Business analysis: Dixons: Moral of Pixmania saga is beware untested upstarts, says Nils Pratley
(Guardian (UK) Via Acquire Media NewsEdge) The acquisition "is expected to be earnings enhancing in the first year", boasted Dixons in July 2006 as it paid euros 261m (pounds 180m at the time) for a 77% stake in owner of Pixmania, a pan-European online retailer of electrical goods.
Those were the days. Consumers were flush, the internet seemed to offer easy profits and John Clare, Dixons' then chief executive, could breezily announce he was accelerating the ambition to be "the market leading e-tailer of electricals throughout Europe".
That earnings enhancement never happened - in year one, or ever. Seven years, and two chief executives, later Dixons can count the cost of its Pixmania misadventure. It is paying a German restructuring specialist euros 69m (pounds 58m) to tow away the business. Throw in trading losses, and a pounds 8m bill last year for clearing out minority investors, and Dixons has lost a bit more than pounds 250m on Pixmania.
Visions of pan-European domination were jettisoned long ago, and today's boss Sebastian James wants to "stick to the knitting", which means only playing in markets where Dixons is the leader or a strong number two. So the Turkish operation was also off-loaded, leaving the Italian business at the top of the to-do list.
A slimmer Dixons, concentrated in the UK and Scandinavia, looks an infinitely sounder prospect, as reflected in a share price that has risen from 12p to 47p in 18 months. The company seems to have found a formula to compete with Amazon - match it on price and be chummier with the manufacturers. Dixons has also had some luck, in the form of the demise of Comet and now the Osborne-Carney housing boom.
The moral of the Pixmania disaster, though, is never to trust a retailer that thinks the answer to a strategic headache is to write a large cheque to buy an untested upstart. The purchase was born from fear of being left behind in an online world. Dixons was right to worry, but the solution was self-help, as it usually is.
(c) 2013 Guardian Newspapers Limited.
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