Currys cuts promotions as it looks to stop ‘chasing unprofitable sales’

Currys is moving away from pursuing sales that are heavily driven by discounting or costly free delivery in an attempt to improve profitability.

Currys is being more selective in how it deploys its digital media spend and promotional activity in order to break a habit of “chasing unprofitable sales” as it looks to become a more profitable business.

The electronics retailer reported a group sales decline of 7% in its full-year results. In the UK and Ireland, sales declined to £5.07bn for the year ended 29 April 2023, versus £5.49bn in the year prior.

Despite the decline in sales, earnings before interest and tax for the UK and Ireland was up 45% year on year, something which the business attributes to improvements in its gross margin and cost saving initiatives. Its gross margin increased by 160 basis points in the UK and Ireland.

A large part of the move to improve gross margin has been to stop going after sales at all costs, CEO Alex Baldock told investors yesterday (6 July).

“When we talk about not chasing unprofitable sales, it means not giving away delivery for free so you lose money on the transaction. It means not spending so much on PPC [pay per click advertising] that it’s impossible to make any money even if the customer buys something online. It means not giving more than you need to away in promotions, discounting or markdowns,” Baldock said.

Moving away from these unprofitable sales contributed in large part to the 7% sales decline in the year, but he claimed it was a necessary hit to generate better profits in the UK business over the long term.

Welcome to IMGFUCK: Seven steps to kicking your price-promotion addiction

In the UK and Ireland, Currys made £120m in cost savings in its financial year, with £13m was cut from marketing spend. The retailer did not disclose what percentage of its total marketing spend this equated to.

Chief financial officer Bruce Marsh told investors the cuts came from efficiencies made, rather than slashing marketing.

“This isn’t simply cutting marketing, and therefore have lower sales,” Marsh said. “This is where we’ve used data to identify marketing activity that simply isn’t adding value. Most of this is digital advertising, PPC advertising, where we’ve taken out activity that simply wasn’t generating profit.”

The business has been working to improve its data and analytics capabilities this year to understand how to cut out unprofitable marketing activity.

“We understand better than we did previously, end to end, where we truly make money in this business,” Baldock said.

There is “much more potential” in this area to make efficiencies and improve the effectiveness of spend, the company said. Baldock added Currys has “very rich” sources of data, which it can tap into.

In addition to being more careful about how it deploys media spend and promotional activity, Currys has also retained a focus on its “retail fundamentals”. These include investing in price, range of products available and customer experience instore and online.

“As you improve the experience you give to customers, so you can charge more for it and the customer will bear that because they’re still getting value for money,” Baldock said.

The approach to improving the customer experience has been identifying pain points, fixing these and then putting processes in place to prevent these from recurring.

Its net promoter score has improved 280 basis points versus three years ago. Baldock stated this score, which reflects the customer experience, is “worth money” to the business.

Recommended

Comments

    Leave a comment