Consumer spending cuts hit Dixons as they issue a profit warning…

April 6, 2011

Dixons announced earlier this week announced that the figures they had originally forecast would be missed because of a lack of consumer spending.

The recession takes its toll on the electrical retailer as they announce that the £100m profit before tax and one-off items that they forecast in January, is looking more like £85m as consumers cutback on expenditure.

The owner of Currys and PC World has said that: “Since the announcement of the Group’s trading statement on January 13, as has been well documented, consumer confidence across a number of our markets has deteriorated, particularly in the UK and Ireland.”

The sales figures for stores in Britain and Ireland speak for themselves, dropping 11% in 11 weeks leading to March 26th.

Obviously action needs to be taken; John Browett, Group CEO, has stated that: Consumer confidence across some of our markets is fragile and we expect it to continue to be so through much of 2011. As a result we are setting out more steps we are taking to secure the delivery of the Renewal & Transformational Plan.”

He continued to state, that although he acknowledges the home-based stores are suffering, business abroad is, in the most part, continuing to grow: “Our business in the Nordics continues to perform strongly. The turnaround in Italy is improving the business and it is delivering slightly ahead of our expectations.”

However, as part of their plan to tackle losses made, the retailer has suggested that it may have to close down its Spanish market, which would cut losses by around £5m a year for the next two years.

What does all this mean for retail?

Well, it’s a clear as any indication that the high-street market is in danger of becoming like the dinosaurs and dying out. Britain’s top retailers know this and have called out for government backing.

The rise in VAT to 20pc didn’t help, as well as Internet shopping, which I mentioned in a previous blog is in danger of killing off stores such as HMV

Unemployment and the threat of further redundancies also spell bad news for high-street retailers.

Justin King, chief-exec of J Sainsbury and Charlie Mayfield, chairman of John Lewis, held a crisis meeting with the Chief Secretary to the Treasury, Danny Alexander, last month in order to try and gain government support to enable the expansion of stores and creation of jobs.

It looks as though the high street has been left in the hands of the Government, or retailers will have to develop new ways to draw consumers in – window shoppers don’t make you money!

In other news… 

John Lewis made history earlier this week by becoming the first major high street name to announce that they have scrapped the refund limit.

What this means, is that customers will now be able to return goods, as long as they are unused and accompanied by the original receipt. The scheme even applies to items bought before this year; they defended the possible back fire by suggesting that relatively few people keep their receipts.

Andrew Murphy, Retail Director at John Lewis, hopes that it will give consumers confidence to spend again.

This is the kind of action that high-street brands need to take, bold retail decisions that restore confidence, before it’s too late.