DIXONS gave warning that soaring property rents and rates would almost wipe out a planned £30 million cost-cutting drive, leaving the electrical retailer facing an uphill struggle to contain overheads.
The group said that its property bill was to increase by £27 million this year, after a 17 per cent rise in rates and a 7 per cent rise in rents. The news came as Dixons reported a 4 per cent increase in underlying pre-tax profit to £343.1 million and announced plans to change its corporate brand to DSG International. It said the name change was to reflect that its flagship Dixons chain now accounted for less than 10 per cent of group sales. Other brands include Currys, PC World and The Link.
John Clare, chief executive, said that the corporate rebranding would cost “hundreds” rather than thousands of pounds and would apply only to the group’s corporate literature.
He said that the rises in property costs came amid one of the toughest trading environments for many years. “There has been no real change for the last three or four months and we don’t see any glimmer of light.”
Dixons said it had struck a deal with one of its landlords — Morley Fund Management — to exchange 11 store leases, which contain clauses to increase rent to market levels every five years, in favour of leases with fixed annual uplifts in an attempt to control costs.
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It is seeking to relocate from out-of-town retail parks that have planning consent to house fashion retailers to less expensive parks. Dixons has already relocated from 12 stores and has 48 outlets left to go.
The group said that the combination of spiralling property costs and inflationary pressures would increase its cost base this year, even if the £30 million cuts are implemented.
Mr Clare said the cuts would be made up of a series of initiatives, including consolidating back office functions.
Dixons said up to 800 jobs were at risk across Europe from plans to restructure its distribution network. Mr Clare said many staff would be offered alternative jobs at the group, so it was unclear how many redundancies there would be. Dixons is also in talks to outsource all or part of its IT function.
Cost savings from these measures will not feed through until the 2006-07 financial year and will be in addition to the £30 million savings planned for the current financial year.
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Total sales were 8 per cent ahead at £6.98 billion. However, sales at the group’s Dixons chain fell 14 per cent to £688 million (£798 million). On a like-for-like basis, Dixons sales rose 4 per cent.
Sales at Dixons’ white goods and electrical chain, Currys, rose 6 per cent to £1.85 billion. PC World saw an 11 per cent rise in sales to £1.695 billion, while The Link, its mobile phone chain, had a 4 per cent rise in sales to £531 million.
The group’s international division saw sales of £2.16 billion.