Mobile telephones were “a ball and chain” for defunct UK retailer Dixons Carphone but should contribute significant profits to successor business Currys, its boss has said.
Alex Baldock, chief executive of Currys, acknowledged that the group had not paid enough attention to changing consumer habits in the past, but told the Financial Times it had “the opportunity to get back into growth”.
“We were too slow to spot some very big trends that were going on outside,” said Baldock, who took over as chief executive in 2018.
Consumers were increasingly buying handsets and service contracts separately, rather than as the bundles sold by Dixons Carphone on behalf of network operators.
He said the business compounded this mistake by signing “very restrictive long-term contracts with networks” that obliged them to hit certain sales targets or face financial penalties.
A profit implosion in the mobile phones business is the main reason why Currys’ current market capitalisation of £1.5bn is less than half the combined value of Dixons Retail and Carphone Warehouse when they announced their merger in 2014.
In the year to March 2014, its last as an independent company, Carphone Warehouse reported revenue of £1.47bn and operating profit of £141m in the UK and Ireland.
Last year, sales had halved to £721m and the unit made an £89m loss. It will break even this year.
The surgery in response has been drastic. Baldock last year closed all 530 standalone Carphone Warehouse stores. The Carphone Warehouse website will soon be switched off — removing the final trace of a brand that was synonymous with mobiles for more than a quarter of a century.
Mobile will be just another product category within Currys, similar to washing machines or televisions. “They will basically make a little bit of margin on a pretty small sales base,” said Panmure Gordon analyst Tony Shiret.
But Baldock said profit and cash generation was more important than size. “[Investors] wanted the risk and downside of mobile to disappear. A business losing £100m isn’t a great asset for the group.”
The new mobile business will offer a selection of handsets, credit, insurance, accessories and network contracts in a single monthly price.
Baldock said retaining the group’s own phone network, id Mobile, was essential, making it less dependent on other networks and giving more flexibility on prices.
Even Shiret, a long-term critic of the company, acknowledged that there was “a degree of interaction between mobile and other electrical products” and that mobile was a too big a sector for an electricals retailer to ignore.
The new business model will also consume far less working capital, because Currys, as Baldock put it, is “no longer acting as a bank for the networks”.
The cash owed to the group by networks in return for connecting customers has already shrunk from almost £1bn to £240m and will decline to nearly nothing.
That has allowed the business to revisit other targets. This week, it told investors it expects to generate £250m of annual free cash flow and will kick off a £75m share buyback.
Shiret said that a target group operating margin of 4 per cent leaves Currys with little wriggle room if sales slow. But Baldock countered that this is far from inevitable, pointing to sectors such as gaming where growth is strong and the company’s market share is lower.
“I don’t think [mobile] needs to be a low growth category,” he said. “A smartphone is still the most important bit of tech in most people’s lives.”
Denial of responsibility! Swiftheadline is an automatic aggregator around the global media. All the content are available free on Internet. We have just arranged it in one platform for educational purpose only. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials on our website, please contact us by email – firstname.lastname@example.org. The content will be deleted within 24 hours.