Carphone Warehouse 2008 Annual Report Download - page 20

Directors’ Report: Business Review
Chief Executive’s Review continued
8 The Carphone Warehouse Group PLC Annual Report 2008
“We see considerable scope
for further expansion in
Europe and the US”
Charles Dunstone, Chief Executive Officer
We aim to be a mass market provider
in our major business lines by driving
for volume ahead of margin. We
then use our increased presence in
the market to improve our supplier
terms and reinvest these benefits
in the customer proposition.
Our long-term approach to
investment creates sustainable
competitive advantage in our chosen
markets. Investment is not just about
capex – although our commitment
to store openings and exchange
unbundling is significant – it is also
about marketing, brand-building
and customer recruitment.
ScaleInvestment
We are absolutely committed to
delivering value to customers across
all our services. Investment in the
right platforms is key to our ability
to develop a compelling customer
proposition, as it allows us to build
scale, and offer greater value and
an improved customer experience.
Scale also creates significant
efficiencies for our business, through
leveraging our fixed cost store base
and telecoms infrastructure. We
seek to maintain our competitive
advantage by continued investment
across the business.
Proposition Efficiency
Our virtuous circle
of performance
better handset availability from vendors translates into the best value and
choice for our customers. It is a virtuous circle, with this reinvestment in
turn generating further market share gains.
This year our store base grew by 267 net new stores. We opened 390,
closed or relocated 138, acquired a chain of 77 stores in Portugal at the
start of the year and sold our 62 Swiss stores just before the year end.
This shows how active we are in managing our portfolio – both with
respect to individual stores and also in relation to whole geographical
markets. Our store base has almost doubled in the last four years.
After five years of sustained growth in the European handset market, as
further penetration growth was supported by an accelerating replacement
cycle, many of our territories saw flat or negative market unit growth.
It is a testimony to the strength of our customer proposition that we
recorded mobile connections growth of 15% in this market environment.
In fact our retail chain did even better than these numbers suggest, with
total connections growth of 16% adjusting for a very weak year-on-year
performance from our “off-the-page” channel in the UK.
The key drivers of growth were the explosion in mobile broadband
modems, and a growing consumer interest in the “smartphone” category
of handsets that combine traditional calls and text messaging services
with email and other data functionality. This was a trend that we identified
early, and we added significant value to our network operator partners
by recruiting material volumes of high value data customers on their
behalf. These trends are set to continue in the coming year.
Best Buy Mobile, our US retail venture in partnership with Best Buy, has
comfortably exceeded our expectations. We have accelerated our roll-out
plans twice over the last 12 months and now intend to have a presence
in every Best Buy store in the US by the end of the current calendar year.
The customer response has been very positive and this has translated
into material sales uplifts. We are confident that, over time, this business
can become a meaningful “third leg” to the Group.
Looking forward, the next 12 months offer an exciting combination of
new growth opportunities and management challenges. We have chosen
to slow our rate of physical expansion temporarily, diverting more of our
resources towards the evolution of our retail proposition described in
the next section. Once we are satisfied that we have developed the right
formula of store format, product range and employee training to address
our changing marketplace, we will revert to the more aggressive space
growth demonstrated over the last four years. This year we plan to
open a net 120 new stores, but also invest in a large number of major
relocations and refits to maintain and improve the quality and relevance
of the estate.
There is no doubt that the consumer environment has been tougher
of late in a number of our markets, and we expect these conditions
to continue over the coming months. However, mobile phones have
long since passed from being a luxury item to an absolute necessity
in the eyes of most users; and the subsidised business model lessens
or removes the upfront cash cost. In addition, the new growth areas in
mobile data should lend support to our performance over the next year.
Developing our retail proposition
Last year I highlighted how the needs of our customers were changing.
Historically, The Carphone Warehouse and The Phone House have been
the places to go to find someone to guide you through the complexities
of the mobile phone market: to identify the right combination of handset,
network and tariff to suit your needs. We have never considered
ourselves to be retailers of hardware; our DNA is much more about
helping customers understand technology.
Our Strategy in Focus