Carphone Warehouse 2015 Annual Report Download - page 9

Dixons Carphone plc Annual Report and Accounts 2014/15
Strategic report
Our markets
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The integration of connectivity, products and services was
central to the Merger rationale for Carphone Warehouse and
Dixons Retail into Dixons Carphone, and we operate across
a variety of distinct marketplaces such as mobile; consumer
electronics; and business to business operations via the
Connected World Services division.
In mobile, the Group is well placed, in particular in the UK,
to offer impartial advice on a vast array of propositions. The
markets in which the Group operates are served by mobile
network operators and independent and generalist retailers.
In the UK we have seen a major market withdrawal with the
exit of Phones 4u. As a result our market share improved, in
particular in the higher value post-pay segments. The Group
is positioned to improve this further, as the only nationwide
independent channel with multi-year contracts with all the
major MNOs.
Mobile telephony has evolved rapidly, from simple mobile
devices to sophisticated hardware with advanced computing
functionality. There is a wide choice of operating platforms and
network options for customers, which makes the Group’s
expert and impartial proposition particularly relevant.
MNOs across Western Europe have been investing
significantly in the development of their 4G network
infrastructures. 4G technology facilitates much faster
downloads, providing comparable levels of performance to
many Wi-Fi networks, and providing a much better platform for
streaming than 3G. MNOs have seen significantly increased
levels of data usage, a trend which we see continuing as
network quality improves, and more and more devices become
capable of communicating with one another. MNOs will
continue to roll out their 4G networks, with nationwide
coverage expected in the UK by the end of 2015.
To benefit from 4G services, customers need 4G-enabled
devices and as 4G network coverage improves in Western
Europe, there is an incentive for customers to upgrade their
services, providing a stimulus to the replacement cycle as
penetration of 4G devices and tariffs increase. After several
years of downward pressure on ARPU, increased data usage
provides an exciting opportunity for MNOs.
The internet plays an important part of customers' purchasing
journey for mobile. The majority of customers research online
before making a purchase. Online sales continue to grow as a
proportion of sales and represent between 5% and 20% of
total retail sales for the Group’s markets. Customers continue
to value the advice available within stores, on the many
choices open to them.
The electrical retail market can be split between specialist
electrical retailers, such as Dixons Carphone, and general
retailers which sell certain electrical goods as part of a wider
offering. The market can also be broken down into two distinct
distribution channels: ‘assisted’ and ‘unassisted’. In the
assisted channel, specialist retailers, such as Dixons
Carphone, help customers through the buying process in the
form of product advice, add-on services, delivery and
installation. The unassisted channel, which includes single
channel internet retailers as well as general retailers, tends not
to offer all of these services.
Specialist electrical retailers are the predominant destination
for customers in the European consumer electrical market.
Buying groups, general merchants and independents also have
a retail presence through stores and / or online. The market is
served by a relatively small number of global manufacturers
supplying goods to local, regional, national and international
electrical retailers.
We have seen some significant shifts in capacity in many of
our markets in recent years with some mass merchandisers
reducing space for electrical products, some single channel
internet operators de-emphasising certain segments, as well
as some specialists exiting the market. These shifts have
helped us to gain market share and it underpins our view that
a strong service led multi-channel operation satisfies both
customer and supplier needs while delivering a sustainable
business as customer shopping habits continue to evolve. We
believe further consolidation will occur in some of our markets.
The internet has established itself as a fundamental part of the
retail landscape. It brings enhanced product information as
well as price comparability. It is becoming an important part of
the buying process for customers, particularly for large ticket
discretionary products. Larger retailers, with an integrated
multi-channel ‘bricks and clicks’ offer, with scalable distribution
and systems, together with proven after sales service and
support are increasingly attractive to customers. Our
collect@store service, where customers can order on the
internet and collect from a convenient store at a time to suit
them, and our pay&collect service, where customers can
access a wider range of products than is typically available in
their local store for either home delivery or later collection from
the store, are both proving to be increasingly popular.
The UK and Nordic markets have high broadband penetration
and a maturing online sales platform. The increase in online
penetration provides us with the opportunity to increase both
the range of goods on offer and the availability of product
information. Our multi-channel approach is well placed to
exploit synergies between our internet sites and stores.
Innovation brings new products with improved functionality
that drive sales growth. These include 4K Ultra High Definition
and Smart TVs, wearable technology, tablets as well as
converging products that combine the flexibility of a tablet with
a keyboard. Content, such as social media, apps, digital media
and cloud computing, also help to drive hardware innovation
and replacement. Product sales are driven by structural shifts,
such as analogue to digital and standard format through to
Ultra HD television. In addition, innovation drives new service
requirements, including TV installation, data backup, computer
set up and instructional Showhow teach-ins. In this
increasingly complex world we believe our assisted sales
model is best placed to help customers navigate the market
and to help them choose a complete solution that best meets
their needs.