PCR Tech and IT retail, distribution and vendor news
PC vendors and distributors will have a much tougher time negotiating stock deals with Dixons Retail and Carphone Warehouse (CPW) following their merger, say experts.
Last month the pair confirmed they are in preliminary discussions over a possible merger, and this morning confirmed they will merge in a £3.8 billion deal, joining to form Dixons Carphone.
So how will the merger change the channel? With Currys, PC World and CPW getting together, is this good news for vendors, distributors and customers?
“A bigger retailer means stronger retail power, therefore vendors and distributors can expect tougher negotiations with a company which would dominate the High Street for technology,” Adam Simon, Global MD for Retail Business Development at Context, tells PCR.
“But this is the price they have to pay if they want to retain showrooms across the country to demonstrate their latest tech products. Rival retailers will find it harder to compete– Phones4U will not see the renewal of its contract with Dixons in 120 stores, and will face tougher pressure on the High Street from a combined Dixons/CPW.”
Kantar Retail’s director of retail insights Bryan Roberts agrees: “From the Carphone perspective, its capabilities and buying power in categories like tablets would be significantly enhanced.
“The logic behind the deal is sound: enabling Dixons to have greater in-house capability in mobile and providing it with an alternative when the Phones 4 U concession deal elapses.”
The merger could be better news for the SMB community in the UK, however. Dixons reckons that 1.2 million SMBs, around half of the total in the UK, already shop in their stores.
"A bigger retailer means stronger retail power, therefore vendors and distributors can expect tougher negotiations with a company which would dominate the High Street for technology."
Adam Simon believes that a synergy between the strong customer relations skills of the Carphone Warehouse Group, and the will of Dixons to service the needs of SMB through its Knowhow brand is a good thing.
“The recent Retail-to-Business “R2B” Summit hosted by Context demonstrated that there is a ton of incremental business in helping SMB’s of less than 25 employees become more tech savvy, and this is where retailers such as Dixons have a natural set of customers,” he says.
RETAIL RIVALRIES
Dixons owns the Currys and PC World tech retail brands, with over 500 stores in the UK (although this is set to fall to around 400), while smartphone and tablet specialist Carphone Warehouse has 794 stores, which would create an electronics giant with some 1,200 UK stores.
However, Dixons Carphone says the deal is ‘not about closing stores’, but preparing for a ‘new connected world’, claims The Telegraph. The separate PC World, Currys and Carphone Warehouse brands will continue to operate as usual on the High Street for the time being.
What would the merger – and bigger rival – mean for the local PC store, small independent retailers, etailers, system builders and resellers?
Read more on page two of our analysis.
Retail expert Clare Rayner comments: “I wouldn’t be too worried if I was an independent, because it’s not like they’re new, and although these guys have the leverage to compete on price, what they will never be able to do the way your local independent can is offer the really personal service and support and trusted advice that you get from an independent business.
“So arguably it’s not as though they’re growing massively and it’s not like they’re a new entrant – they’re already here – so any impact they were going to have on independent retailers, they’ve already had.”
Last year Dixons Retail revamped its Currys & PC World stores as ‘stores of the future’
Bryan Roberts is also not sure the merger will have a massive impact on independent businesses, or larger rivals for that matter, but does believe the joint firm will focus on tightening up logistics and procurement.
“Over time, the combined group might have sharpened pricing in areas like tablets and accessories, and Carphone’s range might broaden,” he explains.
“It’s likely that most changes in the near- to medium-term will be behind the scenes in areas like procurement, systems and logistics. Perhaps the shopper-facing impact might be more apparent in Dixons’ European markets like the Nordics, where Carphone could make an appearance in-store.”
I wouldn’t be too worried if I was an independent. What Dixons and CPW will never be able to do the way your local independent can is offer the really personal service and support and trusted advice that you get from an independent business.
POTENTIAL PITFALLS
It’s not the first time Carphone Warehouse has jumped into bed with a giant electronics retailer.
In 2008 Best Buy invested £1.1 billion in Carphone Warehouse as part of its European expansion, but as we know that didn’t go to plan, and Best Buy retreated from the UK a few years later.
But of course the Dixons/CPW deal has much less risk, with the former already firmly established in the UK.
“Best Buy’s entry into the UK was fundamentally flawed from the outset:essentially giving major competitors a two-year warning to get their act together,” explains Bryan Roberts.
Read more on page three of our analysis.
Roberts goes on: “The combined [Dixons/CPW] entity should be good news for both shoppers and suppliers – Carphone is rightly seen as best in class and the reinvention of Dixons is a case study in business transformation.”
Adam Simon adds: “The hero of today can so easily become the casualty of tomorrow, as the last 12 months’ history shows.
“Best Buy’s meteoric share price rise in 2013 was followed in January 2014 by a crash of 30 per cent in value after the announcement of its Q4 trading results. Dixons is riding high on the crest of a sustained rise in its share price, but how long can this last?
"Therefore, this merger is good news if it consolidates the position of a strong and financially sound national champion which can deliver better customer service, and lower prices to consumers, a multi-channel bricks and mortar alternative to the pureplay internet retailers.”
A merger with Carphone Warehouse would help Dixons Retail boost its smartphone offering
Over the past few years, Dixons has grown from strength to strength following the fall of its biggest rival, Comet, but at the same time it has sold some of its European businesses to focus on the UK.
Bryan Roberts says: “We’ve seen over the last few years that the era of pan-European big box electronics conglomerates might be over. KESA has splintered and Dixons has jettisoned a number of markets, so I’m not sure that Dixons will be necessarily looking for any further big deals. Acquisitions these days tend to be more about acquiring capability then they are about acquiring scale.”
Adam Simon adds: “The jury is out on what type of European or overseas strategy the combined group will have. With the level of dominance which the combined company would have in the UK, they will have to look outside for new growth opportunities.
In the end this whole deal is about the smartphone, which is the future of mobile computing. Dixons has to be a big player there if it wants to be the leading tech retailer, and will gain enormously from CPW’s leading position in this market.
"Neither of them have a great record outside of the UK, with some notable country exceptions, and so they will need to develop a clear strategy for where they want to be in five or 10 years’ time, which could mean more acquisitions or mergers in Continental Europe or elsewhere. The combined group would be in a very strong position to grow through acquisition, as there are a number of vulnerable retailers out there, so let’s watch this space.
He summarises: “In the end this whole deal is about the smartphone, which is the future of mobile computing. Dixons will be the big beneficiary as it has fallen behind in this area since it sold the Link in 2006. With the growth of connected objects in the Internet of Things, the smartphone will play a pivotal role.
“Dixons has to be a big player there if it wants to be the leading tech retailer, and will gain enormously from CPW’s leading position in this market.”
Read more about the possible Dixons/CPW merger
– Dixons and Carphone Warehouse to merge in £3.8bn deal
– Dixons and Carphone Warehouse confirm merger talks
– BLOG: Why Dixons/CPW merger could be a win-win
– £23m cost-saving opportunity for Dixons and Carphone Warehouse
– Carphone Warehouse chairman says merger must be equal – report
