Dixons and Carphone Warehouse: A Merger Driven by Interconnectivity
On 15 May 2014, Dixons and Carphone Warehouse finally announced their £3.7 billion merger following two months of negotiations. The deal has been defined by the business press as a merger between equals as neither company surpasses the other in terms of market capitalisation. As such, the logic behind the merger appears genuinely linked to strategic considerations with regard to how to adapt the offerings of the two companies to the fast-paced evolution of the consumer electronics and appliances market, and in particular to the way consumers purchase and use such devices.
Capitalising on Multi-Channel Retailing
The impact of internet and multi-channel retailing on the market is the first strategic consideration behind the merger. Over the last five years the consumer electronics and appliances market has been shaken up by the growth of internet and multi-channel retailing. Over this period, internet retailing in Western Europe, the region in which Dixons and Carphone Warehouse operate, posted a value CAGR of 13%, while consumer electronics and appliances internet retailing registered a CAGR of 9.7%. Store-based sales through electronics and appliance specialists, meanwhile, declined by a 2.8% CAGR.
The emergence of new channels left casualties along the way during the economic recession, such as Dixons’ direct competitor Comet in the UK. Nevertheless, the future is not likely to see the end of bricks-and-mortar retailing in these two categories as the fast-paced development of multi-channel retailing requires the presence of physical stores and the support provided by in-store personnel able to guide less savvy consumers in the increasingly complicated world of electronic gadgets, mobile phone plans and smart appliances. Advice from in-store sales staff is still considered very important by large groups of consumers in Europe; for example, in France, more than one quarter of consumers interviewed by Euromonitor International said that specialist advice from in-store employees is the main factor behind them visiting physical shops. This sentiment is particularly strong when consumers are looking to navigate the often overwhelming offer of smartphones and phone contracts. With this merger, Carphone Warehouse and Dixons, by combining two different and complementary sets of features, will be able to provide the ‘best of both’ from multichannel retailing, the specialist in-store advice and support alongside the convenience of buying online. Carphone Warehouse will be able to benefit from Dixons’ strong online offer and big-box out-of-town stores, while Dixons will benefit from the central locations that Carphone Warehouse’s smaller stores provide, which will be used to expand the multi-channel capabilities of the company resulting from the merger.
The second strategic consideration behind the merger is the rapid evolution in the way consumers use electronics and appliances. Consumers are increasingly using electronics and appliances in tandem. The ease of use and versatility of smartphones is now expected from other electronics or appliance products. Moreover, increasingly advanced interconnectivity features enable communication between devices, allowing smartphones or tablets to act as remote controls for televisions or even to remotely monitor smart appliances such as high-tech washing machines. New smart devices such as Nest, which can monitor one’s home, are gaining in popularity among early adopters. As a result, the boundary between electronics and appliances is becoming increasingly blurred, and so the merger will allow the two companies to benefit from each other’s expertise. Carphone Warehouse will bring to the new company its expertise in selling tablets and smartphones while Dixons will add to the range smart appliances and all-things electrical.
Getting Ready for the Internet of Things
Looking at future prospects, the Internet of Things, the coordination systems between smart appliances and electronic devices which share information, is expected to play a vital role in the future of households as it will evolve and become mainstream. As such, for electronics and appliance retailers the ability to offer integrated products and services that help consumers around this increasingly sophisticated world will be vital in helping them remain ahead of the competition. Retailers will also need to increasingly diversify their offerings as sales in hi-tech categories tend to decline rapidly as products become obsolete. Euromonitor International expects that the rapid growth of smartphones and tablets will slow down in the next five years as the category reaches saturation, while sales of new generation smart appliances should return to growth. By joining forces, Carphone Warehouse and Dixons are embarking on a quest for future growth in the increasingly interconnected world of electronics and appliances.