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Big Box Man: options for Tesco and Dixons

The festive season hangover – the publication of Christmas trading results – is almost completed.  WH Smith will announce next week and, on past form, that is likely to be the end of it.  Thereafter, we will have to wait for actual half-year and full-year reporting, so that we can understand the levels of discounting that were needed to deliver some of those better-than-expected like-for-likes.

Away from the real strugglers, two businesses caught my attention.  The first was, of course, Tesco, whose -2.3% LFLs sat uncomfortably next to Sainsbury’s +2.1% and Morrisons +0.7%.  CEO Philip Clarke has now been in post for well over a hundred days, but he is acknowledging that Tesco has to change.  His comments, allied to the poor trading figures, caused a sharp fall in Tesco’s share price, but it’s very clear that action is under way.

I’ve written before about the grudging nature of the Tesco store experience (here), and the sense I always get that the best interests of the consumer have to be aligned with the best interests of Tesco, rather than the other way around.  It looks as though Clarke understands this – the Big Price Drop was yesterday’s response to today’s problem, and achieved the double of being trumped by other supermarkets’ vouchers whilst alienating loyal Clubcard holders; Fresh & Easy is looking like a bullet that needs to be bitten.

And here’s what interested me most: in conversation with Retail Week’s Alex Lawson, Clarke said:

You can go on growing space but we probably won’t be growing very big hypermarket space any more. We have got a few hypermarkets coming but will be announcing more on the bias of stores in April.

In other words, less of this in future?

And rather more of this?

We’ve seen problems for big box operators, as a result of online competition, in specialist sectors – Comet, Best Buy, Borders, Virgin Megastore and many more.  However, the suggestion that Non-Food isn’t pulling its weight at Tesco; that Non-Food is as vulnerable in Tesco to online competition and showrooming as it is in less diversified specialist retailers – well, that is quite a sea-change.  With 10% of all retail spending in the UK now taking place online, it’s inevitable that Tesco will be suffering attrition from online-only retailers, but the strategic shift implied by Philip Clarke (presaging an announcement in April) could herald the biggest shift in the pattern of UK retailing since Woolworth failed.  Perhaps it also paves the way for Tesco to save the high street…?!

However, I don’t buy the “big box dinosaur” argument, although – as the Tesco Extra picture above demonstrates – you can reach a point when the size of your store becomes oppressive, and just adds to the unwelcomeness that can be part of the Tesco experience.

But good big boxes will survive and thrive, both because retail parks work exceptionally well (particularly away from London) as the most cost-effective way of bringing a diverse retail offer to a scattered population, but also because the big box experience, when done well, can deliver results that the high street just can’t match.

And so to Dixons.  It’s been a filthy Christmas in electricals, with Best Buy closing down and Comet getting worse and worse as Kesa takes time to sell, leaving Dixons looking relatively healthy with a -7.0% like-for-likes.  Chief Executive John Browett has been concentrating on changing the way the stores look and – more importantly – the way the customer feels about his business.  I think he’s on the road to success – I liked the “Black” store at Westfield, and I really liked the refurbished Currys/PCWorld retail park store I visited earlier this week.

Like the store in this photograph, a consolidated electricals offer is now available under one roof, and sensibly the consumer electronics – audio, visual and computing – are on the ground level, with white goods – washing machines and vacuum cleaners – on a mezzanine.  This makes for a smaller and more efficient footprint, but it also enables Dixons to create an electronics offer that I think makes John Lewis look tired and off-pace.

John Lewis?  Bow, bow ye upper middle classes!  But where JLP presents a brown goods world of carefully delineated TVs, radios, hifi and computing, the new Dixons layout recognises that we don’t use devices in this way any more, and that the distinctions between various product lines are now blurred.  Its layout and flow presents a more effective offer for the consumer, and invites them to enhance their home electronics more effectively than old-style competitors.  Wireless sound systems and big screens are now computer adjuncts, not “hi-fi” and “television”, and Dixons gets it.

Their Knowhow sub-brand message is driven home with relentless effectiveness – we really do understand this stuff, it says.  Much has been made of the culture changes within the business, recognising (at last) that an ill-informed hard sell in an intimidating environment just doesn’t work any more.  The new stores are customer friendly with good graphics, plenty of explanation and demonstration items, and informed but unpushy service.

Dixons has a huge estate – over 600 stores of various ages and configurations – and it has much to do to bring them all into line with current best practice.  I’m optimistic, though – I think they’ve really got something here.  However – please – they’ve got to do something about branding.  The new stores aren’t “two stores under one roof” – they offer an integrated selection of electricals for the kitchen and every other room in the house (and office).  Currys was a dismal washing machine shop, with neglible brand heritage (and it’s a word that looks poor on fascias, sounds blah when you say it).  PC World harks back to the glories of Windows 95, but it leads with Apple and Kindle – suddenly, “PC World” sounds about as on-brand as Radio Rentals.  Time to can these hoary old brands, and return to the one with the best heritage in the sector:

Images: Wikipedia; The Guardian; Peterborough Today

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