Case study: Dixons group plc - Strategic Management

Dixons Group plc is an international group specialising in the retail sale of consumer electronics, photographic products, domestic appliances and related services (profiled in Figure). It trades through Dixons, Currys and Supasnaps in the UK and Silo in the USA. The Group is also engaged in property development and trading in the UK, Belgium, Germany, France, Luxembourg and Portugal through Dixons Commercial Properties International. Dixons Group’s value focus involves long-term investment to develop a mature base of operations, centred on customer satisfaction. It believes that striving for customer satisfaction will drive value across the entire business.

The Group believes that the success of VSM and its benefits will depend in part on developing sales staff rewards based on customer satisfaction rather than shortterm sales targets. Its considerable progress with its focus on value led in part to a 75 per cent increase in its share price through 1991, a difficult time for retailers as many endured horrific recessionary setbacks.The consumer electronics and domestic appliance sectors, although generally regarded as long-term growth markets, are cyclical. As a result, business is subject to considerable fluctuations in demand, which tend to be exacerbated by new product introductions and shifts in economic climate. This had led to a number of problems:

  1. In the mid-1980s, when demand was strong and sales of new products such as VCRs, microwaves and computers were growing rapidly, Dixons made a number of investment decisions based on what turned out in the short term to be unsustainable levels of sales. Because the ‘brown goods’ (TV, audio, video, camcorders) sector is very prone to such investment ‘traps’, making investment decisions on the basis of high short-term profitability can lead to problems in later years as demand declines, particularly when costs are also rising rapidly.
  2. The integration of Dixons’ and Currys’ logistical support and the realisation of the synergy between the two businesses were delayed because the shortterm buoyancy of the market obscured the underlying problems.
  3. Currys’ competitive position was eroded because of its structure of small stores, and at the same time its cost base was high due to the location of its shops on the high street. The strategic response to the problem, the move to edge-of-town superstores, was slow to implement. These problems were tackled in 1988 and 1989, but the solutions were poorly communicated to shareholders and analysts, and the results were not immediately apparent due to the weakness of the market and the timescale for implementation. Dixons’ market share growth rate began to slow down with a simultaneous cost escalation.

As a result, the share price fell sharply, and in December 1989 Kingfisher made a hostile bid for Dixons Group. Although this offer was unsuccessful, it focused Dixons’ management’s attention on its failure to communicate with the investment community and led to a considerably better perception of the nature of the group’s business, its problems and the solutions being implemented.

Profile-of-Dixons Group companies

The group’s 1990s plan for creating shareholder value is a many-faceted strategy for building long-term customer satisfaction. Dixons Group firmly believes that value in its businesses is created when long-term customer loyalty is created. This involves not only an upmarket push for Dixons and the expansion of Currys Superstores, but also the emphasis of new concepts in systems, service, merchandising, product improvement and innovation, and staff development and compensation.

Expansion of Currys superstores
Currys, in shifting away from the high street to edge-of-town superstores, hopesto give customers a far better shopping experience: a large range of ‘white goods’ (washers and dryers, refrigerators, freezers, cookers, small appliances), larger more comfortable stores with a relaxed atmosphere, longer opening hours and convenient parking. This move has led to improved sales, up by 11 per cent likefor- like against a 4 per cent reduction in its high street store sales. The group expects that Currys Superstores will account for 35 per cent of retail space by April 1992, at least equal to Currys’ High Street stores.

Upmarket push for Dixons
Dixons’ attack on margins focuses on upgrading the mix of its merchandise to achieve higher average prices. Between 1988 and 1990 Dixons saw a 24 per cent price increase in real terms as average prices were decreasing. This meant that the volume of goods handled dropped sharply while turnover remained constant. This had a significant effect on its cost base. Retailers of white and brown goods traditionally sustain high overheads to deal with large volumes of sales (warehousing, delivery, administration, after sales service). Smaller investment in inventories has not only reduced investment in working capital, but Dixons finds itself discounting less because of obsolete and warehouseworn merchandise.

Modernised information systems
The group is currently making considerable investment (£10m) in a sophisticated branch PC network designed to provide branches with up-to-date stock availability information as well as store profitability. It provides instant information about previously evasive issues such as discount origin, customer service history, and inventory and service parts availability. The system will eventually allow instant access to credit and repair organisations, and detailed product specification data which will give sales personnel more authority in dealing with customer enquiries.

Improved merchandising
In addition to improved merchandising of white goods in Currys’ Superstores andupgraded Dixons merchandising of brown goods the group has opened new specialist departments on a trial basis, particularly at Dixons stores. More space and a wider range of computer game hardware and software is catering to the growth of the computer game market. Other specialist departments group together low-price merchandise like films and video tapes as well as general brown goods accessories on a self-service basis.

To improve its already impressive 33 per cent of the UK camcorder market 300 Currys High Street stores installed camcorder centres through the summer of 1991, with very encouraging results. In addition, Currys High Street stores have begun a trial (10 stores by end 1991) to reduce the space given to big white goods. Instead it sells them through an in-store catalogue centre, and focuses much more in store on small appliances. It is hoped that this move will improve its presence and market share in small appliances, while the large Currys Superstores in cheaper, cost efficient locations handle a larger than ever market share of the larger white goods.

Product improvement and innovation
Historically electronic goods have been made with two points in mind: ease of manufacture and number of features. ‘User friendliness’ has until recently not been a priority. Consumer complaints range from complex and contradictory instruction booklets to £2000 systems that are packaged without plugs. Figure outlines some significant Dixons initiatives guaranteed to pleasure any customer who has to install his or her own TV, stereo or VCR. In addition, with the average cost of servicing a VCR at approximately £30, eliminating an estimated 30 per cent of unnecessary service callouts will mean significant financial benefits for Dixons as well as improving customer satisfaction. The product innovation cycle has been quiet since 1983, the peak of the VCR boom. The expected launch in 1992 of CDI (interactive compact disk) as well as the DCC (digital compact cassette), a 16 _ 9 picture format colour TV and high definition TV are all expected to boost the innovation cycle. And although the innovation in products is not expected to be really buoyant until 1994–1995, Dixons is projecting that its market share will continue to move upwards.

Dixons-initiatives

Staff development and compensation programmes to build shareholder value
In 1990–1991 average branch staff numbers fell by 5 per cent in Dixons and 14 per cent in Currys (which translated through to 12–14 per cent increases in sales per employee). Distribution employees were also significantly reduced (16 percent), and branch pay increases were modest. How then does Dixons Group account for the results of a 1991 employee survey that showed a sharp drop in staff turnover and that employee perceptions of the company (and motivation to create value through retaining customer loyalty) have never been higher? Clear career structure, trust of managers and a sharp drop in the level of customer complaints (40 per cent drop in the 18 months to September 1991) are credited for this remarkable improvement in perception. The group’s plans for developing and keeping ‘value’ orientated staff, as outlined in Figure, are all based on its belief that staff give better care to customers when they have been with the company for some time, when they are better trained and when they are compensated for long-term sales, not just immediate sales which may not create customer loyalty.

Dixons-group plan for developing and keeping value orientated staff

Substantial improvements to customer service
Dixons/Currys central service organisation, Mastercare, has improved out of all recognition. Its ‘same day service’ really works, and engineers even call the customer directly before a visit to check on the time of appointment. With its desire to consistently deliver the best service possible, Dixons/Currys is installing in-store repair centres for quicker turn-round times for customers. The concept, which is being introduced into 30 Currys Superstores around the country, is also expected to substantially reduce the group’s costs of repair while reinforcing its fundamental philosophy of building trustworthiness.


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