this off when Fretter went bust in 1996.

In 1994, Dixons launched a new high street electrical outlet, The Link, in partnership with BT's Cellnet mobile subsidiary. But the group's other brands were beginning to suffer. Currys still claimed to offer the widest selection of white goods domestic appliances, but had been overtaken in size by Kingfisher's Comet, which had set up superstores in out-of-town malls while Currys remained stuck in the high street. Dixons decided to shift Currys away from city centres, buying up out-of-town warehouse sites, and using the vacated high street premises to house new outlets of The Link. At the same time, the group moved into the PC business, acquiring computer retailer VTG, owner of four PC World computer warehouses. In 1998, Dixons bought another struggling PC warehouse, Byte, gaining 16 more superstore outlets.

By now, financial analysts were tiring of the group, hammering its share price into the ground. In 1998 Dixons was unceremoniously ejected from the FTSE 100 list of Britain's top companies because its stock had slumped so badly. Willing to try almost anything to restore value to the business, Dixons agreed to back the wild hunch of one of its managers, John Pluthero, who had suggested launching an internet service provider which offered consumers free access, instead of the monthly fee charged by all the other ISPs. Instead, Pluthero argued, Dixons could take a share of revenues from the online connection charges, which were routed through telecom company Energis.

Freeserve turned out to be more successful than even Pluthero could ever have imagined. In its first eight weeks, the service attracted 475,000 customers, almost half of them new to the internet. With its share price pushed to record highs by dotcom fever, Dixons was back in the FTSE 100 by the end of year. By early 1999 subscriber numbers had risen to 1.5m, making Freeserve the UK's #1 ISP with around 30% of the market. Further revenue piled in from advertisers and other web publishers keen to pay to get access to this huge audience. The group took advantage in the huge growth of the internet economy to float a 20% stake in Freeserve in July. But by the following Spring, the dotcom bubble was showing signs of instability. Dixons took the decision to cash in, effectively putting its 80% stake in Freeserve up for auction. T-Online, the internet subsidiary of Deutsche Telekom, entered exclusive negotiations shortly afterwards, but that deal collapsed over so-called differences of management culture. It took another six months to seal an alternative deal. In December 2000 Dixons agreed to sell Freeserve to French ISP Wanadoo, the online arm of France Telecom for £1.6bn in stock. Although this was only a fraction of Freeserve's value at the peak of the internet boom, it still represented a huge profit for Dixons which had originally invested just £75,000 in the business.

While the internet side of the business grabbed the headlines, the group continued to expand its operations in the more traditional electrical sector. In late 1999, Dixons took its first step into Europe, with the acquisition of Scandinavian electrical retailer Elkjop for £444m. This was followed in 2000 by the purchase of Spain's largest chain of computer stores, Ei System, for £15.8m, as well as a 15% stake in Kotsovolos, Greece's largest chain of electrical goods stores. In late 2001 the group expanded its international portfolio further, taking a 24% stake in Italian electronics retailer UniEuro (and acquired the rest in 2002). Meanwhile in the UK it acquired B2B mobile phone services provider Genesis Communications, which became the core of a new division offering IT and telecoms solutions for the small business market.

Last full revision 16th February 2016

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