Prior to AO.com's flotation, electrical giant claims its prices are lower and that its internet sales will be larger within two years
Electrical giant Dixons has fired a broadside at internet rival AO.com, claiming its prices are lower and that its internet sales will overtake those of its online-only competitor within two years.
AO, formerly Appliances Online, is expected to be valued at £1bn-£1.2bn when it debuts on the stock exchange in March. The hype around the flotation has knocked the Dixons share price and there are concerns that it will lose sales to its ambitious smaller rival.
At the moment AO focuses on the £3.2bn major domestic appliance market which includes everyday gadgets such as fridges and washing machines, but its growth plans include new areas, such as televisions, as well as a move overseas, resulting in a greater overlap with Dixons.
Founded by entrepreneur John Roberts, AO made a profit of £8.1m on sales of £275m last year. Given the size of the business, the heady float price tag has surprised some analysts, leading to comparisons with the hubris of the dotcom boom.
In a presentation circulated among investors, Dixons said its internet sales had been growing at 47% a year for nearly four years – faster than the 30% growth rate reported by AO – and that it was taking market share. The report also claimed Dixons' prices were 3% lower than online rivals.
Dixons had a torrid time during the financial crisis but is now on a surer footing after shedding problem businesses and a pick-up in consumer confidence. With annual sales of £8.2bn, the owner of Currys and a network of overseas chains is the far larger of the two businesses although its UK online market share in domestic appliances is roughly the same. Independent retail analyst Nick Bubb said if the same valuation logic was applied to Dixons' internet business as to AO, it would be worth £1.6bn, which is currently the market capitalisation of the whole group.
Barclays analyst Christodoulos Chaviaras said the "noise" caused by AO's intention to float and the associated negative impact on Dixons' share price had been "overdone". "Our analysis shows that Dixons and and AO's prices are similar while Dixons' service levels have been rapidly improving to a very competitive level. We do not dismiss AO as a credible competitor and Dixons shouldn't do either...but we have yet too see any evidence of AO impeding Dixons' growth." Dixons shares closed up nearly 3% at 48.4p.
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