Analysis: Should Dixons Carphone call time on its mobile business?

The small-format stores, which make up 8% of the electricals group’s total UK selling space, will close from April 3, with the loss of 2,900 jobs.

Dixons Carphone will now only sell mobile phones online and through its big-box three-in-one stores, which house a Carphone Warehouse, Currys and PC World.

The retailer hopes the move will allow its mobile arm to swing from an anticipated £90m loss in its current financial year into a profit by the end of 2021/21.

Dixons Carphone chief executive Alex Baldock admits that the changes made for “a painful and difficult day for the business”, particularly coming at a time when retailers and their workforces are already feeling the strain amid the coronavirus pandemic. However, Baldock insists that the strategic shift was “an essential one to set us up for long-term success”.

Baldock says: “Customers are changing very fast and we have to change with them. They want all technology, all in one place, and they are shopping increasingly not just with our online business, but in our big Currys, PC World, Carphone Warehouse three-in-one stores.

“Customers are shopping much less in the small, mobile-only stores that are one-twentieth of the size and can’t fit all of that in.

“We have to throw all of our weight behind where the customer wants to shop.”

But will Baldock’s radical portfolio overhaul be enough to make Dixons Carphone’s mobile business profitable again – or should the business have exited the stuttering market altogether?

Struggling mobile market

Smartphone sales dropped 2% in 2019 to their lowest level since 2010, according to data from Gartner, as customers continued a trend of replacing their handsets less frequently. Instead of buying new phones on set 18- or 24-month contracts, many are now taking sim only deals or buying phones on more flexible, credit-based bundles, rather than tying themselves into contracts.

And Baldock himself admits Dixons Carphone’s smartphone business will half in size by this time next year, following the Carphone Warehouse closures.

Against that backdrop, the argument could have been made for Dixons to withdraw from the category completely and focus on other electrical goods such as laptops, TVs and smart home technology. Baldock says these categories have performed “strongly” for the business, even at a time when the UK is gripped by the coronavirus pandemic.

“Customers increasingly want expert advice on all technology in one place. They find technology exciting, but they also find it confusing and increasingly connected”

Alex Baldock, Dixons Carphone

He is unwavering, however, in his commitment to the mobile market “because the consumer expects it from us” – and believes smartphones could receive a sales fillip next year. 

“The one thing on the horizon that might give the category a bump is 5G,” Baldock says.

“Who knows how big an impact how soon 5G will have, but something like 15.6m handsets will be sold in the UK this year – most observers think that will bump up to around 17m handsets in the next calendar year once 5G compatible handsets are in the market and consumers have a compelling reason to upgrade.”

GlobalData UK retail research director Patrick O’Brien thinks Dixons is right to stay in the mobile phone game but believes it will need more than a little help from the 5G rollout in order to compete with major networks like EE, O2 and Vodafone – not to mention tech titans like Apple and Samsung – and return the division to profit.

“I think there is still money to be made in the mobile market, but it’s ultra-competitive with manufacturers and carriers selling direct,” O’Brien says.

“Selling other commoditised electricals is Dixons’ business, however, and mobile phones make up a sizeable chunk of people’s electricals spending. It’s going to have to focus on improving its website, prices and service – something carriers are generally terrible at – to turn things around.”

Dialling up service

It is on the service point that Baldock is placing his biggest bets, leveraging Dixons’ larger stores to hammer home that proposition to customers.

Dixons sees its larger store formats as experience hubs that can lure customers out of town. It has already revamped half of its 305 big box stores, installing dedicated areas for customers to try out products like mobiles, tablets and smart speakers under the guidance of specialist staff who can offer knowledge and advice.

“Customers increasingly want expert advice on all technology in one place,” Baldock explains. “They find technology exciting, but they also find it confusing and increasingly connected, as well. So, customers do value finding mobiles in the same place as iPads, laptops, TVs, gaming and smart home.

“And what they particularly value is helping to make sense of all of this. We can justify having many more specialist experts in our large stores in any of these categories than we can in small stores.”

By focusing on retail park formats in such a way, Dixons Carphone is going against the grain of the current retail landscape. A host of traditionally big-box retailers, including the likes of Ikea and B&Q, have launched high street locations in recent years a bid to be closer to their customers and offer greater levels of convenience.

But Dixons’ proposition appears to be winning over shoppers. Footfall in its out-of-town locations has “defied the market” by holding firm in its financial year to date, Baldock says. By comparison, traffic to smaller Carphone Warehouse stores has slumped 16%.

With that in mind, the retailer aims to ramp up its service credentials even further in the coming months. The business plans to “invest tens of millions of pounds” in revamping the other half of its big-box estate to introduce more of the experience zones that have proved popular to-date.

And it will almost double the number of mobile specialist staff employed in its three-in-one stores. Some of those roles will be filled as part of plans to redeploy 1,800 of the 4,700 staff impacted by the Carphone Warehouse closures. 

Baldock says: “In the half of our stores that have been remodelled, we have experience zones in different categories, so consumers can come in and see for themselves and touch and play, as well as get trusted advice on technology that’s right for them.

“It’s that combination that’s attracting people into the big stores and those stores are doing well as a result.”

Achieving profitability

Although Dixons sees a path to mobile profitability by 2021/22, some observers remain sceptical. Global Data retail analyst Zoe Mills suggests the decision to close Carphone Warehouse stores was not taken soon enough to transform its fortunes. 

“Dixons Carphone’s decision arguably comes a little late given that it is a destination for mobile phone contracts and the market has been moving towards phone ownership rather than contracts for a long time,” Mills says.

“As competitor AO.com invests in its online mobile business, the closure of Carphone Warehouse stores will not be the end of its changing mobile strategy and it must focus on simplifying the shopping process.

“Utilising its big box stores to sell mobile devices without a contract should be a focus as Apple ramps up its efforts on driving sales.”

Dixons’ experiential retail strategy might be a step in the right direction, but more will be required if it is to compete with tech titans like Apple, Samsung and the mobile phone networks, all of whom are selling direct-to-consumer.

The group has plans to launch a new smartphone proposition later this year, which it says will “better reflect what customers want: flexibility, transparency, and value”.

If it can achieve that – and combine it with the sort of customer experience it wants to become famous for – Dixons Carphone’s mobile division may yet be able to ring up a profit.