Magazine article Marketing

Amanda Aldridge on Retail: Dixons Won't Be Last to Abandon the High Street

Magazine article Marketing

Amanda Aldridge on Retail: Dixons Won't Be Last to Abandon the High Street

Article excerpt

From which retailer do you buy your electrical goods? Go back a few years and the answer might well have been the Dixons store on your local high street. But today it is a different story, and Dixons recently announced that it was to close more than 100 of its 320 stores - a move that signals the start of its total retreat from the high street over the next 10 years.

The chain's decision highlights some fundamental changes taking place on the high street, especially in the electronics sector. For Dixons, it became unsustainable to keep these stores open, as they contributed a mere 3% of overall group sales. The bulk of sales now come from the company's much bigger edge-of-town and retail park outlets as well as its overseas interests.

Dixons' main problem was that its gross margin was insufficient to support its prime store locations. Unlike fast-food outlets and coffee bars, the numbers no longer made sense for it to remain on the high street. Increased competition and technological advances have continued to drive down the prices of electrical goods, pushing up volumes. This circle has continually eaten away at margins.

The supermarkets have been major contributors to this trend, as they have fed consumers' growing appetite for 'value'. In doing so they have created commodity items such as pounds 50 DVD players. At this end of the market, the supermarkets can get away with having staff who have limited product knowledge.

While Dixons could not hope to match the supermarkets' phenomenal volumes, it could have offset this deficiency by having knowledgeable staff. But it was often criticised in this area, and specialists such as Maplins and Richer Sounds stole this position. These stores have made their business models work by taking much cheaper off-prime pitch sites for their stores.

All the traditional players are vulnerable to the growth of online electrical goods specialists such as Dabs.com. It generates sales of about pounds 180m, the same as the combined turnover of those Dixons stores heading for closure.

But its virtual model allows it to go for some comparatively juicy margins.

Web operators can also offer unlimited ranges, because their online square footage comes at virtually zero incremental cost. …

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