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Can the Apple iPad 2 help stop the decline at Dixons?
Dixons, the electrical retailer and owner of PC World and Curry's, has issued a profit warning after sales in British and Irish shops fell by 11 percent this year to date (March 26th).
Thomas Cook, the second largest travel firm in Europe, has also reported a drop off in sales. In addition, a profit alert was issued earlier this month by Home Retail, the UK's largest retailer of household goods and owner of Argos and Homebase. A Confederation of British Industry survey published on Wednesday explained that "The underlying trend for retail sales remained weak". The Co-operative retail group do not expect a revival of spending levels until 2012. Even sales of groceries, normally exempt from consumer economising measures, are feeling the effect.
Dixons, whose shares fell 18 percent on Wednesday, blamed cutbacks in public spending as well as the recent increase in Value Added Tax (VAT) for their disappointing revenue figures. Figures published this week show the first real fall in real household disposable income in 30 years.
Real incomes in Britain are taking hits from all sides with levels of child benefit being withdrawn, inflation rising, VAT on the up, as well as increasing energy and grocery prices. Coupled with that, there is real financial insecurity as people fear job losses, further benefit cuts and future increases in interest rates.
"Like-for-like sales have dropped off a cliff," Seymour Pierce analyst Kate Calvert explained.
However John Browett, CEO of Dixons Group, was more upbeat."This is just the short-term stuff around a tough market while people are getting through the public expenditure cuts in my opinion," He went on to explain that Dixons was trading ahead of the wider market and its recovery plan was working.
Browett added "We do not believe this profit warning means anything for the structure of the industry or how we should operate,". He expects consumer confidence to be fragile through much of 2011, forecasting a "modest profit growth," in Dixons 2011-12 year.
Innovative new technology, including the new Apple iPad 2 and the Nintendo 3DS, are selling well in Dixons stores, but consumers are baulking at big ticket items.
Author: Lynn Shaw, analyst
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