Crystal ball gazing

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A year ago Sir John Collins announced his intention to step down as DSGi’s chairman at the Group’s AGM this September.  After six years in the job, and with a new chief executive (John Browett) and group finance director (Nicholas Cadbury) in place, he thought it an appropriate time to bow out and allow someone new to oversee the group through a period of significant change.  John Allan takes over his role.

As Sir John readily admitted in his annual report just issued to shareholders, little did he imagine what his final year would bring.  At the time he asked his new chief executive whether he could see a way of returning DSGi to greatness. “Yes, I can, providing we don’t find ourselves in a deep recession” was Browett’s response. 

“Don’t worry” Sir John assured him “there could be some cyclical downturn in the economy but I don’t see why it should be more than that.” So much for the chairman’s crystal ball! 

Improving returns

A year on, Sir John is able to report some encouraging progress.  A new senior management team is in place, 20,000 staff have been through a comprehensive retraining programme and much needed service improvements have been achieved, for instance with the introduction of next-day delivery in three-hour time slots and customers’ TVs now being repaired within eight days on average (rather than the previous and hardly credible 21 days). 

The programme of transforming stores is said to be going well, with some impressive gross profit improvements.  Thirty-five Currys stores have been upgraded with profit uplifts of between    23 and 57%.  Two Megastores are now trading – the first in Birmingham is on target to achieve annual sales of £30 million, the second in New Malden London opened in June with an ‘encouraging’ start.  Forty one PC Worlds have been reformatted, but the changes and the uplift (11%) have been less significant.  A new Currys and PC World 2-in-1 store in Weybridge has delivered a sales increase of 65%. 

The investment at store level will continue, this year reformatting another 110, and opening five more Megastores and five 2-in-1s.  The placing and rights issue earlier this year has provided the necessary funds, but cost-savings remain vital; £95 million was achieved in the past year, with a further £200 million earmarked over the next four years.  Reducing working capital by around  £100 million is also on the agenda, with stock levels for instance down by between 15 and 20%.

Despite all the positive news, the chairman admitted that economic recovery is unlikely in the short term and therefore he could not promise immediate earnings improvement.  For the year to May 2 like-for-like sales fell by 10% at Currys and by 13% at PC World.  Underlying UK operating profit dropped by nearly two-thirds to £59 million.

Mezzanine gains

In comparison, for a very similar period (its year ending 30 April), Comet from its 250 stores saw like-for-like sales fall by 8% and retail profit down by three-quarters to £10 million.  Its mezzanine format is working well, with 39 stores now trading in this way.

During the year, store and head office staffing levels were reduced, four service centres closed and the logistics structure was rationalised.  Whilst this restructuring resulted in a £10 million exceptional charge, future annualised cost savings are expected to be worth £14 million.

Comet also continued to improve its service offer with online delivery tracking, additional installation services for integrated appliances, a 24-hour helpline for Comet on Call customers and the extension of free 30-day helplines for televisions and multi-media ranges.  Web-generated sales accounted for over 12% of the total, with an easier to navigate site, enhanced advice, product videos and customer product reviews all now in place.

John Lewis has just ended its half-year (to 1 August) positively, with sales of ‘electricals and home technology’ up by 2% in the Clearance event.  However, for the 26 weeks such sales were down by 2.5%.  Two new store openings (Leicester and Liverpool) distorted the figures, so the like-for-like decline for the half year is around 6%.

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