The Channel logo

News

By | John Oates 14th April 2011 08:55

Dixons' best chance? Quit the UK and move to Sweden

When rent is greater than profits...

Dixons' best chance of surviving is to close its UK business and concentrate on its Scandinavian business.

The cold-hearted claim comes from Morgan Stanley, which studied UK electrical retailing and found the whole sector is making losses. The analysts reckon there is more than 25 million feet 2 of selling space, but a serious shortage of customers.

The study, spotted by the FT's Alphaville column predicts a 15 per cent cut in "assisted channel capacity" (a situation in which the punter gets some help in making their purchase) in order for the remaining players to make a 10 per cent return on investment.

The blame for this situation has been placed on the move of supermarkets into electrical retailing and the continued growth of online suppliers. The big chains make up 80 per cent of this market and in order to remain competitive, they would need to treble EBIT margins or cut 15 per cent from their capital investment – this equates to closing 5 million square feet of shopfloor.

This is the area where Morgan Stanley looked closely at Dixons. It noted that DSG has an annual rent bill of £220m, which is three times its annual underlying profits.

Or, more brutally, as the financial services firm noted: "Put another way, Dixons' UK rental bill is now more than 3x its underlying profits. Dixons' UK liabilities, therefore, effectively outstrip its assets, in our view."

With average lease times of eight years on its stores, the only way out for DSG is to find a buyer with a burning desire to take on £1.5bn in debt.

Dixons declined to comment on this article. ®

comment icon Read 53 comments on this article alert Send corrections

Opinion

Chris Mellor

Drives nails forged with Red Hat iron into VCE's coffin
Sleep Cycle iOS app screenshot

Trevor Pott

Forget big-spending globo biz: it's about the consumer... and he's desperate for a nap
Steve Bennet, ex-Symantec CEO

Chris Mellor

Enormo security firm needs to get serious about acquisitions

Features

Windows 8.1 Update  Storeapps Taskbar
Chinese Buffet self-service
Chopping down the phone tree to scrump low-hanging fruit
An original member of the System/360 family announced in 1964, the Model 50 was the most powerful unit in the medium price range.
Big Blue's big $5bn bet adjusted, modified, reduced, back for more
Microsoft CEO Satya Nadella
Redmond needs to discover the mathematics of trust