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

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