Bloomberg News

Dixons to End Three Years of Spending Growth in Nordic Region

September 11, 2011

Sept. 12 (Bloomberg) -- Dixons Retail Plc, the owner of Scandinavia’s largest electronics chain, plans to end three years of increased capital expenditure in the region as it opens fewer stores and focuses on lower-cost online sales.

Spending on the business is “back at the same level” it was before 2008, Ronny Blomseth, managing director of the Nordic unit, said in an interview at the Stockholm El Giganten store.

“Nobody is growing space in the market, competitors are closing stores, so there will be less and less space,” Blomseth said. “We are growing a little bit.”

The 285-store Nordic unit, considered by analysts to be Dixons’s strongest business, will this year open two new stores, having added 16 last year. It also plans to convert five outlets to its larger Megastore format. The owner of the Elkjop, Lefdal and El Giganten brands boosted same-store sales 4 percent in the first quarter of the fiscal year, compared with a 10 percent decline in Dixons’s domestic business in the U.K. and Ireland.

“It’s a very good business and they can make it even better, even more competitive and improve the operating margin even more by taking costs out,” said David Jeary, an analyst at Investec Securities. He has a “hold” recommendation on Dixons.

The Nordic unit operates from a 95,000 square-meter central distribution center in Jonkoping, Sweden, hires part-time staff in peak periods, is adding zero-investment franchise stores and has moved its accounting department to the Czech Republic.

Slumping Shares

Dixons, based in Hemel Hempstead, England, gets about 27 percent of sales from the Nordic region, with only the U.K. and Ireland contributing more. Its shares have slumped 52 percent this year, the worst performer in the FTSE 350 General Retailers Index, as consumers, weighed down by inflation and government austerity measures, pare spending on items such as televisions.

In Norway, where the unit’s Elkjop and Lefdal stores have a share of about 30 percent, the electronics market is no better than stagnant, the executive said.

It’s even tougher in Sweden, the unit’s largest country with 53 stores, while Denmark is the most difficult part of the region, he said. Dixons operates El Giganten outlets in both countries, which seek to promote their low-price credentials with in-store posters saying “employees have the authority to make all customers happy regardless of costs,” with staff able to match competitors’ offers.

Blomseth expects online spending to help lead a revival in demand for electronics next year in the Nordic region, where the retailer is market leader with a share of about 25 percent.

Internet Sales

“The market will grow in the future, but the growth will be online, which is a very big opportunity for us,” he said. The unit’s Internet sales have doubled every year since 2007.

The retailer plans to match the prices and ranges offered online and in stores in the medium term, Blomseth said.

Elkjop’s 11 percent share of the online market has the potential to rise to as high as 20 percent, he said.

“The big opportunity for us is franchise in Sweden and Finland, online in all countries and higher sales densities in existing stores,” Blomseth said. “For us, actually, it’s good because it gives us an opportunity to work with the important things, like the people, like marketing the brand, not just opening stores because that takes a lot of time.”

--Editors: Paul Jarvis, Tom Mulier

To contact the reporter on this story: Sarah Shannon in London at sshannon4@bloomberg.net.

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net


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