Analysis: Is the electricals sector super-charged?

This might not come as too much of a shock, given electricals and gadgets prove popular during discounting events.

However, the competitive sector has suffered decline throughout 2016, with some bricks-and-mortar retailers facing discounting pressure and straining to retain relevance. 

Still, the Christmas updates are suggestive of a healthy, if not booming market.

Argos posted better-than-expected numbers, with like-for-likes up 4%.

Sainsbury’s group chief executive Mike Coupe told Retail Week that, from an Argos perspective, 2016 brought a “relatively buoyant Christmas” in its electricals category, driven by mobiles and computers.

Maplin hailed “one of its strongest Christmas trading periods”, as drones helped like-for-likes fly 4.4% in the six weeks to December 24.

Department store retailer John Lewis noted its electricals home and technology division was up 4.5% against the strongest comparable – a 9.6% jump last Christmas.

Meanwhile, AO.com notched up a total UK sales increase of 8.9%.

This represents a growth slow-down for the etailer – failing in its third quarter to achieve double-digit growth.

But, as Verdict analyst Zoe Mills points out, this may just signify a maturing of AO’s UK proposition because the etailer is still gaining “significant market share”.

Staying bright in a tricky market

“I don’t think the electricals market is growing at a brilliant pace, by any means,” AO chief operating officer Steve Caunce tells Retail Week.

“There are lots of different views on the market – certain product lines are growing and others are declining – but we’re very happy to be in it.”

AO started selling computers in the UK last year, reporting “encouraging early trading” in this division to date, and in order to grow market share, it has committed to “keep adding categories”.

Caunce explains that the business is able to launch new lines “very quickly” and without reinventing its model.

“Selling computers is not the same as selling a washing machine,” he admits, “but we’ve spent a long time learning and have found a great way to retail something consumers typically have lots of problems with.”

However, according to Mills, given that AO is renowned for its white goods proposition, “it will need a high level of investment in marketing to attract shoppers online”.

Expanding into services

For Maplin and Dixons Carphone, the way to mitigate the impact of online competition from Amazon is to infiltrate the services space.

Dixons Carphone has been trialling an expansion of its KnowHow services arm, which chief executive Seb James described as a “billion pound opportunity”.

Maplin too is exploring a new home service, which its boss Oliver Meakin says allows a Maplin colleague to visit a customer’s home to talk through their smart home requirements and proffer advice.

“We’re going to try and go nationwide on that this year,” Meakin tells Retail Week.

“A lot of people view Maplin as the electronic specialist,” he says.

“But, in fact, we just help people with tech now, so we’re dropping the ‘electronic specialist’ strapline and replacing it with ‘connecting brilliant ideas’ as part of a strategy to make us more relevant to customers.”

The answer for Argos, according to Verdict, is the continued advancement of its online strategy.

“Argos must continue to invest and grow its FastTrack delivery service, which resonated well with consumers, ensuring it can fulfil orders to compete with Amazon’s popular Prime delivery model,” says Verdict senior analyst Anish Dosani.

Smart home topping this year’s hit-list

Drones, Google’s Chromecast and the Amazon Fire Stick proved popular with Maplin customers during the festive season.

But looking ahead, Meakin predicts a surge in smart home products.

Maplin said sales in smart home tech more than doubled in the run up to Christmas, and is using its increasing prevalence to justify its first major store refurbishment in ten years.

“We’re going to use that opportunity to refit all our stores over the next three years,” Meakin says.

John Lewis is also expecting greater demand in smart home products this year, as the category gathers momentum with consumers, and following its investment in the department during 2016.

What does 2017 hold?

Retailers across the piste are wary of impending price rises following sterling’s slump after the Brexit vote.

Maplin’s Meakin is poised to hike prices this year, and predicts inflation in the electricals sector will be between 4 and 6% by September.

“We’ve never had a currency hit like this, and it needs managing properly, so it’s a time for being careful and navigating our way through.”

John Roberts, AO.com

“Pretty much everything we buy is dollar denominated, so our costs have gone up 15%. We have to pass some of that increase through to the consumer and see what it does to sales volumes,” he says.

Last year, AO chief executive John Roberts also warned of price increases.

“In a category like electricals, where the margins are as tight as they are, there’s no way that the significant changes in currency are not going to flow into the market,” he said.

Still, Caunce was upbeat about the year ahead: “There’s uncertainty, but it’s a case of being realistic – not negative.

“We’ve never had a currency hit like this, and it needs managing properly, so it’s a time for being careful and navigating our way through.”

Mills predicts AO will face a demanding close to its financial year. Indeed, AO’s share price has fallen 9.9% today. 

But the business appears undeterred. “This time next year, we’ll have developed all our categories in the UK and solidified our progress in Europe, and will be progressing towards all of our long-term goals,” says Caunce.

Electricals giant Dixons Carphone is not due to update the City until later this month, but for now the sector appears resilient, if not super-charged.