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

Memristor_wafer

Chris Mellor

Execution warrant close to being signed for Fink's folly
Woman cuddles 'sly-looking' Fennec fox. Photo by Shutterstock
Cartoon of employee asking wky boss makes hium wear suspenders (while pincer through open trapdoor remains poised above his head) illustration by Cartoon resource for Shutterstock

Frank Jennings

It's not like my boss painstakingly nurtured the contacts, right?

Features

Girl and computer, photo via Shutterstock
Middle-class terror of engineering also part of problem
Nerd fail photo via Shutterstock
Shouting match
Single market vs. rest of the world