Browett is in race against time

JOHN Browett’s bid to save Dixons by rolling out new “big box” stores was always going to be a race against time. No-one doubts that the new format – which combines more product choice with lower staffing costs – was the only way to go. If the electricals retailer wants to keep afloat in a world increasingly dominated by discounters and online retailers, it needs to sell more lines at lower prices. But if Browett’s turnaround were to be a success, it would have had to be completed before the debt-fuelled consumer hangover kicked in. Sadly for shareholders, it wasn’t.

Now Dixons is between a rock and a hard place. If it scales back capital investment any further, it will be forced to put the skids on the company’s transformation. But it also needs to preserve cash to survive in what is going to be an increasingly tough retail environment, especially for sellers of “nice to have” discretionary items like electricals.

Yesterday’s trading update suggesting an 11 per cent drop in sales wipes around £20m off annual profits (although that is before further cost cuts).?That makes Dixons look increasingly vulnerable, especially when its covenants are tested in October. We think the strong economic headwinds will prove too much for Browett’s good intentions. Investors shouldn’t wait around to find out.