The second quarter of this year was a disaster for electronics retain darling, DSG (Dixons Stores group). The press reported losses of around £224M, but the DSG board was quick to rally.
What got blamed last time, what do we expect to be the issue this time and what will the consequences be?
Looking at the state of the market right now, it’s quiet.
Research companies like IDC are predicting a boost through the end of the year, with the sale of high-end desktop computers set to jump by as much as 10% – compared to the same time in the previous year.
Against that backdrop, traditional money-spinners like 50″ screens and 3D TV have all become passé. For example, DSG’s channel rivals Comet have a 43″ Samsung 3D TV in stock at just £462. With customers becoming more and more used to that kind of value, how can an electronics super store like PC World generate anything like the revenue it was churning in the past?
Apple’s own stores have been taking revenue from DSG as well. When the iPad 2 launched, the interwibble was filled with pictures of snaking queues. Those queues went straight past Curry’s, leaving the ‘fresh from school’ store assistants to stand around wishing they had stock.
In a market which has grown progressively more competitive, the irony is that it’s the higher market brands that have done better. Case in point is John Lewis, which seems to have the magic touch when it comes to selling quality electronic goods.
When DSG issued a profits warning around March, the company’s share price dropped around 20%.
The second quarter was not much better with a £224m loss being reported. The board claimed that this was driven by unusual cost reductions and write-offs – with additional challenges in the Spanish and Greek markets playing a big part.
Why did we mention the continued drop in price/profitability for 3D TV etc? It’s because when the last troubles hit, CEO John Browett was reported as saying “…top end items such as 3D TVs…” would give DSG an advantage over its rivals.
Lastly, there has been some pressure from Best Buy. Not a lot, but every little thing must be feeling like a disaster for DSG right now.
So, that brings us to the hardest question of all. How many people will be losing their jobs at DSG?
Honestly, we don’t know. But if you are the CEO of a company with around 40,000 employees, then anything less than 10% has to be considered a token gesture. For stores with 200 staff, losing 20 people might not seem that bad. But when you consider the country as a whole, 4,000 people may be without an income.
KitGuru says: It’s not often you will hear us say this, but we genuinely hope we’re wrong about the enormous levels of redundancy DSG could be imposing on families across the country on the run into Christmas. But there may be no option. If the Q2 financial results are looking bad, there’s no more demand to tap into and no more markets to expand out to – then the CEO must look at cuts. Bad news. Here’s the killer question: Would we, as a society, accept price increases to keep neighbours in employment?
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