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Retail Friday 29th April 2016

Dixons Carphone meets the rightsize challenge

Dixons Carphone meets the rightsize challenge

The merger between Dixons and Carphone Warehouse brought together some of the UK’s best-known brands. It also created a challenge to ‘rightsize’ the new group’s operational property. We spoke to its Group Property Director, Philip Bell-Brown, about the way forward.

When Dixons – already owner of the Currys and PC World brands – finalised its merger with Carphone Warehouse in August 2014, there were inevitably going to be stores in the merged operational portfolio that were surplus to requirements. Unlike many other merging companies, however, Dixons Carphone has been completely open about the property rationalisation that will be the result.

“What we are doing is removing duplication. We are not coming out of any given local market,” explains Dixons Carphone’s Group Property Director, Philip Bell-Brown.

Plans for the combined property portfolio were announced earlier this year following a period of assessment.

“About 86% of the population can currently access one of our superstores within a 20-minute drive time. Once we’ve completed the operation, 86% of the population will still be able to access one of our superstores within a 20-minute drive. All we are doing is taking out the duplication so they have only one shop to go to instead of two or three,” he adds.

Removing this duplication has put a lot of retail property on the market, however.

In all, the group is disposing of 139 properties including 55 PC World units, 28 Currys and 52 Carphone Warehouse shops, together totalling 1.19m sq ft.

Some of the reduction is already being offset by new store openings and the addition of mezzanine floors to some existing units.

“It is all about putting the right customer offer forward. At the time of the merger, we had a mix of formats across the estate. There were a number of units that were old PC World stores, a number were Currys stores and some stores were already a combination of both.

“We put Currys and PC World brands together into single stores and presented that offer to customers. Then, in a certain number of stores, we added the Carphone Warehouse proposition creating a three-in-one offer – all three brands in a single store"

“Customers reacted well to all of those transitions: they reacted well to computing being together with white goods and televisions; they reacted well to Carphone stores being introduced into that mix and the increased range of home electronics and home appliances in one space. On the basis of that response, we looked at all individual markets and looked at where the best locations are to present that proposition in each market.”

For example, he says that there may be a town that has a small Carphone Warehouse outside the town centre, a small Currys on its own and, separately, a small PC World. “What we will do is put those three together in the most suitable, generally, retail warehouse unit. If we need to, we will put a mezzanine floor in to increase the space and provide the most appropriate range for that market and then, obviously, we will close the other two stores that get left behind.”

This is also great for our colleagues in these stores as they will move into the refitted shop to serve customers in a modern environment. We will work hard to ensure there are no redundancies as a consequence of these store closures.

The new policy will, in the main, affect the out-of-town estate. “Most of the stores that are vacant, or which we are marketing, are retail warehouse units. But we do have some older, larger high street units which were Currys stores, which we will close, but this is really about rationalising our superstore estate.”

Dixons Carphone will end up with a superstore portfolio numbering about 323 units. These will become three- in-one stores where all three brands are represented. However, town centres will also have stand-alone Carphone Warehouse units. “Ideally, in a given market in a typical market town, there would be Carphone Warehouse representation on the high street while out of town the three-in-one store would offer a wider range of goods, as well as services such as ‘reserve-and-collect’,” Bell-Brown said.

All the now combined businesses had already developed a strong online presence well before their mergers but Bell-Brown says that this will be developed further and integrated with the bricksand- mortar estate.

A significant part of the group’s online business is ‘reserveand- collect’ in which the stores form a key part of a customer’s ‘journey’: especially in the case of ‘a considered purchase’, customers do their research online, may even visit a store to look at products and may then return home to reserve the purchase online, only to collect it later from the store.

It is all about putting the right customer offer forward

Similarly, for mobile phone purchases, Bell-Brown says that the store plays an important part because customers want to talk to a member of staff who can explain and compare all available deals across all networks. “Customers like that interaction and need help through the maze of different offers from the mobile networks,” he notes.

“I think ‘The Store’ will continue to play an important part, but will continue to evolve. There are currently competing pressures on space within a given store and we have to mix our use of space very carefully to put our best offer forward.”

He expects to have about 50 megastores in the portfolio when the rationalisation is complete and these will provide opportunities to develop relationships with suppliers, in particular, by providing space for them to demonstrate products.

“It might enable Dyson, for instance, to put in a shop-in-shop and demonstrate its latest technology, or Samsung televisions or Go-Pro cameras. That’s what the store of the future will increasingly become,” he adds.

Understandably, rationalisation on this scale is not without cost. Dixons Carphone is spending upwards of £50m on reworking the buildings that it is planning to keep, including the insertion of 33 mezzanine floors.

Then there is the cost of withdrawing from the leases of the buildings that it wants to dispose of, which is estimated at £70m.

We’ve just put a sensible figure on the cost of either surrendering leases to landlords or assigning to another tenant. They are all costs but we have tried to make it clear that we will honour our leases, we are not trying to wriggle out of our obligations and we will continue to pay the passing rent. And, to attract another tenant, we may need to oil the wheels to do the deals where rents have been set during the mid-2000s and may be higher than the current market rent.”

Advising Dixons Carphone on the new three-in-one strategy are Colliers International, CWM and Wilkinson Williams in the UK with JLL representing its interests in Ireland.

A structured approach to marketing the surplus properties has been a key aspect of ‘rightsizing’ the operational portfolio. Dixon Carphone instructed the Completely Group to work with them on creating a multi-channel
‘shop window’ for the assets.

Ben Parer of The Completely Group comments: “Our brief was to undertake a review of the current marketing material and define a clear strategy for marketing the property disposal portfolio for the respective
Dixons Carphone brands in a combination of out-of-town and High Street locations.

“This encompassed creating various points of access for interested parties including an online portal where you can carry out a search for properties by size and location, an iPDF portfolio of the properties plus marketing brochures and a data room. It has been essential to present a clear and consistent level of information across all these marketing touch points.

“Dixons Carphone has taken the process of marketing surplus operational property to a new level and we think it has created a template that other retailers who are also seeking to ‘rightsize’ their portfolio will also adopt.”