Dixons drops bricks for clicks
As the 70-year-old electricals retailer moves solely to online, Nick Wilkinson tells Philip Buxton why the new plan for Dixons will defy the critics.
If fortune favours the brave, Dixons is in line for a serious windfall. One of the most famous names on the high street, the 70-year-old company announced plans in April to drop the brand from stores and give them a new identity: Currys.digital. Dixons will become an internet-only retailer from this month, specialising in the gadgets and gizmos so beloved of online buyers.
In retail terms it's a tectonic shift. First founded in 1937 as the photographic studio of Charles Kalms, Dixons grew under his son Stanley's stewardship to a 190-store chain. Parent group, DSG International, which also encompasses Currys, PC World and The Link, totals about 3,000 outlets.
But, the mother brand has seen its core business - cameras, gadgets and electrical accessories - disappear to the internet as buyers seek cheaper prices through online marketplaces such as eBay and shopping-comparison services. So, having decided that it's difficult enough to compete in this market without the expensive encumbrance of a retail chain, Dixons Online - a sales channel that DSG says has grown by 50 per cent in each of the last four years - will now bear the load.
And it hasn't been dragging its heels. Just four weeks after the Currys.digital plan was announced, Nick Wilkinson, DSG's managing director of 'emerging businesses' and one of the executive committee who decided on the move, says the rebrand will be complete within a fortnight.
As the man charged with putting the new strategy into action, he might well be the most important executive in retail. Chain owners being squeezed in the new internet landscape cannot wait to find out how this new, grand plan will go. But, even if Wilkinson is aware of its importance, he is unfazed.
"It's a big decision; it's what you would call a strategic decision, but I guess, in retail, you make decisions all the time," he says. "It's one that we view as strategic - it's shaping our portfolio of brands for the future. We thought long and hard about it, and came up with a very clear rationale of why we wanted to do it."
Wilkinson has been at DSG since 1999, following stints at Unilever and McKinsey & Co, and he was previously a director of Currys. Until January, he was the group's managing director of electricals for the UK & Ireland. He is more than qualified then to judge the state of the market and is "confident" that the Dixons plan will work.
He believes enough people are shopping online to justify a web-only effort. "The online electricals market is now very large and we believe it is now firmly established in the mass-market, by which I mean that broadband penetration is growing significantly and shoppers across all regions of the country, and all ages and social groups are now accepting online as a way to shop for electricals. Therefore, using one of our mass-market brands in that space seemed very sensible for us."
He is also convinced that Dixons has the right credentials and heritage to make it work. "The move is entirely in keeping with the Dixons brand," he explains. "For many years, Dixons has been equipping its customers with the very products that allow them to shop online."
But, even with the backing of DSG chief executive John Clare - the man who, in 1998, supported John Pluthero's then madcap plan for pay-as-you-go ISP Freeserve - the market hasn't warmed to the new strategy. While analysts were encouraged to hear that the £7 million Currys.digital project would save £3m a year, there is concern whether the clicks can survive without the bricks.
Richard Perks, research analyst at Mintel, says: "I've got big reservations about it. Yes, it is essential for any retailer's business to have a strong online presence, but it is important that online and offline reinforce each other. One should be an order point and one a showroom."
Mike Altendorf, joint managing director of online retail consultancy Conchango, which he says works with 13 of the UK's top 20 retailers, is also critical: "We are preaching that, if you're going up against these dotcom types, you have to be multi-channel. New research shows that 70 per cent of offline purchases in the consumer electricals sector are influenced by online research, but offline sales of electrical goods are not going down. So, online is growing, but not at the expense of the offline channel - that means you have to cater for both," he points out. "Turning Dixons into an online brand and Currys into an offline brand? I just don't see the point."
But Wilkinson is unfazed: "I think that (a clicks-and-mortar strategy) is a very good point and that's why we have got a brand called Currys and a brand called PC World that have clicks and bricks.
"We have a portfolio of different retail brands that are aligned to give great customer experience to different types of consumers," he explains. " What we're saying now is that the size of the market of customers who are interested in buying online, and are prepared to buy online, is now of a size that we feel it's appropriate to move one of our brands across to only serve them online. We're only moving one of them - we're not moving all of them."
Save for mobile chain The Link, all DSG's brands have held up well in a market which Clare only last month described as "difficult". Still, succeeding online will be no easier. Thanks to the power of shopping-comparison engines and online auction services, attracting visitors to your site - whatever its brand strength - takes a determined effort and specialised skills in areas such as affiliate marketing.
Alan Totten, commercial director of Affiliate Window, which handles affiliate marketing for DSG's major rival, Comet, says: "Affiliate marketing is absolutely crucial for most online retailers these days, but never so much as in highly-competitive online sectors like consumer electricals. Getting that right to attract visitors when there are so many other places you can go, including eBay, is absolutely vital."
Totten adds: "If I were Dixons, I would be looking hard at accountable online performance-marketing opportunities. Affiliate marketing undoubtedly has a major role to play. The affiliate channel generates 40 per cent of online sales for some of our clients."
Perks, for one, thinks Dixons will struggle without the free advertising of a highly visible high-street chain: "If you've got a store, people walk past, and see and experience your brand," he explains. "If you're an out-of-town retailer, you accept that you will have to spend more money on marketing, but retailing online means a huge amount of money goes on attracting people to your site."
Still, DSG is introducing a new marketing strategy that Wilkinson thinks will convince the doubters. He refuses to say how many of Dixons' employees work specifically on the existing e-commerce operation, which launched in 1997, but says the DSG group has enough people and skills to be able to shuffle its pack. He adds that last month's 266m euro (£185m) acquisition of French online photography business Fotovista will boost the group's online resources. Fotovista, in which DSG has taken a 75 per cent controlling stake, owns Pixmania, which sells consumer electricals online.
He says: "We have a fantastic e-commerce team at the moment - they have got some of these skills - and we're looking to Fotovista to give us some knowledge and practices that will be beneficial to Dixons."
But, the other half of the grand online plan - to turn existing Dixons stores into outlets under the new name of Currys.digital ("the dot is silent", according to Dixons e-commerce consultant Clive Swan) - has also been in the firing line. It has been said that Currys does not have the reputation to carry a high-street presence, while other people have problems with the name itself. "Whatever I'd say about the new name would be unprintable," says Perks.
Wilkinson has time for neither criticism: "My reaction to that is that the Currys brand is the market leader in electricals in the UK. It has a 100-year history of serving the needs of UK customers; it's a strong business; and it has exciting plans for further improving all aspects of electrical retailing, whether that's pricing, product range or customer service."
Swan, who has been working as a consultant on Dixons' e-commerce plans, adds: "We did test a variety of names with our consumers and Currys.digital and the Currys brand came out as the strongest." The Currys.digital format was tested in two stores earlier this year, he says.
As well as the obvious reduction in costs, the move to online brings other benefits for Dixons. It will be able to expand the range of products it offers and keep a closer watch on inventory since it will not need to keep all its lines in stock. For example, the company has just added domestic appliances to the lines it offers through Dixons.co.uk. The installation of kiosks in Currys.digital will also give customers access a fuller range of DSG lines from the old Dixons outlets.
Wilkinson comments: "One of the basic rules of retailing, whether you're running a shop or online business is, if you want to grow your sales, offer more things for sale. With Dixons being an online-only business, there are more opportunities to expand our range."
In the end, Wilkinson knows the shift will be judged on results. After a DSG trading statement this month reported increasing market share for its brands in a stagnant market, shareholders are hoping the new strategy is not a step too far.
Ultimately, as Wilkinson says, "the customers will tell us if we're doing a good job. And, in many ways, they will tell you more quickly when you operate online than they do when you're going through stores - by the hour, by the day, you'll know how well you're doing." Almost everyone in retail is watching Dixon's future success with similar vigilance.
DIXONS: A BRIEF HISTORY
1937: Charles Kalms opens a photographic studio in Southend. The shop front only has room for six letters and a quick search of the telephone directory produces the name Dixons.
1948: Charles' son, Stanley, joins the business at 16 and persuades his father to sell new and second-hand photographic products. After advertising in trade, local and national press, a mail-order division is launched.
1962: With 16 branches, the firm lists as Dixons Photographic and goes on to buy a further 42 outlets.
1971: Stanley succeeds his father as company chairman.
1984: Currys Group is acquired, adding 613 retail outlets.
1993: The company buys Vision Technology Group (VTA), which operates four PC World superstores and a PC mail-order division.
1994: John Clare is appointed group chief executive.
1997: Launch of Dixons Online, the first electrical goods home-shopping service on the web.
1998: Dixons Online is given a revamp. Freeserve, the UK's first pay-as-you-go internet service is launched in September.
2000: E-commerce development results in new web sites for Currys and The Link, and improved functionality for the PC World and Dixons Online sites in December.
2001: Company sells Freeserve to the French Telecom-owned ISP, Wanadoo.
2005: VoIP service Freetalk is one of the group's UK chains.
2006: Announces plan to move the Dixons brand to online-only retail and rename its 190 outlets as Currys.digital.
This article was first published on marketingmagazine.co.uk
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