Carphone shows how it's done

MARKS & Spencer and much of the clothing sector are in disarray, and Dixons may be tempted to take the axe to half its High Street sites.

But Carphone Warehouse today demonstrated that it is possible to make money in retailing although it needs a different approach to do so.

There is less and less room for those with a ?me too‘ offering - perhaps because Britain is the most oversupplied country in Europe when it comes to shops.

We have more retail space per head than the European average and, while everyone was prepared to pile on debt, they could all just about scratch a living. But when, as now, consumers' enthusiasm wanes and the shopping tide recedes, the weaker ones are left high and dry - as we have seen in the post-Christmas trading updates season.

The sales and profit growth Carphone produced over the Christmas quarter puts most other retailers in the shade. Overall retail sales growth is in double digits, individual lines are in places up by 27%, and gross profit - before all the nasty bits - is up more than 15%.

Mobile telephones are still predominantly a direct sell, despite efforts to shift the product over the internet.

Christmas is, of course, the season for sales of pre-paid phones and upgrades, but the market is gradually moving from prepaid to contract connections.

That is doubly good news for Carphone because contract deals give it an almost captive customer for repeat business in the future, and also opens the door to secondary revenues from services such as billing, which it provides for the likes of Vodafone and O2.

So successful and important is this ?life beyond the point of sale‘ that it now accounts for more than half of group profits, although much less of total sales. Thus in retailing terms it has a resilience of earnings that others would die for - or indeed are dying without.

The market is also changing. Phone handsets are selling again at an astonishing rate, given that almost everyone already has one, but this is driven by a change in the pattern of use.

It sounds pretentious to talk of a personal communications centre, but that is what the mobile is becoming with its built-in camera, immediate internet connectivity, access to data and video and all the other business services.

And this is even before 3G is launched to the mass market in the autumn, making everything bigger, faster and more varied - and, in truth, somewhat chunkier and more costly.

Most people over the age of 15 - or is it 12? - find this impossible to keep up with. But that is why the affable Charles Dunstone, founder and still boss of Carphone, has such a good business. We need to go to his shops to understand it all.

Futile fight

STEPHEN O'Brien, the Tories' Trade and Industry spokesman, issued a press release yesterday headlined: ?Jobs exodus will cripple UK's competitiveness‘.

It was something of a surprise because the one thing, surely, you can say about outsourcing jobs from Britain to India is that it will save a raft of cost, and make the companies concerned more competitive. So what was the new twist?

Sadly there wasn't one. What O'Brien went on to say was that Britain needed a low-tax, low-regulatory environment - the implication being that, if that existed, this country would be competitive enough for these jobs not to go overseas.

It's all rather alarming because it suggests that just when you thought it might be safe to vote again for the Conservatives, they show they are still lost when it comes to basic business and economics.

We might be in favour of lower taxes and less regulation, but not for that reason. No tax or regulatory bonfire could possibly make British wage rates competitive with those in India.

Dirt-cheap global telephony, has made it feasible to tap into service providers in places such as India where there is a pool of highly educated talent available at a fraction of the British price.

Services used to be protected from foreign competition because they could only be delivered locally. Some, such as hairdressing or taxis, still are but others, if they do not rely on face-to-face contact, are vulnerable.

Service provision is becoming a global market, as manufactured goods have been for years.

Although it is a painful adjustment, it is no worse than what has happened to coal, shipbuilding, textiles, engineering and agriculture.

To continue to prosper as a nation we have to let low-tech jobs go and move our workforce up the scale to do jobs that deliver greater value and prosperity.

Fighting to save call centres is as economically stupid as fighting to preserve cotton-spinning and shipbuilding. And as futile.

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