• Tuesday, May 21, 2024
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BusinessDay

Caught in the middle and squeezed out

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Samantha Pearson & Andrea Felsted

On a hot summer’s day the last thing Brits want to do, it seems, is go shopping for a new washing machine.
While many retailers have been basking in the recent sunshine, electricals outlets suffered. And the retailers hit hardest are Kesa and DSG, caught between those providing high quality of service at one end of the market, and budget prices at the other. Hugh Harvey, managing director of Comet, the UK electricals retailer owned by Kesa, said: Current trading is volatile, fragile. We have good weeks and when the sun comes out, we can have a bad week.
The weather is the least of the sector’s problems. Since the downturn, consumers have put off buying expensive items for their homes, while the lack of activity in the housing market has also hit sales.
On Wednesday, Kesa, the third-biggest electricals retailer in Europe, plunged into the red and slashed its dividend.
Yesterday, DSG International, the second biggest European operator in the sector, released similarly dire results and warned there would not be an upturn until late 2010.
Harvey said that while the market for white goods, such as dishwashers and refrigerators, had been showing some improvement since Boxing Day, it was still worse than this time last year.
At Kesa, chief executive Thierry Falque-Pierrotin, said that although volumes were holding up in the TV market, prices remained under pressure.
Yet even as both Kesa and DSG are keen to blame the overall drop in sales on the downturn, the stronger performance of John Lewis shows the pain is not felt equally across the sector.
Over the last couple of months, sales of consumer electronics and white goods at one of middle England’s favourite retailers have been up about 8 per cent from last year.
Tom Athron, director of buying for electricals at the department store chain, said: We’re happy with how things are going but it’s a tough market out there.
Neil Saunders, retail analyst at Verdict, said this split in the retailers’ fortunes showed the deeper problem facing Kesa and DSG. He said that white goods customers looking for the cheapest item were increasingly looking to online retailers and the supermarkets: those looking for quality of service were visiting department stores such as John Lewis.
They [Kesa and DSG] are not really winning the price battle and they’re not really winning the added-value battle in terms of customer service and store design. In a normal market they’d find the going tough but in a market that’s declining in value it’s really difficult to do well.
Quite apart from their present predicament, both groups also face a new threat: Best Buy, the worlds largest consumer electronics chain, is set to break into the UK market in spring next year.
While analysts say that Best Buy’s presence may not initially amount to a full-scale assault on the market, it means that Kesa and DSG will have to work harder to get the benefit of whatever upturn there is.