Dixons and Next show the high street's brighter side

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The Independent Online
TOM STEVENSON

and NIGEL COPE

The increasing polarisation of the high street was confirmed yesterday with bullish trading statements from Dixons and Next contradicting the gloomy picture painted earlier in the week by House of Fraser. Whitbread said its trading over the Christmas period was in line with expectations and better than a year ago, but patchy none the less.

Despite good rises in sales at Dixons and Next in the lead up to Christmas, the share prices of both companies were hit yesterday as profit-takers cashed in on their dramatic rises last year. Dixons, down 14.5p at 409.5p, was still 115 per cent higher than at the end of 1994. Next, which slipped 16p to 437p, held on to a 70 per cent gain over the year.

Dixons accompanied news of a 41 per cent increase in profits for the six months to October with news that sales in the eight weeks since the end of the first half were up 23 per cent overall and 10 per cent on a like-for-like basis. The good news confirmed the rapid recovery in the company's fortunes since it plunged pounds 160m into the red in 1993 following an ignominious withdrawal from its investment in Silo, a loss-making American electrical retailer.

The figures were driven by the strength of the personal computer market, which Dixons entered three years ago with the launch of PC World.

The company believes the new entrant has a 40 per cent share of the fast- growing domestic PC market.

With a much lower percentage of British households owning a personal computer than in America or many European countries, Dixons believes there is still enormous scope for growth.

Like-for-like sales at PC World increased by 24 per cent with an even sharper increase over the Christmas period as the chain took advantage of the exponential growth of the PC market. Worth pounds 2.5bn in 1991, the market, excluding peripheral products, is expected to have almost doubled in size by next year to pounds 4.8bn.

The Link, a new chain focusing on mobile phones, faxes and other communications equipment, grew fast to 32 outlets, mainly in London and the South-east, and Dixons believes it can roll out as many as 180 around the country.

The Link and PC World more than made up for flat underlying demand for Dixons' and Currys' core electrical products such as fridges, washing machines and televisions. Dixons also increased its share of the market for these traditional brown and white goods after rivals such as Rumbelows and many of the chains owned by electricity companies withdrew from the fray.

Elsewhere, Next confirmed that sales in its high street stores between July and the end of December were 13 per cent higher than the same period last year. This was achieved with only a 4.5 per cent increase in selling space. The company said the new spring range was launched in the larger stores this week with the remainder to follow next week. Next Directory performed even better with sales up 17 per cent up on last year.

The results contrast sharply with a poor trading statement yesterday from the department store group House of Fraser, which said profits would be well below market expectations as a result of the heavy discounting of unwanted stock. House of Fraser showed like-for-like sales up just 2.3 per cent in the 22 weeks to the end of December.

The profits warning from House of Fraser, its fourth in two years, prompted expressions of disenchantment from City analysts and institutional shareholders, who have watched the company's performance slide since it came to the stock market to much fanfare.

The contrast between some retailers' current strength and House of Fraser's weakness gives credence to speculation that the company could become a takeover target, although the current price is thought too high to attract much interest.

John Richards, retail analyst at NatWest Securities, said: "What we are seeing is the polarisation of the high street as it divides between the haves and the have-nots."

The pattern is expected to continue today when Boots and Sears deliver trading updates. Boots is expected to report healthy sales gains while the performance at Sears has been more patchy. Selfridges is thought to have enjoyed strong sales, boosted by an influx of overseas shoppers while Sears' fashion and shoe shops are thought to have found the going tougher.

Peter Jarvis, chief executive of Whitbread, said: "There was a marked contrast between our urban and rural businesses. Outlets in the high street and on retail parks performed most strongly and reflected, in part, the increased popularity of Sunday shopping."

He added that sales of the Whitbread Beer Company were significantly ahead of last year, especially in the take-home market.

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