The electricals store of the future

So the Dixons – Carphone Warehouse merger has been announced. It took long enough to sort out the details but it looks as if both sides were convinced of the need for the deal and its logic. And so are we.

Why?

In simple terms the two businesses are complementary and each fills in weaknesses in the other.

Dixons has the products, but not the connectivity, Carphone has the connectivity, but its attempts at adding the products have been less successful.

That bit is simple, but it doesn’t answer one question: the two have traded quite happily with their weaknesses for the last 30 years so why does it matter now?

Technology and the curse of convergence

Technology changes fast, and nothing is developing quite as quickly as everything to do with the mobile internet and products that are becoming wireless-enabled. The obvious example is Sonos – wireless HiFi systems. But that is just the beginning and recent Mintel research indicated that 20% of people would like a freshness monitor on their fridge.

These examples are enough to demonstrate that Dixons is at a disadvantage in only selling the products and Carphone is at a disadvantage in only having the wireless technology. Bringing them together makes a lot of sense.

Jumping through the hoops

We’ll leave City analysts to decide whether the terms of the deal are right. But City analysts are going to be more exercised about the potential synergy benefits in hard cash terms and the prospects for short-term profitability. Needless to say, the companies put forward compelling numbers when they announced the deal.

What really matters is the strategy and the longer term vision.

World leading?

There’s always an element of special pleading in putting a deal like this together, but in this case we were persuaded. There really is no other retailer – that we are aware of – that is demonstrating the sort of vision that is behind this deal. In the longer term that should give Dixons-Carphone a significant competitive advantage.

Looking forward

The key is that this new business is looking forward and trying to make sense of the trends in the technology and in the marketplace. Then it is trying to configure itself correctly for the way they are going. We are not aware of anyone else that is doing this.

We seem poised for major changes in the electricals market. Dixons has read and capitalised on the growth of PCs and related technology and adapted to times when the market has started to decline and become replacement-only. Now it is trying to adapt to a world with greater connectivity. It may be wrong, but it deserves credit for trying to read where the market is growing and adapt its retail proposition accordingly.

We happen to think that is right as well.

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