Recent months have seen technology and consumer goods retail under pressure. In the last 12 months the stock market valuation of Dixons Carphone is down by 43%, Carrefour by 25%, Maplin is in administration, the combined valuation of Ceconomy and Metro AG is below its equivalent last year, whilst Amazon’s value has shot up by a staggering 84%, borne up by the bull market but once again benefiting from the high valuation accorded to successful ecommerce companies. The stock market is saying simply – this is where the future lies. Continue reading
Tag Archives: Distribution
Adam Simon and Chris Petersen interview Nitin Chhabra, CEO Ace Turtle
As part of our continuing series examining a wide range of collaborative ecosystems, we are examining the transformation of the supply chain and the role of the distributor. The rising expectations of consumers are creating stress points on logistics and profitability for both retailers and brands. Fulfilment the last mile is not only a requirement of the new retail ecosystem, distributors must now emerge as innovation partners that create strategic opportunities for both retailers and brands. Continue reading
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.
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.
Reasons why Amazon’s acquisition of Whole Foods is a recipe for failure – Adam Simon
- 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.
- 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.
- 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
- 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.
- 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.
- 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.
According to results of the recent CONTEXT ChannelWatch survey, the majority of resellers across EMEA believe there are increased opportunities in selling mobile products.
The CONTEXT ChannelWatch report, which surveys close to 7000 resellers in EMEA, highlights that 88% of resellers backed this fast-growing sector. Tablets (67%), notebooks (56%) and smartphones (49%) were singled out as driving distribution sales.
As the annual Infosecurity Show in London gets underway today, the ChannelWatch results show that more specifically, mobile security was highlighted as representing a potentially large untapped growth opportunity for many channel players. Half of all respondents from Western Europe said they currently don’t address security projects for mobiles for their business customers. Of those that do, the vast majority (69%) focus on small and medium sized businesses (SMBs).
In Eastern Europe, nearly two-thirds of channel players (64%) are currently not involved in mobile security projects for business customers – a much higher figure than in the West (50%). Of those that do, the vast majority (76%) focus on SMBs.
While half of the resellers polled said they weren’t engaged in security projects yet, this represents a huge opportunity for them going forward. With security top of mind in many businesses we expect to see growth in this area going forward.
CONTEXT ChannelWatch is an annual research study that provides the most detailed insight into reseller behaviour, opinions and attitudes from across EMEA. With 6799 responding to the 2014 review making it the largest study of its kind.
Working closely with our distribution Panel, we achieve the maximum response in each market and region by inviting our participating distributors to send to their entire database. The online survey is then completed by the reseller response aggregated to ensure that confidentiality remains. More on CONTEXT ChannelWatch here.
Our latest reports show that PC unit sales across Western European distribution grew by 15.6% from January-November compared to the same time last year. Sales peaked at 21.7% year-on-year in Q3 before dropping slightly to 16.9% growth for the first two months of Q4.
That much-improved performance was mainly driven in the first half of the year by business sales, especially in the desktop sector, thanks to XP migration. Microsoft officially withdrew support for the popular OS in April, so many organisations waited until then to refresh their stock of machines. As a result, business-focused PC sales grew 29.8% in Q2 2014, before slowing to single digits by early Q4 as the XP migration effect lessened.
As business PC growth slowed in the second half of the year, consumer PC sales rebounded from the weak performance registered last year, especially in the notebooks category.
This was partially due again to XP migration but also a need to refresh ageing home PCs and a slowdown in demand for tablets which freed up money for notebook buys. However, the biggest factor was the heavy promotion of budget laptops – especially following Microsoft’s announcement of “Windows with Bing”, which flooded the market with highly affordable devices.
Throughout this Christmas season consumers will have a wide choice of budget laptops to choose from and will be presented with more tablets in the run-up to Christmas with tablet pricing expected to be aggressive due to strong supply and high competition.