Dixons will revamp loss-making US arm: Profits down from pounds 50m to pounds 33m despite UK strength

DIXONS Group, the electrical retailer, yesterday admitted that it had to make significant changes at Silo, its US operation, where it ran up pounds 58.6m in losses and restructuring provisions in the year to 1 May.

John Clare, group managing director, said that it was unlikely that Silo could be returned to profit in its current format. 'In most of our markets we are number three, so we are always under pressure from the competition.' The stores were too small and poorly located, which meant 'we are working with one hand tied behind our backs'.

It has already closed 45 stores, mainly in the Midwest, and another 11 are earmarked for closure this year, leaving it with 185. That required a dollars 55m (pounds 36.2m) provision, and Dixons warned that further provisions could be required this year, depending on the strategy it adopted.

The actual business lost pounds 22.4m, up from pounds 16.9m last time, despite static like-for-like sales, as it tried to woo customers with lower prices. California, which accounts for a fifth of selling space, suffered particularly badly.

Two new formats were now being tested which, if successful, could be expanded to other areas. But Mr Clare warned that any changes would be made slowly, one region at a time.

The first pilot, which started trading at the weekend, is in Rochester, New York. Dixons has increased the size of three Silo stores, rebranding them as YES - Your Electronics Store. These specialise in brown goods - particularly computers and other home office equipment - but do not stock any white goods such as fridges.

The second is in Chicago, where four stores have been expanded and started trading a few weeks ago. The results of the pilot studies, however, will not be clear for some months.

Silo is the latest in a series of disastrous forays into the US by British retailers. Marks & Spencer, Laura Ashley, Sock Shop and Ratners are among those that have suffered from expansion there.

Dixons paid pounds 210m for Silo in 1987, and it made pounds 16.8m profit on pounds 398.3m of sales the following year. Since then, however, profits have fallen consistently despite rising sales. Mr Clare admitted that Dixons had allowed the management to continue its traditional strategy of increasing sales, even if it was at the expense of profits.

The Silo losses meant that Dixons' profit before tax fell from pounds 50.1m to pounds 33.5m despite a strong performance on the British high street, where the group also owns Currys and PC World, acquired at the beginning of the year. The results were worse than the market had expected and Dixons shares closed down 15p at 190p.

Operating profits in the UK retail business rose from pounds 71.9m to pounds 77.6m, despite the absence of a pounds 10m expanded warranty surplus that boosted the 1992 figures. They included a pounds 200,000 contribution from PC World, which sells personal computers from warehouses around London. Dixons is keen to expand PC World in other areas. The group attributed the success in the UK to increases in market share and the rise in the number of out-of-town Currys superstores - 18 were opened, bringing the total to 133 - which enjoy lower costs and higher margins.

Sales so far this year were ahead of last year, but Mr Clare warned that competition, partly from the electricity companies, meant margins were under pressure. 'The market is more competitive than we have ever known,' he said. 'We are seeing a number of competitors who are apparently prepared to throw away gross margins to increase sales.' Dixons and Currys responded by cutting prices wherever that happened.

The provisions, and an exceptional tax charge for US retirement benefits, pushed the group into a loss per share of 6.5p compared with 6.5p of earnings last time. But the dividend was increased from 6p to 6.2p via a 4.6p final.

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