Timing will tell for next year's hi-tech winner
Dixons is already planning to buy what its shops will be selling in the run-up to Christmas 1996. David Bowen discovers how the company goes about selecting these products of the future
Sunday 19 February 1995
If the buyers are clever, Dixons will continue to dominate the consumer electronics market. If they are not, the group could head the way of Rumbelows, now closing, Kingfisher's Comet - dipping earthward - or even Amstrad, the great gizmo merchant that barely scraped into profit in the last year. Dixons itself has had a grim recession: although its operating profit held up reasonably well, it had to write off £210m on a foray into the United States, and is still finding the competition cut-throat.
Last week, Danny Churchill, Dixons' director of purchasing, was staring at a three-dimensional television. He was impressed - but he had to stand three feet from it to get the effect. He now has to decide whether this will become an essential domestic item or an eccentric footnote in the history books. Dixons pushed the personal stereo and the microwave, and made a lot of money. But it has also pushed the combined video recorder/satellite receiver - an electronic turkey that is still waiting for buyers to arrive.
The Dixons stores (as opposed to Currys, which the group also owns) are "big boys' toy shops", Mr Churchill says. The aim is to generate a stream of new products, because margins are inevitably eroded as competitors move in. This process has been particularly critical during the recession. "People had the money but there was a fall in consumer confidence," he says. "We had to give them a reason to spend it."
Tony Shiret, stores analyst with the stockbroker BZW, says the group is "very good at anticipating demand early". But it has had its share of disasters. In the early days of computers, it loaded up with stock, only to find they were out of date before they had all been sold. It has been in and out of the mobile phone market twice and was caught in 1993 by the collapse in demand for computer games.
Though an increasing proportion of Dixons' mechandise is made in the UK, the bulk still comes from the Far East. Everything must be planned far ahead, and a standard ritual has been established for most products.
For Christmas 1995, the first discussions on branded electronic goods were held a year ago, and contracts were signed in November. The own-brand line-up was finalised last month. Koreans, Taiwanese, Indonesians - even British - trooped into Dixons' suite at Caesar's Palace hotel in Las Vegas, where the Winter Consumer Electronics Exhibition was being held, and trooped out with a piece of paper that allowed them to start manufacturing. The big US shows are used for signings because they are convenient. Mr Churchill says: "All the manufacturers are there."
If the timetable is mechanical, the selection process is an art. Dixons has tentacles all over the world to pick up trends; it then decides whether or not they can be transferred to Britain. The Hong Kong office, with 50 staff, is mainly a liaison office for manufacturers but is also an early warning post. No one country is a model for Britain, Mr Churchill says, but different regions have different uses.
The Far East is useful because manufacturers are always developing new lines: they will be making one product for Dixons, and others for American, Japanese or European buyers. British buyers can look, and learn. Japan is a good early indicator for audio and hi-tech consumer electronics. Japanese companies tend to test their new products in the domestic pond and, Mr Churchill says, what sells to Japanese living in small houses will probably sell to Britons in small houses. The group has a Japanese director who acts as its ears and eyes.
Americans are the early users in computers. Mr Churchill says he decided to stock up with multimedia PCs - computers equipped with CD-Rom drives - last year because they were selling so fast in the US. Also, he points out, the very fact that a product is selling well in America means sheer volume should bring its price down.
Spotting new products is the easy bit. Knowing when to launch them is the hard task. Dixons got it right on personal stereos, microwaves and multimedia PCs. It fell to earth on mobile phones, believing consumers would take to them faster than they did and allowing service providers (such as Cellnet and Vodafone) to undercut it on the business market. It was faced with its worst nightmare - stocks that cost more than they could be sold for. It is now re-entering the market, but this time it has made sure the service providers are its chums.
The group also went into cordless telephones too early; they were just not good enough. Now, after three years' development (it works closely with manufacturers) it is ready to try again.
So, how does it get the timing right? Mr Churchill says he could see the CD-Rom coming eight years ago - but he did not press the button until late 1993. He was waiting for PCs to make their way from the office to the home - and that has happened only in the last two years.
Sometimes he is prepared to play a waiting game. The Philips CD-I, technically similar to the CD-Rom but designed to be plugged into a television rather than a computer, has failed to have a big impact since it was launched three years ago. But, Mr Churchill says, when hi-fi manufacturers start to build CD-I players rather than a straight CD deck into their equipment, the market should be transformed. That will happen soon, and he does not want to miss out.
Sony MiniDisc and Philips Digital Cassette (DCC) players have been sitting on the shelves for more than a year, with little interest shown in them. Dixons is holding tight: analysts say their real advantage - that they can be recorded and will give digital-quality sound - will eventually sink into the consumer consciousness.
Often, the trick is not to bring in totally new products but to update or repackage old ones. Dixons decided five years ago that there would be demand for "green" washing machines, and started talking to manufacturers about equipment that used less water and electricity. "The Eco range now accounts for more than half the machines we sell," Mr Churchill says.
A repackaged product that will be given shelf room this year is the small television with built-in video recorder. Amstrad launched one years ago but, Mr Churchill says, it was too early. It was only when big names such as Panasonic were prepared to enter the market that it became "respectable": when Amstrad did it alone, it was regarded as a gimmick.
Mr Churchill will not say what Dixons line-up for Christmas 1995 is, but there are clues about the way the gizmo market is moving. These are developments we can expect in the next one-to-three years:
"Communications," Mr Dixon says, "is going to be huge". Mobile phones are finally becoming a day-to-day product, while cordless phones have finally lost their annoying buzz. In Japan, personal organisers (tiny computers) are being combined with mobile phones that feed in data.
Laptop computers are spreading from the business to the home market: with a mobile phone incorporated, they will be ideal for sending letters/messages from mountain tops or pubs.
The multimedia revolution continues. Stand by for the combined television/computer, incorporating a fax machine. The television market is being expanded at one end by small sets with a host of features, and at the other by giant "home cinema" systems. Already, 40 per cent of Dixons' large sets are sold as part of these systems: they include hi-fi sound from five speakers.
Digital recording: Dixons believes the MiniDisc and DCC have potential. When they are built into hi-fi systems, consumers will realise that they are a better recording medium than the standard tape.
Three-dimensional television? Watch this space.
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