Analysis
Interesting news overnight in the United Kingdom, where the country’s largest telco retailer Carphone Warehouse has announced a merger with one of the largest electronics retailer, Dixons, which operates the Currys and PC World retail brands.
Carphone Warehouse currently has 2,000 stores across Europe while Dixons operates 500 outlets across its high street brands in the UK and Ireland. It’s the equivalent of Allphones merging with Harvey Norman, but arguably on a much larger level.
Click here to sign up for our free daily newsletter
Graham Ruddick from The Telegraph (UK) writes that (and I encourage you to click on this link and read the whole story):
The companies say they want to create a “new retailer for the digital age”. Rather than being about combining the brands, this deal is about combining products.
Dixons and Carphone Warehouse claim they are preparing for the “internet of things”, where household appliances are all connected to the internet. Sebastian James, the boss of Dixons, said the number of items connected to the internet in our homes will rise from four to more than 20 in the next few years. This will include fridges that send emails and order replacements when food is going off and security systems than text smartphones when they detect suspicious activities.
Both companies deny they will be closing stores and will instead integrate other’s core competency. For example, Carphone Warehouse will operate a store-in-store counter within Currys, so consumers can purchase mobile phones and plans at the same time that they purchase washing machines and refrigerators.
The reference to the Internet of Things by Dixons boss Sebastian James is intriguing. The implication is that this merger is being undertaken so the new mega-retailer will be perfectly positioned to capitalise on the connected home trend, though a couple of things about this stand out.
First, Carphone Warehouse is a reseller, not an telecommunications company, so it wouldn’t have access to the actual wireless technology that would power communications between a refrigerator and a dishwasher. It is simply a brand that customers may or may not trust to sell them such products.
Second, are high street retail brands the go-to destination for early adopters and ambitious consumers looking to be at the forefront of new technology? Despite multiple plays at internet fridges and connected appliances from respected brands like LG, Samsung, Miele and Bosch, the Smart Appliance has made barely a ripple on the appliance market, both in Australia and abroad. The retailers, who all but totally control the industry, are persisting with the traditional, unconnected or barely connected (like a air conditioner that be controlled with a smartphone) whitegoods, and leaving the more advanced Internet of Things style products to independent, mostly online vendors, many still in their Kickstarter infancy.
James went on to say that, “What seems outlandish today will become absolutely ubiquitous in the next few years”. I am unconvinced that within the short-term, “the next few years”, my toaster will be trading emails with my microwave, not because I am a Luddite or because the technology won’t exist to make it happen, but because there is no utilitarian value to it.
When LG launched the Internet Fridge in 2000, it was a technological masterpiece, an incredible confluence of refrigeration and connectivity and one of the greatest appliance ever created. It was a fully functional side-by-side fridge with a LCD screen that could connect to the internet! Yet according to legend, LG did not sell a single unit in Australia and the Internet Fridge has not been seen since. Unfortunately, consumers don’t actually want to dedicate too much of their life to standing in the kitchen reading the news from the whitegoods.
Only when a convincing benefit to using connected appliances, a utilitarian function, is marketed will consumers rush to it.
So if the Internet of Things angle is a furphy, why are these “two past-their-sell-by-date retailers”, as one analyst put it, merging? High street retailing in the UK has been devastated over the past decade by online retail, low consumer sentiment, price wars eroding margin and suppliers selling direct. This merger buys both parties time to reorganise, extract synergies and try to trade their way out of the quagmire.
What relevance does this have to Australia? We constantly hear that Australia is around five years behind the United Kingdom in terms of retail trends, and it is true that we are only slowly catching up in terms of omnichannelling, POS developments and just-in-time logistics. If two very famous and ubiquitous retailers must join forces — not unlike the uneasy alliance between Houses Lannister and Tyrell — then it could by 2020, Australian chains will be in the same position.
After attending EuroCucina in Milan in early April 2014, I traveled to the United Kingdom and happened to visit a Carphone Warehouse store, in Earls Court, because I wanted to purchase a temporary SIM card for my iPhone. It was a cramped store, dowdy and tired, and the staff, trapped behind a counter couldn’t match me a suitable product. A few Tube stops later, I visited the 3 store in Fulham Broadway and the experience could not have been more different. An incredibly friendly staffmember sat me down in comfy chair in the open plan showroom and sold me unlimited 4G data for 30 days for £15 (around AU $27).
It’s a similar situation with the Australia telco resellers, which often use kiosks in malls in addition to more traditional retail outlets. They are not the most appealing or attractive environments for young consumers. Some might argue that the Telstra, Optus and Vodafone stores are not much better, but at least they are open plan, clean and tidy and, more often than not, staffed by well-meaning and knowledgeable youngsters.
It would not come as a shock if several Australian telco resellers or appliance chains began courting merger partners over the next five years, and it is an open secret that one of the private appliance retailers has been shopping its online arm around to potential suitors.
The Good Guys merge with Allphones? JB Hi-Fi partner with Betta Home Living? Harvey Norman acquire Appliances Online?
If nothing else, any of these marriages would reduce competition and alleviate some of the downward pressure on prices, which is the number one gripe among both retailers and suppliers.