Shock Waves

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Two major announcements to cover this month are – Best Buy, the huge American electronics retailer, is heading for the UK through a deal with Carphone Warehouse and DSGi has issued the results of its business review which is intended to ‘renew and transform’ the group.
When John Browett moved across to DSGi from Tesco to take on the chief executive role, he knew he had a huge task ahead.  Whether he quite realised then the depths of the problems, only he can say, but clearly he does now and offered a frank assessment of the challenges the group faces.  Whilst recognising strengths, such as market leading positions and strong supplier relationships, he believed the group had not kept pace with its core customer needs, especially in the UK.  Browett, doubtless mindful of keeping his much-maligned staff on side, said it is not all bad news: “It’s not a terrible shopping experience in an absolute sense, it is all about improvement. The key thing is that this is absolutely a fundamental cultural shift.  We are going to make this business unrecognisable from what it is today”.
Five point plan
So to ‘deliver an unbeatable combination of value, choice and service’ he has devised a five point plan with the emphasis on ‘focus’ and ‘winning’.  The plan comprises a focus on the customer (by improving ranges, service, stores and staff training – bringing back ‘good old-fashioned salesmanship’); focusing the portfolio on winning positions (in the UK and Ireland, Nordics, Greece and over the Internet); transforming the business (with the initial drive in the UK and Italy, where there is the greatest potential to improve performance, and thus shareholder value); winning in the Internet market (building on its number one position in Europe, with £1 billion of sales achieved in 2007/8); and reducing costs (by introducing a common operating model across the group that will simplify processes, and improve systems and decision making, and a new cost-cutting programme designed to save £50 million in 2008/9).
Product ranges will be simplified, and store formats improved with better displays and greater customer interactivity., the former Dixons chain, will revert to its former line-up, with white goods, small kitchen appliances and personal care products being replaced by a wider range of laptops, televisions, other digital products and a much greater depth of accessories.  Of its 177 stores, one hundred are likely to remain; the rest will close as leases expire, mostly over the next four to five years.  Browett also has big plans for the Internet; he reckons 30% of electrical sales will be online within five years, up from the current 12.5%.
He concedes that improving service levels in Currys and PC World will not be easy: “It will take some time.  It will require years of training.  It’s an investment, but we think we can make a major difference over time.”  
Which all begs the question from shareholders and analysts alike as to why the previous management had allowed the standards at this once-mighty giant of the industry to slip so far.  Redundancies are inevitable and shareholders will share the pain with dividends halved. 
The City reacted wearily to yet another profit downgrade and the share price has continued to fall.  The business is now worth little more than £1 billion, not much more than a third of its stock market value when Brockett accepted the job. 
In the current climate, DSGi could have done without the announcement the previous week that Best Buy had struck a £1.1 billion deal to buy 50% of mobile phone retailer Carphone Warehouse.  It plans to open Best Buy stores in the UK and Europe next year.  Meanwhile, Carphone’s 2,400 stores across Europe will expand its product range to include laptops and connectivity. 
The tie-up sent shock waves through the industry.  The courtship began a couple of years ago when Best Buy’s Geek Squad arrived in the UK, and Carphone Warehouse started selling its phones in Best Buy stores.  Now they are taking their alliance to  a new level.  Best Buy vice-chairman and chief executive Brad Anderson boldly set out his stall:  “European consumers are ready for someone to do a better job of retailing electrical products.”

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