But the key events that shaped, and will shape, electrical retailing were on the wider world stage.

The Northern Rock fiasco with panic queues in September alerted the UK to problems that had been simmering for weeks in the sub-prime market in the USA where offering high-cost mortgages to those with poor credit history was found, not surprisingly, to be a very high-risk strategy.  Financial engineering, by bundling and selling on the debts, simply widened the eventual scope of the problem.  So far, the world's biggest banks have written down some $50 billion in bad loans and losses. 

But the problem is not limited to sub-prime, more a general concern about too much credit being available right across the globe, with the immediate effect of banks becoming much stricter on lending criteria, to both consumers and businesses.  That will have a major bearing on retail spending.  Consumer confidence has inevitably been hit, cautious is the watchword within major retailers, and the Bank of England's signal of lower interest rates in 2008 will have been welcomed by borrowers and the retail trade alike, though any euphoria was dampened by governor Mervyn King's cautionary words: “This is not a big slowdown in comparison with some of those that we've seen in the post-war period.  But it is still a sharp slowing in domestic demand, and the risks are on the downside.”

Other pressures increase the chances of tough times ahead.  Petrol prices have crossed the £1 per litre mark, the supply of oil is getting weaker whilst demand, especially from emerging nations, drives relentlessly ever upwards.  The cost of imported goods is likely to rise, given concerns about sterling and cost pressures in China.  In the UK, house price inflation, or the lack of it, has once again become a hot topic.  A hundred thousand fixed-rate mortgages terminate each month, and new deals mean higher monthly payments.  So for the vast majority it's going to cost more to cope with the house, the car and feeding the family, no wonder, therefore, the City has its reservations about retail's prospects.

Customers at DSGI's various retail outlets have been used to enjoying 50% off over the years.  Shareholders will have been less enthused to see a similar discount apply to the value of their shareholding.  A year ago, the shares were running at around the two pound mark and now as I write near the end of November they have fallen to 105p.  And this despite a major buy-back programme that has seen millions of shares cancelled.  Kesa's shares have operated within a tighter band, but have still fallen by a third.  That has mirrored the City's out-of-favour views on retailers generally.

Verdict

Even so, the prospects for electrical retailing remain positive, with Verdict Research still expecting the sector to retain 'star status' – having been the fastest growing in 2007 benefiting from the popularity of new technologies that as usual have fallen quickly in price.  Flat panel TVs, satellite navigation and games systems are singled out for special mention. 

But in 2008, Verdict expects a sharp deterioration in the retailing environment.  Having 'overspent' at Christmas and in the Sales, consumers will be forced to curtail expenditure.  Even the scope to withdraw equity from property will be reduced, as lenders, like house owners, become more cautious.  That inevitably will hit some big-ticket sectors, but Verdict believes furniture and DIY will suffer rather more than electricals which have greater appeal in difficult times.

Trading

The multiples saw like-for-like sales growth slowing during 2007.  At DSGI, sales at its PC World business increased by 4% in the first half and two in the second (to mid-October), but margins were hit by laptops and disappointing sales of Vista products.  Currys did better as the year progressed, with gains of one and 6% respectively.  Kesa's Comet only just managed to beat the previous year's figures (just 1% up in the half to July, and a slight fall in the quarter to the end of October), while embattled Jessops came close to collapse before a change in the management team, a hastily arranged shop closure programme and a major stock clearance campaign bought some much-needed breathing space.

Department store chain John Lewis has become a major influence in electrical retailing in recent years, regularly delivering double-digit growth.  But its performance in 2007 illustrated the toughness of the market.  It continued to gain share with a near 7% like-for-like increase in its first half (to July), but second half trading was erratic; early August was difficult, September good at 6% up, but then in the next six weeks it barely achieved last year's numbers.  In the 16 weeks to mid-November, sales of 'electricals and home technology' were just over 3% higher year-on-year.

In contrast, its Internet business (which now accounts for about 10% of trade) was up by 39% year-on-year.  Interestingly, Hitwise reported that for the first time in October, high street retailer sites attracted more visitors than pure-play e-tailers.  Already UK shoppers are Europe's biggest Internet spenders – with leisure travel, clothing and consumer electronics the three biggest categories, accounting for more than half the online spend.

Service platform

To counteract margin and deflation pressures, both DSGI and Comet are once more focusing on service, not only to provide a valuable revenue stream but also to build longer-lasting relationships in a notoriously fickle market.

When DSGI launched its Tech Guys service in September 2006, using much of its Mastercare infrastructure, it unveiled a £50 million investment programme.  A year on and there are Tech Guys concessions in all 162 PC World stores, a telesales centre for customers requiring technical support, a pilot operation for stand-alone stores and a trial establishing the concept in Currys.

Comet too is investing heavily.  It has brought its extended warranty-repair service in-house and launched a technical support service branded Comet On Call.  Argos is piloting a sound and vision installation service in 60 stores, but this does not (as yet) extend to PC support.  As technology continues to develop, and complexity increases, all see a greater and profitable need for such services.

Little is heard from the rental market these days, with most of the focus going into the retention of existing customers, a tough task in itself, and when that gets too difficult, selling off the base.  The main winner in that latter category has been Forbes Direct which acquired 14 rental bases in the past year, including ten thousand customers from Plumbs (along with a dozen former employees and a 'state-of-the-art' service centre in Wigan).  Forbes now has over 90,000 customers with a net growth of 16% in the year.  Huntingdon-based Dial-A-TV has also been quietly picking up some bases.

Switching off

After its test launch in Whitehaven, the digital switchover circus moves on to the Scottish Borders in late-2008, and then the West Country, Wales and the North-West in 2009.  Local dealers will be hoping their investment in free advice and support will result in significant increases in sales well before the analogue signal is switched off.

The switchover bonanza may seem too distant for some in other parts of the UK, and England's dire failure to qualify for Euro 2008 will have added to their woes, hitting demand for new TVs in the summer.  But proactive independents with well-established local franchises and offering quality in-store and in-home service should continue to prosper, despite the relentless pressures from supermarkets and e-tailers looking to electricals to make up for turnover disappointments in other sectors.

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