Dixons should cut off its Carphone connection
Stubborn boss Baldock should seize the opportunity to drop the flailing mobile phone division that has created total losses of £282m
It doesn’t matter how much the world has changed, as Ocado boss Tim Steiner boldly proclaimed this week, there is one thing that is guaranteed to remain constant in the universe: the Carphone bit of Dixons Carphone is destined to be loss making for eternity. There’s almost something to admire in how stubbornly boss Alex Baldock and his predecessor Sebastian James have stuck by the flailing mobile phone division even as it repeatedly drags down the electricals business.
Indeed such is management’s determination to prove that there is money to be made in selling mobile phones, it is tempting to think that Carphone Warehouse counters could survive a nuclear winter.
In contrast, the Dixons and Currys side of this vast high street empire has not only stood firm in the face of growing competition from online rivals such as Amazon and AO World but it has managed to emerge from the crisis in pretty decent shape.
There were further market share gains and same store sales in the UK and Ireland for the year to the beginning of May were up 1pc, an impressive showing given that the chain was forced to close its entire 591-store estate.
In Greece and the Nordics, where stores remained open during the pandemic, turnover was up 4pc and profit up 8pc.
Meanwhile, its online arm received the now obligatory lockdown-inspired turbo-boost. Sales surged 166pc in the UK and Ireland during the first few weeks as laptops and bread makers flew out of the warehouse, leaving digital turnover up 22pc for the year.
If only there was something positive to say about selling mobile phones where turnover tumbled 20pc and the unit swung from a £50m profit to a worse than expected £104m loss.
Throw in nearly £150m of costs from closing 531 stand-alone Carphone Warehouse stores and total losses came in at £282m. Yet that’s actually a relative improvement on the £438m of losses chalked up the previous year.
Baldock is convinced that with the Carphone stores out of the way and customers soon able to take up less punitive contracts, the unit will come good. After all, it dominates the intermediary market.
But that won’t be for at least another three years. The company is now warning that the pandemic is likely to delay the return of the mobile phone arm to profitability, meaning it is not expected to break even until 2023 at the earliest.
By then, almost a decade will have passed since the £3.8bn merger of Dixons and Carphone Warehouse, a deal that the City was assured would create “a new retailer for the digital age”.
Baldock should seize the moment and jettison the entire mobile phone operation. After all, the mess isn’t his, it was inherited, and every other major company is using the cover of the pandemic to make decisions that would have seemed too drastic, painful, or costly before the crisis.
Even he admits that the outlook will be highly uncertain for the foreseeable future, and thanks to lockdown he’s already discovered that phones don’t sell nearly as well online as electrical goods.
There might be a slight disturbance in the force when it happens but the retailer would be better off for it.
‘Every other company is using the cover of the pandemic to make drastic decisions’
One final reversal is needed
U-turns are common. People change their mind all the time. But a U-turn on a U-turn? A recipe for getting lost as the Competition and Markets Authority has demonstrated with its thoroughly muddled response to Amazon’s purchase of a 16pc stake in food delivery specialist Deliveroo.
Having initially blocked the deal last year, the watchdog changed its mind in April, on the highly dubious basis that without Amazon’s investment, Deliveroo would collapse because of coronavirus, thereby reducing competition. The ruling promised to provide something of a first: Big Tech as a defender of consumer choice. Then in June, the regulator admitted that with hindsight such a scenario was probably a bit of a stretch, but the deal would be allowed to happen anyway.
Understandably the decision has caused some consternation among rival firms. Domino’s Pizza points out that there is nothing to stop Amazon upping its stake up to 49pc without triggering another CMA probe because it wouldn’t have taken control.
Yet, obviously when any investor increases its stake in a company to those sort of levels, it makes it easier to exert an influence. In Amazon’s case that would mean more clout in an entirely new market and we know how that usually ends up.
The giants of Silicon Valley are well-versed in quickly crushing competition with bargain basement prices.
The CMA has tied itself in knots but that shouldn’t stop it from making one final reversal.
A new contender for worst rebranding ever: Stellantis, the name for the merged Fiat and Peugeot carmaking giants.
Apparently it comes from the Latin verb “stello” meaning “to brighten with stars”. Irony is dead.