Although DSGi (Currys, Dixons & PC World) already has eight megastores currently trading it has apparenty identified a further 70 potential megastore locations in the UK.
In addition, it will also open 60 2-in-1 stores this year. These hybrid stores will combine the Currys and PC World formats, and form part of DSG’s ‘renewal and transformation plan’.
The plan has seen underperforming stores and businesses sold off and a refurbishment of stores that DSG have decided to keep. 152 stores have been closed across the group and 139 of the remaining stores, representing one third of UK and Ireland total sales, have been reformatted. DSG estimates this transformation work benefited like-for-like performance over the Christmas peak trading period by approximately 3%.
The expansion plans come as the world’s largest electricals retailer Best Buy arrives into the UK next month.
The US chain’s first European Best Buy store will open in Thurrock retail park, Essex, just a few months after a Currys megastore opened there last November.
DSG chief executive John Browett is positive the new megastores will do well, despite the threat from Best Buy. He said: “The renewal & transformation plan is making significant changes to the Group and we have started to see the benefits of this work. The new store formats are popular with customers, particularly the megastores and the combined 2-in-1 stores. The next twelve months will be another busy period as we roll out the improved proposition and introduce more services to more of our customers with an unbeatable combination of value, choice and service.”
The new megastores are double the size of a normal store and sell products from washing machines to computers to fridges.
But various analysts say that there simply isn’t enough space in the market to sustain Currys (DSG), Comet (KESA) and Best Buy in the UK.
“I think it will be a long fight, but someone will have to emerge as a loser because there just isn’t the volume of sales to sustain all of these players,” said Neil Saunders, an analyst at retail researchers Verdict and this is a pretty popular view of things.
He thinks Best Buy will come out on top, provided its shareholders have the stomach for the fight, thanks to its superior financial firepower and reputation for industry-leading customer service, while DSG or Kesa could be weakened to the extent that they eventually become a takeover target.
DSG, which raised about 300 million pounds from investors to fund its plan last April, now DSG is accelerating the programme and will trade from 70 megastores over the coming years, up from a previous target of 50, as well as join together more Currys and PC World stores.
This compares with Best Buy’s plans to open about 10 megastores this year, and up to about 80 over the coming years.
For Greg Hodge, an analyst at researchers Planet Retail, that is enough on its own to raise concerns about excess selling space, and insufficient returns, for electrical goods retailers.
“These are big stores with big catchment areas. Is the population really big enough to support that many?” he asked.
But Best Buy isn’t the only group adding capacity.
British department stores group John Lewis has said it could open around 30 smaller format shops, which will include its fast-growing electrical goods ranges, while supermarkets are also expanding aggressively into the market.
J Sainsbury, Britain’s third-biggest grocer, has set a target to double non-food sales within five years.
But with the almost wafer thing margins on many of the core lines is this vast amount of space for selling really a sensible idea, especially when you factor into the mix the enormous growth in internet sales in DSG’s core camera and electronics market space?
The supermarket chains are entering this space with low price, fast moving lines only, cutting the volumes to traditional retailers still further and, at the same time, driving margins down on the products that they can sell. Of course these supermarkets don’t offer anything like the choice that any of the large electricals can offer and the independents offer still more again so there is space for everyone. How much space is the question that remains a mystery.
But as the appliance industry gears up for a global war between the big Korean companies and the traditional US and European manufacturers margins could be squeezed yet further over the coming year or so and this may not be good news for any retailers. How much this will effect the browngoods sector is, at the moment unclear as hopes there are pinned on 3D TV and, for the UK at least, the rollout of digital TV next year. Which retailers make it through to take advantage of these mini booms is open to debate, as is just how much in the way of sales both will generate.
On thing is for sure, the next couple of years should be interesting if nothing else but it is widely expected that there will be casualties.