Two of the UK’s biggest electricals retailers announced their full-year results this week, which revealed a mixed picture for both groups.
Currys boss Alex Baldock said the group had a “very mixed year”. While it did achieve profit before tax at the top end of its guidance to £119m, profits still faced a huge knock, dropping 38% due to weaker performance in the Nordics.
Meanwhile, AO chief executive John Roberts was “delighted” with his company’s performance as it returned to profit. He now expects to return to “top-line growth” in the medium term.
While both retailers hit the top end of their profit guidance, they also reported declines in sales.
Struggling market?
Currys reported a 7.6% decline in sales, while AO fared worse as sales fell 21.5%. Both cited external factors, such as the cost-of-living crisis limiting consumer spending.
The economic climate remains bleak as illustrated by a recent GlobalData survey, which revealed that 27% of consumers say they are buying fewer electrical items or buying them less often.
Baldock said Currys is seeing a trend for consumers either buying entry-level or premium products, whereas purchases in the mid-market ranges have been suppressed.
He said: “Our own-label products are doing well as they tend to be more entry-level products.
“Market volumes are down in TV, but when people do want them they want the good stuff, so we’re seeing plenty of appetite still at the premium end. Things like Dyson and Shark products for haircare have also had a phenomenal year.”
Baldock added that major domestic appliances continue to perform well despite competition from AO, which specialises in this category.
He said: “Clearly, we’re a much bigger business that covers a much wider span. Things like fridge freezers and washing machines have had a strong year as these tend to be, at least half of the time, distressed purchases.
“So customers don’t have a choice but to replace the washing machine, irrespective of the economic environment.”
Despite slipping sales from AO and Currys, Argos’ first-quarter results show sales rising 5.1%, with success in the sales of electricals.
Argos benefited from “consistently strong availability” and Sainsbury’s boss Simon Roberts said it “continued to gain market share”.
He added: “We’ve got really competitive prices in Argos and in our general merchandise business. We pass on benefits as soon as we can and it’s clear in the market-share performance of Argos, I think, that customers are really trusting the value in the Argos offer.”
Prioritising profit
While AO has been fairly quiet about its declining sales, it has been very vocal about returning to profit, which was the main focus of its turnaround strategy.
Roberts said there are many things AO has done to increase profitability, such as closing its German business as well as other non-core channels and loss-making operations.
He said: “One of the things we’ve started to do is charge for delivery. Our customer base understands there is value in the quality of the delivery service that we provide, and therefore that is not free.
“In terms of profitability, that is a great contributor to the business. We’ve also taken about £50m of overheads out of the business as we’ve stopped doing certain things and put more simplification through the operation.”
This is something Baldock also mentioned as part of Currys’ emphasis on profitability.
“When we get the delivery, installation and recycling right the first time, it has a number of benefits. Customers are happier and it reduces direct costs by £9m as you’re not having to go back a second time to install a washing machine,” he explained.
“If you’re offering better service at a higher quality, you can charge more for it and the customer is still getting good value for money. So we’ve increased our charging in some areas and the customer is happy to pay it.”
This focus on profitability could be why Frasers decided to take out a 10.4% stake in Currys and a 22.2% stake in AO.
Both Baldock and Roberts called Frasers “smart” to see potential in these respective investments, although neither would be drawn on what this could mean for the future of their businesses.
A merry Christmas?
With external factors proving a drag on electricals performance, it remains uncertain whether the ongoing cost-of-living crisis will have an impact on Christmas trading.
Retail Week data analyst Hanna Hua says: “The upcoming Christmas season is expected to pose challenges for electrical retailers, although it is anticipated to improve compared with the previous Christmas due to a lower inflation rate.
“Consumers are expected to remain cautious when making discretionary purchases and will be sensitive to prices. They may prioritise their purchases, compare more affordable options, seek discounts or promotions, or postpone their purchases until prices become more favourable.”
It is hard to predict whether Currys or AO will fare better in the new financial year.
Hua says Currys’ extensive presence allows it to “expand its reach and establish a strong presence among a wider audience” while providing customers with a seamless omnichannel experience.
On the other hand, AO is a pureplay with a sole focus on the UK market, which could benefit the business.
“Both retailers are clearly focused on cost savings and operational effectiveness to improve profitability this year, and hopefully the declining energy prices and reduced supply disruptions will contribute positively to their financial performance,” says Hua.
“The choices are in the hands of the consumers. The retailer who can offer wide product selections, competitive prices, fast delivery, convenient payment options, easy returns and exceptional service is more likely to succeed in the market.”
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