29 Farm Street
"We aim to provide unrivaled value to our customers through the range and quality of the products we sell, the competitiveness of our prices and the high standards of our in-store and after sales service."
With nearly one-fifth of Britain's consumer electronics market, Dixons Group plc ranks among the world leaders in that retail segment. The family of specialty retailers includes 350 Dixons consumer electronics stores, 378 Currys appliance superstores, 26 PC World computer stores, 48 The Link communication equipment stores, and 247 Mastercare service centers. The driving force behind the company's expansion from one small portrait studio was the man who continued to head it in the mid-1990s, Stanley Kalms. Dixons' chairman achieved this stunning growth by entering two fast-growing markets at an early stage in their development: photographic goods in the 1950s and consumer electronics in the 1970s. In both cases, Dixons helped to build these markets in the United Kingdom and grew with them. Also credited with bringing the superstore concept to Britain, Kalms was knighted for "services to electrical retailing" in 1996.
Having made an ill-timed entry into the U.S. retail electronics market in the late 1980s, Dixons regrouped in the early 1990s. After the group recovered from after-tax losses in the fiscal years spanning 1992-1993 and 1993-1994, Chairman Kalms declared himself "very bullish" on Dixons' future in a 1995 Management Today article.
Founded in the 1930s
The retail powerhouse's origins can be traced to the 1930s, when Charles Kalms, a Jewish immigrant from Eastern Europe, founded a portrait photography studio in London. In 1937 he and a friend decided to set up a photographic studio at Southend-on-Sea, not far from London. They incorporated the business as Dixon Studios Ltd., choosing the name Dixon out of a telephone directory in preference to their own. Kalms's friend gave up his share in the business within two years, and Kalms took full control, while continuing to run another business at the same time.
During World War II, when so many men and women were separated from their families, there was a great demand for portrait photographs, and the business flourished. By the end of the war the company had expanded to a chain of seven studios in the London area. After 1945, however, the market contracted as fast as it had grown, and Dixon was reduced to a single studio in the North London suburb of Edgware.
Postwar Expansion into Retailing
In an effort to boost sales, Charles Kalms began to sell cameras and other photographic equipment, and the studio gradually turned into a shop. This changeover gathered pace when Charles Kalms's son Stanley joined the business in 1948. Although only 17, he proved to be a natural salesman with remarkable ambitions. A onetime colleague recalled that Stanley Kalms sold some cameras with great success even before he had discovered how to load the film. The retail side of the business grew quickly, and father and son agreed to concentrate on developing it. By 1953 the company was able to start opening branches again, this time under the name Dixon Camera Centres.
In those early postwar years, few people in Britain could afford to spend much on their hobbies, but interest in photography grew fast. Dixon met this situation by selling new and used goods at attractive prices and by offering credit terms. At an early stage it started advertising, at first in photographic magazines and local papers, then in national newspapers. In this way it built up a large mail order business as well as retail sales. By 1958 it had 60,000 mail order customers, and the shop business had grown to six branches. In that year Dixon moved its head office to larger premises, still in Edgware. The company then employed almost 100 people.
The company showed unusual enterprise in buying as well as selling. In the 1950s the photographic market in the United Kingdom was dominated by British, American, and German manufacturers, and the law at that time allowed manufacturers to dictate the prices at which their products were retailed. This did not suit Dixon's competitive style, and Stanley Kalms began to look elsewhere for manufacturers who would supply him directly at low prices. He began regular buying trips to the Far East and by hard bargaining and bulk buying was able to import goods at prices that enabled Dixon to offer unbeatable value to its customers. In Japan he found manufacturers willing to supply products made to Dixon's specifications. At that time Japanese goods were not highly regarded in Europe, so Dixon marketed the goods under the German-sounding name of Prinz.
Dramatic Growth in the 1950s Culminates in 1962 IPO
By the end of the 1950s incomes in Britain were rising sharply, and the market for photographic goods doubled in value between 1958 and 1963. Camera design was improving, color film prices were falling, and a craze for home-movie kits--camera, projector, and screen--swelled demand. Dixon, having established a reputation for good value and quality, was one of the chief beneficiaries. Its profits rocketed from £6,800 in 1958 to £160,000 in 1962, and in that year the company went public under the new name of Dixons Photographic Ltd. The Kalms family retained voting control, with more than three-quarters of the shares in their hands at this time, but the shares released to the market proved highly popular.
At the time of the stock offering Dixons had only 16 shops, five of them in London, and with the help of the offering it acquired more. Two chains of camera shops, Ascotts, with 13 stores, and Bennetts, Dixons' largest specialty competitor, with 29 branches, were bought in the next two years. Dixons also opened more shops from scratch, including one on a prime site near Marble Arch, London. By the end of 1964 the company had 70 shops and by 1969 it had more than 100.
Growth in profits was more erratic. Retail sales were depressed in some years by government action to restrict credit, and some of the company's expansionary moves lost money in the short term. In 1967 a large color film processing plant at Stevenage was purchased, the most up-to-date one in Europe at the time; it operated at a loss for a while before making a profit. Dixons also began to manufacture photographic accessories and display material and made substantial losses on this business before abandoning it in 1970.
Increase in Profitability in the 1970s
The key to Dixons' next leap in profits, in the early 1970s, was its move into electronics retailing. This began very cautiously in 1967, when some audio and hi-fidelity units were put on sale in six branches as an experiment. They sold well and were soon introduced into all branches. By 1970 Dixons had introduced its own Prinzsound brand. The next year, television sets were sold experimentally in 25 stores. They, too, were a great success, partly because the recent arrival of color television had created a large television replacement market. After that, Dixons introduced a host of new products in quick succession, including electronic calculators, radio/cassette recorders, music centers, and digital clock/radios. To make room for all these new products, the company had to enlarge its stores. In two consecutive years its total selling space was increased by 30 percent or more.
The effect of these developments on profits was dramatic. From £226,000 in 1970--a bad year&mdash′ofits soared to £828,000 in 1971, £2.3 million in 1972, and £4.9 million in 1973. The company had established itself in a new market with tremendous growth potential, and its reputation with the investing public, who by this time held the majority of its shares, stood high.
In fact, its next few years proved to be an unhappy period. This was partly because the economic climate changed for the worse in 1974, but chiefly because the company tried to buy its way into other new markets with less positive results.
Forays into Overseas Markets in the 1970s
Dixons started to expand abroad in the early 1970s, at first with success. Through small marketing companies in Sweden and Switzerland, it found valuable new outlets for its own brand of products throughout Europe. In 1972 it bought a large Dutch photographic and optical retail business, G.H. Rinck NV, a company with nearly 60 stores in the Netherlands, compared with Dixons' 150 stores in the United Kingdom at that time. As in Britain, Dixons opened more branches and introduced more products, but the Dutch business never approached the U.K. stores in profitability and for two consecutive years incurred losses.
This experience deterred Dixons from further expansion overseas for some years. Instead, it embarked in 1976 on a new form of expansion in the United Kingdom. With the hope of achieving a large increase in outlets for its goods at one stroke, it bought Weston Pharmaceuticals, a chain of 200 drugstores, for £11 million, together with a wholesale business supplying independent druggists. The idea was to widen Weston's range to include Dixons products, in the same way that Boots, originally a pharmaceutical company, had so successfully broadened its range to include other consumer goods. "Boots must be our model," said Peter Kalms in the Investors Chronicle of January 30, 1976 soon after the takeover.
These hopes were never realized. It became apparent within a short time that Weston had serious problems within its existing business and that any major expansion was out of the question. Its profits declined, then turned to losses. Dixons wrestled with Weston's financial problems for four years in an effort to turn it around, but in 1980 decided to recoup what it could of its investment by selling all the drugstores. The wholesale business was kept for some years longer, but seldom produced a substantial profit.
Meanwhile, the struggle to save Weston's retail business had left Dixons with a shortage of working capital, and this had led the company to sell G.H. Rinck in 1978. Thus by 1980 two major investments had come to nothing, and the company's reputation as a growth stock was tarnished. The recession of 1981-1982 delayed Dixons' recovery, with the result that its profits, after discounting inflation, showed no real growth for six years.
Re-Emphasis on Electronics Business in the 1980s
Dixons' main electronics retailing business, however, continued to expand throughout this period. By 1982 the company had raised the number of its stores to 260 and increased their average size. New electronic products were introduced as they were manufactured, including home computers, video recorders, and digital watches. By competitive pricing policies, Dixons won a sizable share of all these new markets. It launched a new house brand, this time with a Japanese name, Saisho. The photographic side of the business also continued to grow; its processing capacity was increased, and a property development unit was established successfully.
All of these investments paid off handsomely once Weston's problems had been left behind and the recession ended. In 1984 Dixons' profits jumped by 46 percent. On the strength of this fresh spurt of growth, the company made its biggest-ever takeover in December of that year. This time it chose a British company with a business closely complementary to its own. Currys Group PLC (Currys) was a chain of 570 shops, selling refrigerators, freezers, washing machines, and electronics, including a television rental business. Although it owned twice as many shops as Dixons, Currys' turnover was no greater, and its recent performance had been less dynamic. Nevertheless, it was a very sound business with a good name, and Dixons had to pay £248 million for it. Kalms would later reflect that it was "one of the deals of the century."
Currys was a much older business than Dixons. It began in Leicester in 1888 as a bicycle shop and, in the cycling boom of the 1890s, manufactured and sold bicycles. When its founder, Henry Curry, retired in 1910, his sons carried on the business--a partnership formed in 1897 as H Curry & Sons--and expanded it greatly. It ceased to manufacture, but developed into a nationwide chain of shops selling cycles, radios, baby carriages, toys, and sporting goods, and became a public company in 1927. The second and third generations of the Curry family continued to manage it, however, until the Dixons takeover. By that time the company had ceased to deal in cycles and sporting goods, but had become one of the leading retailers of domestic electric appliances of all kinds. The acquisition included Currys' Mastercare service division and the Bridgers chain of discount electronics and appliance stores.
The merger of Dixons and Currys, under the name of Dixons Group, put the company into the top echelon of British retailers. Even after selling the television rental shops, the new company had more than 800 stores in the United Kingdom and its staff had grown to 11,000. Currys retained its separate identity within the company, but its business methods were brought more into line with Dixons'. In the boom conditions of the mid-1980s, the combination brought further large increases in profits.
Flurry of Acquisitions in the Late 1980s
Stanley Kalms, however, was not content even with this empire. In 1986 he launched a bid for Woolworth Holdings, the British branch of Woolworth. The U.S. parent had sold its 52 percent controlling stake in this to a consortium of British investors in 1982, and Woolworth Holdings was still struggling to raise its profits after a long period of stagnation. Kalms believed that Dixons could do the job better, as well as obtain new outlets for its own merchandise. In the end, Dixons' £1.8 billion bid was turned down by the institutional investors who controlled most of Woolworth Holdings' shares.
Thwarted in this plan, Dixons looked around for other investment opportunities. In 1986 it acquired the 340-shop Supersnaps chain, the leading U.K. specialist in retail film processing. Then, in 1987, it made two major acquisitions in the United States, the Silo and Tipton electrical and appliance retailing chains. Silo Inc., with 119 stores and 2,000 employees, was the third largest electrical retailer in the United States and was strong in the East and Midwest. Tipton Centers Inc. was based in St. Louis and had 24 other stores.
With these acquisitions Dixons controlled more than 1,300 stores worldwide, with 3.5 million square feet of selling space. By 1991 it doubled the number of its U.S. outlets, gaining a presence on the West Coast as well, and the worldwide store total had risen to nearly 1,450.
But size did not necessarily equate with success. Dixons' pretax profits peaked at £103 million in 1988, and when recession softened the consumer electronics market, profits started to decline. As a result, Dixons found itself at the receiving end of a takeover bid in 1989. The bidder was none other than Woolworth, by then renamed Kingfisher, a company that had made a strong recovery since its 1986 financial difficulties. Dixons was saved from this threat by the Monopolies and Mergers Commission, which ruled that Dixons and Kingfisher as a unit would have an excessive share of the electrical goods market. Kalms later estimated that the two companies wasted £40 million in fees on the bid and counter bid.
The 1990s and Beyond
The Silo acquisition proved, as one analyst put it, "disastrous," racking up millions in losses under Dixons' management. In 1993, the U.K. parent sold the chain to America's Fretter Inc. in exchange for a 30 percent stake in the acquiring company. Dixons also divested its Supersnaps subsidiary to Britain's Sketchley plc during this period.
Hoping that it had stanched the flow of red ink, Dixons refocused on the domestic market, acquiring Vision Technology Group Ltd. (VST) in 1993. VST had been formed just two years prior via the amalgamation of several mail order computer companies in 1991. The merged firms opened their first retail outlet, PC World Superstore, that same year, offering computers, peripherals, software, and accessories. Following the acquisition, Dixons divested VST's mail order operation and concentrated on a dramatic expansion of the four-store chain. By the end of 1996, there were 25 PC World outlets throughout the United Kingdom. Dixons also hatched a new member of the retail family in 1994, launching The Link stores, specializing in retail communications services and products. By the end of 1995, this new chain boasted 48 outlets throughout the United Kingdom.
After four decades at the helm, a sexagenarian Stanley Kalms began to relinquish many of the day-to-day operations of his retail empire to a new CEO, John Clare, in the late 1980s and early 1990s. Remaining as chairman, Kalms continued to oversee strategy. Although earnings remained fairly flat at £1.9 billion in the early 1990s, pretax profit rose from £76.7 million in fiscal 1992-1993 to a record £135.2 million in fiscal 1994-1995.
Principal Subsidiaries: Dixons Stores Group Limited; Mastercare Limited; Dixons Commercial Properties International Limited.
Principal Divisions: Dixons; Currys; PC World; The Link; Mastercare.
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