The group plans to ‘focus on winning markets and formats’, which could result in an exit from Spain. It is taking a more cautious view on capital expenditure which will be targeted on projects that promise the highest return, and overall will be cut in line with depreciation.

The cost reduction programme will continue, with another £50 million per year expected over the next three years, illustrating the benefit of simplified operations, particularly in the UK. Generating cash is once again a key focus. Gross margins are firm and stock levels lower than last year, with aged stock reduced significantly. Net debt is expected to be around £250 million, and the company stresses there is significant headroom with banking covenants. Lease ends affecting forty high street locations in the coming year will help reduce costs, but the pension fund will in time need a further boost.

In the UK, the group’s like-for-likes plummeted 11% in the eleven weeks to 26 March with little change to the trading pattern expected in the short term. With consumer confidence remaining ‘fragile’, a ‘modest decline’ in the electricals market, maybe up to 5%, is now thought likely this year.

Computing is doing well (though very price sensitive), white goods are showing moderate growth, but what really has changed is consumer electronics, and large screen televisions in particular, where expenditure is more discretionary.

The new 2-in-1 Currys PC World stores continue to out-perform the market, delivering gross margin uplifts of 20% in the first year, with signs of further more modest growth in the second. Another 15 to 20 megastores are planned for the UK this year.

Structural changes

Dixons chief executive John Browett believes the spectre of government cuts is having a ‘chilling effect’ on consumers’ willingness to spend, with public sector workers sitting on their hands as they wait to hear about the scale of redundancies and cutbacks. However, Browett believes Dixons is outperforming the market, and with John Lewis too claiming market gains, the next trading update from Comet is eagerly awaited. It has already admitted to the likelihood of a ‘small retail loss’ for the year just ended.

Longer term, the concern for the likes of Dixons, Comet and Best Buy is whether a particularly tight consumer squeeze will accelerate the structural changes in the market. According to the IMRG Index, online sales of electricals in February rose by 22% against last year. That is on the back of a very solid 2010.

Multichannel

The Co-op is now stepping up its multichannel approach by expanding its e-store electrical business. Last year revenue grew by 12% to £88 million. Pods were trialled in six stores and ‘performed well’; now they will be rolled out to food stores nationwide.

Best Buy has been dogged by speculation that its entry into the UK market has been a flop, with sales short of expectations, due to the economic downturn and the robust reaction of competitors unwilling to allow them an easy ride. The uncertainty has been compounded by a number of senior management departures. But it remains upbeat and has reconfirmed plans for another three stores this year (at Nottingham, Rotherham and Enfield) in addition to Hayes and Cribbs Causeway that have just opened.

At John Lewis for the nine weeks to 2 April sales of ‘electricals and home technology’ increased by 3%, with like-for-likes slightly lower due to ‘at home’ openings. Online sales grew by 26%. In fact, only two stores (Peter Jones and Cambridge marginally) are up year-on-year, and the first ‘at home’ store in Poole that opened in October 2009 is down by 12% for those nine weeks.