Italian job leaves Currys feeling the heat

The owner of Currys has emphasised retailers' current woes by recording a 30% drop in profits...

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Last Updated: 06 Nov 2012

DSG International, which owns Currys.digital (as we must call it these days) and PC World, said today that its annual profits fell 30% to £205m, on sales of £8.5bn, following a ‘challenging year’. This wasn’t exactly a complete surprise, given that it’s already issued two profit warnings since the start of the year (in fact, some analysts just seem relieved that it wasn’t any worse) but it still underlines the current high street woes.

New DSG boss John Browett is now on a mission to cut costs, with just under half of its 177 Currys.digital stores likely to be closed over the next five years. There’ll also be store refits at Currys and PC World, while he’s also planning to trim some fat at head office. The aim is to trim £50m off its cost line by this time next year. Since DSG is unlikely to see much of an upturn in UK sales during this period, assuming consumers keep tightening their belts, cutting costs will be the best way to get back in the black.

But DSG’s troubles are not limited to the UK. The main reason why it ended the year nearly £200m in the red (after factoring in one-off costs) was because it’s been forced to take a big impairment charge on its loss-making Italian arm UniEuro, to the tune of about £390m. Sales were down 11% in Italy, forcing an overhaul of the management team and the closing of 43 stores (about a quarter of the total). But DSG admitted it was unlikely to be bouncing back for a while yet. Even its traditionally reliable Nordic division suffered a 3% drop in underlying profit.

So apparently it’s not just the UK where retailers are suffering. And there’s no sign of light at the end of the tunnel. The CBI said earlier this week that the high street had suffered a third consecutive month of disappointing sales, with 39% of respondents reporting a drop in sales (admittedly 30% said sales had increased, but you wouldn’t expect the CBI to see a good news story in that).

DSG is getting a particularly bad hammering because most of the items it sells are expensive one-off purchases – i.e. exactly the kind of purchase we might decide to put off in a belt-tightening period (not least because it saves having to deal with ill-informed surly shop assistants). On the other hand, at the other end of the scale it seems to be a great time to be a budget retailer: Aldi said this week that sales were up a whopping 21% in the 12 weeks to June 15, while Lidl enjoyed an almost-as-impressive 13% leap. Not only cheap, but also cheerful...

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