The Lowdown: Dixons ready to recharge itself as profit is corroded

John Clare, boss of the electricals giant, tells Heather Tomlinson the force is with him
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The Independent Online

The most ironic time for a reporter's tape recorder to break down must be in the middle of an interview with John Clare, chief executive of Dixons Group, which includes Currys, PC World and mobile phone retailer The Link. Between them, these companies sell almost anything that requires an electrical current.

As might be expected, help was quickly at hand in Dixons' plush headquarters near London's Berkeley Square. An aide provided first some batteries and then a replacement machine. "It would be embarrassing if Dixons couldn't find any batteries," she noted.

The tall and commanding Clare was fresh from reporting the company's full-year results, after a "difficult" period. In his straightforward manner, Clare says that the 1 per cent increase in the group's like-for-like sales and the £4m fall in profits to £279m was not good enough. "We had a difficult and disappointing year," he admits. "We are in a better shape to face the future than we were in January, and possibly this time last year. But we are still not delivering, and that is the challenge for the year ahead."

The seller of fridges, cameras and computers has recently had to spend less time on fancy new products and more time dealing with regulatory investigations and directives from Brussels. Dixons is currently embroiled in a Competition Commission investigation into the profitable extended warranties it sells, and was earlier affected by a European directive on recycling that led to large "fridge mountains" springing up around the country. Soon there could be new mountains of microwaves, CD players and computers as Brussels debates protecting the environment from other worn-out electrical goods.

The anti-regulation drum used to be beaten by Sir Stanley Kalms, who grew the £2.5bn Dixons from a humble photographic studio in 1948. After his retirement as chairman in September, the drum has been passed on to the 52-year old Clare, chief executive since 1994.

He is not afraid to bang it loudly, and recently railed against a "pervasive culture of intervention and regulation," at a Confederation of British Industry summit. "It's part of business life these days that these sort of regulators or regulations or bureaucrats or whatever are involved somehow in the way you do business," sighs Clare. "It would be pointless complaining about that - it's the way of life."

Untangling red tape has taken up a lot of his time over the past year. Whether there's a connection or not, the business has suffered. A gloomy profits warning in January knocked its share price from 146p to a low of 79p in March, and Clare stated that consumer confidence was "cracking". Last week's results were not as bad as feared, and the shares bounced back up to finish at 131p. But the 397p attained during the dot-com boom year of 2000, when Dixons was the owner of the internet service provider Freeserve, is just a distant memory.

While Dixons' European business, primarily Elkjop in Scandinavia and Italy's UniEuro, provided a boost to profits last year, the UK let the side down. The poorest performer was Dixons itself, where like-for-like sales feall 1 per cent.

This is not as serious as it might be, because the flagship brand provides only 14 per cent of the group's overall sales; Currys and PC World are both bigger contributors. And the group has ambitions to expand further in Italy and Scandinavia.

Clare takes a radically different view on Europe to his predecessor Sir Stanley, who was an energetic opponent of the single currency even though Dixons generates 20 per cent of its sales on the Continent. Clare is more open-minded: "In the long term the UK needs to be a part of Europe, and if that includes having the euro, that should be the case. However, there are practical issues in trying to bring it in too quickly. I'm not in favour of entry in the next few years."

Meanwhile, Clare has problems closer to home. The group's poor performance over the past year has harmed Dixons' chances of buying Kesa Electricals, the electrical retailing division of Kingfisher that is about to go it alone on the stock market. "We have cut a lot of costs and got gross margins back, but we still need to deliver," explains Clare. "Before any acquisitions, I'd want to be confident the performance in the UK is back on track."

Even the most coveted part of Kesa, the French electrical retailer Darty, has lost its attraction for Dixons. "On the face of it, Darty is a good business, run by competent people," Clare says. "But it's a very mature business in market share terms and profitability terms. The profits haven't changed substantially in the last 10 years. Although I never say never."

Some analysts are concerned that Dixons' attempts to get back on track could be undermined by electrical goods being sold at knock-down prices in super-markets. But Clare plays down the risk: "Supermarkets are very good retailers and operators," he concedes. "They are part of the competitive landscape and we should watch carefully and react to what they are doing. However, they're but one of a mix of competitors we have to cope with."

Another issue for Dixons and its UK brands is the maturing mobile phone market, which means that the likes of Vodafone are less willing to pay large subsidies to support sales. This was one factor blamed for Dixons' profit fall last year.

Looking forward, the group is depending on DVD players, digital cameras, 3G mobile phones and other jazzy new gadgets to lure consumers into its stores. And Clare is full of optimism for the future. "It's a fantastically dynamic market to be in," he says. "I don't feel any vulnerability because no one is going to run out of products. The market is potentially mind-blowing in terms of where it will be in four to five years' time."

Dixons is piloting larger and out-of-town stores, and Clare is confident there will be plenty of gizmos to fill them up. But hopefully, they will still stock good old-fashioned, failsafe tape recorders.