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

The Daily Telegraph - Business - - Business Comment -

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.

Rub­bish re­brand

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.

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