Dixons blames cutbacks for consumer slump

James Thompson
Thursday 31 March 2011 00:00

Dixons retail, the owner of the Currys chain, blamed the "chilling effect" of government cutbacks for a dire slump in sales of electrical appliances and a profits warning yesterday.

The latest gloomy comments on high-street spending were echoed by the Co-operative Group, the food retail and funeral services firm, which said that its level of grocery promotions was at its highest for more than 40 years. Further underlining the pressure on household budgets, the market research firm GfK yesterday said that consumer confidence in March "stagnated at depths seldom seen outside of an actual recession" and remained unchanged from the previous month's minus 28.

The Confederation of British Industry (CBI) also said retail sales remained subdued in March, as consumers battle soaring petrol prices, higher taxes and public-sector job cuts.

In the electricals market, John Browett, the chief executive of Dixons Retail, the pan-European group that owns PC World, said that "consumer confidence across many of our markets has markedly deteriorated" since January, but he added that trading had been "particularly weak" in the UK.

The group also struggled in Greece and said it is considering exiting its store operations in Spain. Its under-performing territories forced Dixons to warn that its profits for the year to 30 April would now be about £85m, a 15 per cent fall on the previous consensus forecasts of £100m.

In the UK, Mr Browett said that job cuts in the public sector were having a "slightly chilling effect on expenditure", though demand remains strong for products such as Apple's new iPad.

He believes the spending hiatus is related to job fears among public-sector workers – many of whom have entered a consultation process – when the reality is that the actual job losses in some local authority councils may be as low as 4 per cent of its workforce.

"There is a little bit of a pause in the [electricals] market related, we think, to the way people are reacting to government cutbacks," Mr Browett said. To help to turn around its performance, Dixons is to focus capital expenditure on its "winning" markets and formats, such as its big-box Currys Megastores in the UK, as well as delivering cost savings of £50m a year up to 2014. But the profits warning spooked the City and Dixons' shares tumbled by 3.1p, or 18 per cent, to 13.7p – a two-year low.

Peter Marks, the chief executive of the Co-operative Group, was also downbeat about the prospects for UK consumers, despite it delivering record profits for the year. He said: "Clearly, the economy is difficult. We now anticipate challenging trading conditions through to the end of this year and into 2012." The Co-operative Group, which has businesses from travel agencies to financial services, posted a 48.3 per cent rise in pre-tax profits to £546m for the year to 1 January, on sales up by 9.1 per cent to £13.7bn.

Its food business grew operating profit, before exceptional items, by a third to £382.6m. But the Co-op's like-for-like food sales fell by 2.5 per cent, partly due to the disruption caused by it converting 524 acquired Somerfield stores to its own brand. Mr Marks said there was "no growth" in food sales volumes, adding it had 50 per cent of its products on promotion, a level he has not seen since he joined the group in 1967. "This [level of promotions] is unheard-of and it really describes the marketplace."

Elsewhere, Signet UK, which owns the jewellers H Samuel, Ernest Jones and Leslie Davis, also saw underlying sales fall 1.4 per cent for the year to 29 January. But Topps Tiles, the floor-covering specialist, and Moss Bros, the branded-suit retailer, said they had grown sales this year. But Brian Brick, the chief executive of Moss Bros, which reduced its annual losses to £2.7m in 2010/11, said: "The consumer is being very careful where and when they spend their money."

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