Service is at the heart of Dixons Carphone’s long-term ambitions

While positive short-term results may grab the headlines, the real story is how longer-term transformation positions Dixons Carphone for future success

Positive financials are the backdrop
Given the potential pricing and downward margin pressures of BREXIT, investors were pleased at the end of June with Dixons Carphone producing an enviable set of retail results. Much focus was on the impressive growth in profit before tax of 10%, to above £500 million, with 4% increase in like-for-like revenues.

The other bottom line from the CEO: “Customer relationships are everything”
While the top line numbers headline the financial achievement of Sebastian James and team, it is the long-term transformation plans of Dixons Carphone which capture the imagination, and forecast the pillars of future success. Sebastian James highlighted transformation strategies focused on building a long-term future for Dixons Carphone:

  • Channel agnostic
  • Service as core offer and differentiator
  • Transition from ownership to consumption
  • Lifetime value relationships

Personalisation for consumption + differentiate services = Lifetime Value
The commentary highlighted the transformation of how service is now a core offering, not just an attach to the sale of a product. Services such as warranty, maintenance, and repair are creating a predictable, profitable revenue stream and a deep ongoing relationship with consumers.

Whilst mobile and phones were highlighted as one of the most challenging categories due to the rise of SIM free phones, James’s commentary emphasised how there is an aggressive plan for both financing and leasing to increase phone replacement.

To differentiate service, Dixons Carphone will roll out same day phone repair services. Plans also indicate a breakthrough 7-day repair promise compared to 28-day market standard. These strategies not only differentiate Dixons Carphone, but create positive lifetime relationships beyond the sale of a handset. A NPS (Net Promoter Score) in the 90s is particularly noteworthy and evidence of positive customer response.

Last year Sebastian James pledged to increase service income from £500mn to £1 billion. We did not hear any specific numbers on the investor call on progress towards this goal. At £1bn, services revenue would represent 10% of today’s revenues, and would outstrip Best Buy currently at 7%. Clearly both national tech retailers are seeing a bright future in services both as a differentiator and profit stream to offset product margin pressures.

Dixons Carphone is well positioned to profit as the “Digital Plumber”
One of the most exciting and innovative long-term developments is Dixons Carphone’s journey to becoming the digital plumber of the nation in its joint venture with SSE, briefly referred to in the presentation. It is all about occupying a place of trust in people’s homes, making life easy for the customer through leveraging the Knowhow expertise of Dixons Carphone and supporting SSE’s 5 million smart-meter customers. If the two companies can make this work, they will have moved the point of sale from the store and the smartphone into the home, a new offline revolution for tech retail.

The store as destination for new technology
There is one area where Dixons Carphone is lagging the market, and that is making the store a destination for experiencing new technology. Given that Oculus Rift and HTC Vive were launched at the end of last year, not enough has been done to create experiences for customers. The price-point of Virtual Reality is evidently beyond the purse of most consumers, but customers are looking to retailers to take a lead in demonstrating this and other new technology such as smart home. We did note, however, that in next year’s plans Dixons Carphone will be introducing a new in store gaming proposition and look forward to seeing what they do for this growing category.

Positive short-term results complimented by strategy with promising trends
Beyond the top line numbers, reaching more than £1 billion in online electrical sales is a significant milestone. The projected 24% average annual growth in home delivery, and one day delivery coming in the next year, Dixons Carphone is strategically positioned i) to capitalise on one of the largest customer bases ii) to be more profitable than a pure play business, with the capability to leverage its personalised “My Account” approach iii) to sustain customer relationships that translate into profitable life time value.

by AS

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Filed under Connectivity, IT Distribution, Market Analysis, PCs, Retail, Retail in CONTEXT, Smart Technology, Tablet PCs

A Take On Tech

Becky Connolly is an A-Level student who is doing work experience at CONTEXT. Given the recent survey results showing the passion of 18-24 year-olds for Smart Home products, we asked her to give her perspective on technology as a member of Generation Z.

Having come to my work experience at CONTEXT, I joined armed with nerves, excitement and my Mac. That’s right, I’m part of the BYOD generation (Bring Your Own Device), where we bring our beloved laptops, phones and tablets in fear of the unknown technology that may be lying ahead of us. Our Generation is famous for its insatiable appetite for the latest and greatest technology- the most popular connotations of Generation Z being a square-eyed teenager (often looking like a zombie) completely fixated by their devices; be it phone, laptop or television screen. But how does our perspective differ to that of older people, including millennials?

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Importance of technology
Technology has captivated our lives. I use technology in any way possible which will enhance features of my life in a few types and swipes which nowadays is becoming easier and easier.

Technology is not only used for social media, despite the heavy connotations (having said that, I am an avid Snapchat user). A large influence of technology is instilled in us from childhood, via the use of technology in classrooms; seeing as 77% of teachers use it for instruction as 81% of teachers believe that it can enrich classroom learning. Having adapted to technology through my education I have become not only more adept to technology but dependent on it for my studies; apps such as Quizlet and SimpleMind contained the sources of my revision for eight out of my ten GCSE subjects. Needless to say, technology was VERY important to me during this course.

An environment that appeals to younger generations
As the technology world blossoms, develops and shuttles into full speed, so do the minds of Generation Z. The answer is this; to attract the younger generation, the workplaces have to advance much further in an attempt to keep up with technology. If you have “dinosaur” computers which are inexplicably slow and missing out on features which are now just the “basics” paired with caveman wifi, the appeal (no matter how cool the job) will be gone, for example- if I were offered two jobs (and I liked both) and in one office there were state-of-the-art Macs and iPads dotted around everywhere, and the other used the same technology that Shakespeare used to write Macbeth, let’s just say I’d go for the former- wouldn’t you?

Furthermore, if your job entails a flair of creativity that initially could not be expressed through technology but now can be, it is essential for the young, talented recruits to have access to the advanced technology so that they can use it and develop their skills to the highest standard. Using the latest technology would also enable flexibility of the workplace. Technology-based work ensures that one can access their work in the office, at home or even abroad. This creates a sense of continuity for the worker and the company and assures that work is accessible from anywhere.

Technology investments worth making
Alongside many people of Generation Z, my prize possession is my phone; this is not uncommon, seeing as 88% of teenagers own phones, and 84% of them are smartphones. This shows that teenagers are willing to invest more in their technology for the better features. Right now, the favoured model is an iPhone; their perfect compatibility for the demands of Generation Z including social media, video streaming and education means that the price of £599 is often met and in high demand. It seems extortionate, but their dependability, fast-response and daily use make them a more worthy investment than a holiday, which would only last a few days.

As far as hopes are concerned, one cannot even begin to hope or imagine how far technology will develop over the years; if somebody told me that I’d be buying my latte via my thumbprint a few years ago… let’s just say technology is astonishing, awe-inspiring and unimaginable, really.

 

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The Facebook Generation are leading new technology adoption

I went on to Facebook in 2008 to check up what people could see about my aspiring 17-year-old daughter who wanted to be a doctor. That was when the deluge started –the year after I joined, Facebook went from 100 million to 300 million members. That same daughter is now 26, and is part of the millennial generation, who surprisingly, at first sight, are dropping behind the younger Generation Z in driving technology adoption. Continue reading

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Is Amazon’s bid for Whole Foods a big blunder, or another brilliant Bezos strategy?

In the past couple of weeks, the news from the United States has been filled with headlines about Amazon’s pending acquisition of Whole Foods.

Amazon’s current bid for Whole Foods is the largest acquisition deal attempted by far. CEO Jeff Bezos is paying a premium price ($13.7bn USD) for a marginally profitable retailer who has not been growing. And the price may go higher if other suitors consider higher offers for Whole Foods in order to block Amazon’s acquisition of a nationwide retail food store chain.

As omnichannel shoppers continue to seek convenience of home delivery, a major obstacle has been the vexing problem of the “last mile” – moving quality fresh food from the warehouse to the customer’s house. Will this be the magic marriage that enables Amazon to leapfrog the competition? Or is Amazon’s move to owning stores a recipe for failure by reaching too far beyond its core business?

In this piece, we explore the pros and cons of the Amazon deal with a perspective by Context’s Global Managing Director Adam Simon, and omnichannel strategist Chris Petersen.

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Reasons why Amazon’s acquisition of Whole Foods is a recipe for failure – Adam Simon

  1. Amazon’s business model is ecommerce, not running stores

Amazon has built a tremendously successful model based upon online ecommerce. It specializes in warehouse, distribution and logistics to deliver items directly to consumers. Aside from a couple of pilot stores, it has no experience, team or systems in place to turn around a chain of 440 bricks and mortar stores with relatively flat growth and marginal profitability. Rather than be saddled with a retailer’s legacy systems and real estate, Amazon would be better off growing its own version. Or it could have acquired a chain with smaller format stores which would have better fitted the click and collect model.

  1. Whole Foods is upscale pricing and not consistent with Amazon’s strength for the masses

The standing cliché is that when people shop at Whole Foods they spend their whole paycheck. By design, Whole Foods offers very unique items and fresh organic foods at premium prices. Amazon is aggressively competing with Walmart in the US who is focused on the mainstream and value pricing. Whole Foods product range and high prices do not offer Amazon a competitive advantage in acquiring stores with broad customer appeal. Whole Foods brand and pricing is also inconsistent with Amazon’s own “Fresh” approach already in market.

  1. Mixing Amazon and Whole Foods cultures are like oil and water

Previous Amazon acquisitions like Zappos were designed to expand categories (shoes and apparel) but were also consistent with and built upon Bezos philosophy of “customer first” and ease of use. It’s not that Whole Foods is anti-customer, but the stores and culture were built around product differentiation and segmentation. The management philosophy and pay scales of Whole Foods are quite different from Bezos’ empire in Seattle.

Why Amazon’s acquisition of Whole Foods is brilliant retail disruption – Chris Petersen

  1. Bezos is investing for 2024 … the play for Whole Foods is not about grocery stores

If you follow Jeff Bezos the CEO of Amazon, he operates with a long-term vision. He has discussed how teams are in the process of planning the first half of 2024 today. Dennis Berman from the Wall Street Journal perhaps best summarized the Whole Foods acquisition:

“Amazon did not just buy Whole Foods grocery stores. It bought 431 upper-income, prime-location distribution nodes for everything it does.”

To underscore the value of an Amazon total integrated play, Whole Foods 440 stores gives Amazon to refrigerated warehouses within 10 miles of the about 80% of the US population. That kind of reach goes a long way of delivering fresh food the last mile to your door.

  1. Whole Foods enables Amazon to rapidly disrupt with its ecosystem

The Whole is greater than the sum of the parts [pun intended] and the parts of the Amazon ecosystem are formidable. Amazon has 100 million Prime members. Imagine what they could offer Prime subscribers in terms of preferred discounts and services in 440 stores. Amazon just announced a $20 version of an Alexa device built for ordering food and getting recipes … a perfect recipe for the Whole Foods concept and persona of fresh and organic.

  1. A core category of all households and the Prime subscription model is “food”

Half of Walmart’s core business is food and consumables, and it drives more than 100 million customers through its doors every week. It makes perfect sense why Amazon would buy grocery stores as opposed versus another type of retailer. As far as Whole Foods notoriously high prices, Amazon is the world’s best at shrinking supply chain costs and negotiating with suppliers. What better way to launch retail stores than to go after a category that drives weekly traffic and is synonymous with a subscription model augmented by Alexa and Dash reorders.

The future of retail is “hybrid”. Bricks and mortar retailers have been racing to build an online presence. Ecommerce realises the need to build a physical presence to complete the customer experience and establish an outpost for the last mile, especially in categories like food.

Will the Amazon big bet of 13.7 billion USD on grocery stores pay off? Chances are we won’t have to wait 7 years to find out. The “food wars” are already underway and we have a ring side seat.

It’s a great time to be a consumer! A very challenging time to be a retailer bridging both the digital and physical world.

 

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GTDC EMEA Summit – Positive at the midpoint of the year

At the recent GTDC EMEA Summit, the CONTEXT data and team were in evidence as the preliminary results of its annual 2017 ChannelWatch survey were unveiled in a dedicated workshop, and the GTDC Rising Star awards were selected using the CONTEXT data.

There was a real buzz this year with over 175 attendees, a record number of vendors, and senior executives from across the industry. The location was excellent with top class hospitality in the Kempinski Hotel in Vienna.

The conference opened with an upbeat introductory speech from Tim Curran, the CEO of the GTDC. Europe is on the move, growing faster than the US, and with excellent results in Q1 2017. Curran also took the occasion to remind members of the services provided by the GTDC.

We were then treated to a fascinating glimpse into the future by “futurist and humanist” Gerd Leonhard. Bringing together a myriad of ideas about the current technology explosion, he closed off his speech with a slide which really sums up the challenge ahead. Humans can only advance at a linear pace, whereas technology capabilities are advancing exponentially. We need to deal with this so that we don’t become “useless humans” and we must channel the new technology to the benefit of all mankind.

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From GTDC Keynote Presentation by Gerd Leonhard, 13/6/2017 ©

The final session of the morning, before breaking off into workshops and 1-to-1 meetings, was a Distribution panel, hosted by Peter Ward. On the panel were Graeme Watt, formerly CEO of Avnet Europe, now SVP Value at Tech Data; Jeremy Butt, Executive VP of Westcon EMEA; Ilona Weiss, CEO of ABC Data; Eric Nowak, President of Arrow ECS EMEA; Svens Dinsdorfs, CEO of Elko; and Anton Herbst, Head of Strategy at Tarsus.

The discussions were broad-ranging around the future of Distribution, the impact of recent consolidations, and there was a plea from Graeme Watt for vendors to think solutions not products, in order to get the right results for customers. An interesting debate took place about the importance of recruiting and retaining the best talent in the tech industry, a challenging area. One of the panellists said that often when people have been trained up in a specialist area, they are subsequently targeted for recruitment by resellers or vendors. This is definitely the stuff of future discussions for this audience to grapple with and find solutions.

In the CONTEXT workshop the preliminary results of the ChannelWatch survey for 6 out of 17 countries – UK, France, Germany, Spain, Italy and Poland – were presented. A number of questions were asked by attendees at the GTDC conference who were curious to know more. As Andy Dow, Group Marketing Director of Tech Data UK said, “The more deeply you dive, the more you understand that you need to dive even deeper.”

In this year’s ChannelWatch survey we had an overwhelming response of nearly 7,000 resellers, supported by our distributor partners who shared the survey with their reseller clients. The respondents were mainly owners, CEO’s and senior management, covered a broad spectrum of resellers, VAR’s, etailers and retailers, as well as small, medium and large sized companies.

Overall resellers in these countries are confident about 2016 and optimistic about 2017. This has been confirmed by a stellar opening to 2017 with 5% growth in Q1 panel revenues in these countries compared to last year, ranging from 13% growth in Spain to 1% in the UK. The outlying country for optimism is Spain (71% think that 2017 will be better than 2016) and the country with the highest number of doubters is the UK where 20% see 2017 as being worse than 2016.

The preliminary ChannelWatch data supports the encouraging opening talk by Tim Curran, and we look forward to a positive second half of the year.

The full results of the ChannelWatch survey will be made available in the coming weeks.

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by AS

 

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Apple’s Public Secret: Macs and PC Gaming

For those financial analysts who took the time to comb through Apple’s fiscal fourth quarter results last year, it was noted that despite overall declines, Apple Services – the division which includes Apple Music, Apple Pay, and the App Store – posted very healthy growth of 24% up to $6.3 billion. If this growth continues the Services division is on track to become a Fortune 100 company in its own right later this year. A decent proportion of that revenue will come from mobile games. It’s fair to say that mobile gaming has a far wider market reach than console or PC, partly due to cost and accessibility; the success of apps like Angry Birds and Pokémon GO are a testament to its appeal. Indeed, mobile gaming is generally seen as socially more acceptable than PC or console gaming, which still has a reputation (at least in many European countries) as being the preserve of the youth and hobbyists where a much larger financial commitment is required.

Despite the importance of gaming to the mobile platform, and increasingly to the stagnating PC market, Apple has resisted overtly marketing towards gamers, instead leaving that up to individual app studios. This is understandable for a brand which positions itself as luxury/lifestyle, the technical equivalent to a designer fashion label, allowing for Apple products to perpetually command high ASPs. Just as the iPhone/iPad is now the gaming platform of choice for many consumers, Macs can be considered a PC gaming alternative. According to the latest survey from Valve’s Steam cloud gaming platform – the most important global online shop for PC games – Mac OSX now makes up 3% of all users, with 50% of those users being Macbook Pro owners. Back in 2015 Valve stated that Steam had over 125 million players, meaning that even two years ago there were 3.75m Mac OS gamers on their platform alone. Looking further into Steam’s data, the top selling games for Mac OSX include all of the world’s biggest eSports titles such as Dota 2 and Counter-Strike: Global Offensive.

A common question repeatedly asked by channel and vendor partners is why CONTEXT includes Macs as part of the PC gaming market. The simple answer is that when the PC market is segmented according to what is gaming capable based upon system specs, Macs are part of the gaming market. At the low-end of the market, Apple has a healthy share thanks to the high number of iMacs utilising the AMD Radeon R9 M390 and similar GPUs. This configuration will not allow for full GFX settings on many AAA game titles, however it will still run popular games with acceptable framerates. Thanks to Apple’s announcement in early June that high-end VR-ready GPUs would soon be available either as a tethered add-on or as a standard system spec, Macs will be better equipped to compete in the enthusiast-end of the PC gaming market. In the case of the Thunderbolt 3 external GPU, this allows for a VR-ready upgrade at $599. This might seem steep given that AMD’s Radeon RX 580 retails for $300, however $599 is still cheaper than buying a new VR-ready notebook, and the dev kit also comes with a $100 discount on the HTC Vive.

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In the fashion world, high-end products are sometimes adopted by a non-target market – the story of Burberry’s clothing in the UK is a good example – and PCs have a history of being co-opted for purposes beyond the vendor intention. In the end, consumers will always have the final say on how they want to use a technology; as the Apple Services financials show, a vendor may wish to keep their success a public secret.

by JW

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WannaCry Ransomware Outbreak Drives Surge in Security Software Sales

It’s that time again when hundreds of exhibitors showcase the most relevant IT security solutions and discuss the issues that keep businesses awake at night at this week’s Infosecurity Europe show in London. Ransomware, IoT, Business Email Compromise, these are just some of the hot topics being discussed at the annual event.

It’s been over three weeks since WannaCry caused widespread chaos as it wormed its way through servers and PCs across the planet. The threat itself has at this stage largely been contained, but now the dust has settled on one of the highest profile malware campaigns in recent memory, we thought it would be useful to examine whether there’s been any impact on channel sales.

The 4000% year over year increase in Week 20 security sales is a strong indicator that organisations have indeed been prompted by the ransomware outbreak to invest in cybersecurity tools.

A global incident
Cyber attack campaigns don’t come much bigger than WannaCry. The exact scale of the incident is still not fully known, but after less than two days the ransomware had infected over 200,000 users and organisations across 150 countries, according to Europol. In fact, the total number of infections could now be in the millions, according to reports. It featured two NSA exploits, dubbed DoublePulsar and EternalBlue, which had been published online by a group known as the Shadow Brokers. It’s widely believed that another group then took these and repackaged them so that, once on a target network, the malware searched worm-like for other machines to infect, both inside that network and externally.

The speed and scale with which WannaCry spread raises some interesting questions about the state of security in many organisations. For one thing, it exploited a known Windows vulnerability, patched weeks earlier by Microsoft after the NSA informed the company. That tells us many organisations and consumers fail to follow best practice security by keeping their systems up-to-date at all times.

It also highlighted the catastrophic real-world impact that malicious code can have. Scores of NHS organisations were affected and had to shut down key IT systems, causing the cancellation of operations, chemotherapy sessions and other patient appointments. For companies, a similar outcome will have led to lost productivity and service outages, impacting the bottom line and brand reputation.

Prioritising security
It’s perhaps not surprising, therefore, that CONTEXT data tells us the WannaCry outbreak generated a significant rise in cybersecurity channel sales. We tracked license sales for two categories: Security Suites and Mail Security. The combined figures reveal that sales increased by 4,090 times from week 20 in 2016 to week 20 in 2017. More telling still is the fact that 1.2 million units were sold in the weeks post-WannaCry, compared to a normal run-rate of 20-50,000 units per week.

Cybersecurity specialists need to tread a fine line when engaging with prospective customers, between educating the market and straying into the territory of over-hyping threats to sell products. Yet the uptick in sales following WannaCry shows us that such incidents can certainly focus the minds of IT buyers, and move certain purchases up the priority list.

by MK

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