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Why these aren't great times for Dixons Carphone

PUBLISHED: 01:59 04 June 2018 | UPDATED: 02:13 04 June 2018

Its the smartphone manufacturers that hold all the aces. After all, they can sell directly to customers via the internet. Picture: m-gucci/Getty Images/iStockphoto

Its the smartphone manufacturers that hold all the aces. After all, they can sell directly to customers via the internet. Picture: m-gucci/Getty Images/iStockphoto

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Our smartphones are now so good, there's no need to upgrade or change them, reckons Peter Sharkey

This column is brought to you in association with Almary GreenThis column is brought to you in association with Almary Green

Prior to retiring following a tough and protracted working life (he left school at 14), my Dad spent almost thirty years working for a very well-known car manufacturer. From almost his first day, he maintained that vehicles rolling off the production line could, at negligible cost, have been greatly improved, both in terms of performance and reliability.

For years, however, the industry’s cut-throat economic realities ensured that cars were sold to unsuspecting motorists with one additional feature they would have preferred to do without: built-in obsolescence.

Referring to one of his employer’s best-selling UK-manufactured vehicles (now, ironically, much sought-after by classic car collectors) as a “tin can on wheels”, my Dad knew what he was talking about: you rarely saw one on the road that was more than five years old.

Yet built-in obsolescence was an economic necessity: manufacturers knew that if cars were too reliable, less prone to rust, or too fuel efficient, owners would be less

Smartphones have become an indispensable part of everyday life, although its ironic that machines designed to encourage communication have also brought an end to that once enjoyable pursuit: conversation. Picture: ViewApart/Getty Images/iStockphotoSmartphones have become an indispensable part of everyday life, although its ironic that machines designed to encourage communication have also brought an end to that once enjoyable pursuit: conversation. Picture: ViewApart/Getty Images/iStockphoto

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inclined to change them as frequently as they once did. It might sound harsh today, but this economic reality kept thousands of people, including my Dad, gainfully employed for decades.

Unwittingly or otherwise, many, many companies have, over the years, manufactured household goods and other products that consumers needed to change at regular intervals, although, as reliability and customer service has improved, this trend is considerably less apparent than it once was.

Meanwhile, manufacturers have tried to tweak or improve products in the hope of ‘up-selling’, but such strategies have enjoyed only mixed success. One of the best (worst?) examples was the introduction of ‘HD’ television, a complete waste of time as the crystal-clear definition on most televisions was already excellent.

Now it appears that the opportunities within the smartphone market to ‘up-sell’ by adding ‘must-have’ improvements are likely to arrive less frequently than they once did.

Peter Sharkey: Manufacturers such as Sony, Apple and Samsung dictate terms to retailers, not the other way around, which means high street outfits like Dixons Carphone must manage on narrower and narrower margins. Picture: Peter SharkeyPeter Sharkey: Manufacturers such as Sony, Apple and Samsung dictate terms to retailers, not the other way around, which means high street outfits like Dixons Carphone must manage on narrower and narrower margins. Picture: Peter Sharkey

Smartphones have become an indispensable part of everyday life, powerful mini-computers in the palm of your hand, although it’s ironic that machines designed to encourage communication have also brought an end to that once enjoyable pursuit, conversation, as anyone who has been on a train journey recently would attest.

Twelve months ago, the former head of Dixons Carphone, Sebastian James, noted that as smartphone innovation had plateaued, customers were inclined to hold on to the phones for longer, allowing their existing contracts to roll over, or preferring Sim-only deals in place of queuing to get hold of the latest iPhone.

Though the smartphone market boomed by shunning the economics of built-in obsolescence, its propensity to provide consumers with more and more features, (many of questionable usefulness) appears to be reaching the end of the line. And while Mr James successfully identified the principal reason for slowing smartphone sales, he failed to note it early enough and paid for Dixon Carphone’s poor performance with his job.

After its forecasted pre-tax profits slumped by more than a fifth, Dixons Carphone announced the closure of 90 UK stores in the hope of reviving flagging profit margins. It could, however, be too late, because the smartphone industry has witnessed a power shift.

Manufacturers such as Sony, Apple and Samsung dictate terms to retailers, not the other way around, which means that high street outfits like Dixons Carphone must manage on narrower and narrower margins.

The company’s new chief, Alex Baldock, maintains that his organisation’s high street presence is “what makes this business distinctive and what gives us a competitive edge”, but despite a worthy commitment to invest in staff training, it’s the smartphone manufacturers that hold all the aces. After all, they can sell directly to customers via the internet.

Mr Baldock and his management team are understood to be talking with the mobile phone networks, hoping to secure higher commissions on the contracts they sell to customers, but the fear is that Dixons Carphone could, like many retailers, further reduce their high street presence. Not because what they’re selling is rubbish: far from it. Instead, they’re being squeezed by Britons’ propensity to buy online, a seemingly relentless trend that is having a devastating impact upon our high streets.

Investors in retail giants such as M&S and Dixons Carphone have endured a miserable time of late; their respective share prices have fallen by 24% and 43% respectively over the past 12 months. Unfortunately, no-one is predicting an upturn in their fortunes anytime soon.

The week in numbers

87.6mph

Average speed driven by Tommy Davis between John O’Groats and Land’s End, completing the journey in 9 hours 36 minutes. The previous record was 11 hours 14 minutes, set in 1984. Mr Davis somehow avoided getting a speeding ticket.

3

Number of additional days taxpayers took, on average, to pay the taxman this year. Tax freedom day arrived last Tuesday after people worked the first 148 days of the year to pay their taxes. That’s three days more than in 2017.

10-14

Girl Guides, usually aged between 10-14, are to learn how to look after their money following the introduction of a “saver badge”, aimed at improving the girls’ financial literacy. Well done L&G for sponsoring the badge.

5%

Percentage increase in UK sales of prosecco last year. While that sounds impressive, it’s the smallest increase since 2011. Still, there was enough for ‘Prosecco Princesses’ everywhere: they downed almost 36million gallons of the fizzy stuff in 2017.

£20,000

Price of a 1931 cartoon map of prohibition-era Chicago, providing details of ‘Capone Territory’, bootlegging and gang wars under a peculiar ‘Sing A Song Of Gangsters’ heading.

Peter Sharkey read economics at the University of Bristol. He worked as an accountant on three continents and has been a company director and investor for more than 30 years, building and selling three different companies.

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