DSG's proposed sale of The Link mobile phone chain to O2, which already owns 40% of the 300-store retailer, will give O2 key sites from which it can sell its phones directly to consumers. If the proposed sale goes ahead, it will mark the latest step in DSG's plans to focus on its strongest divisions.
The Link has been a top performer for the group in recent years, taking advantage of the rapid growth in the mobile phone market with customer demand driven by 3 and the launch of new handsets and camera phones. But tough trading conditions presented huge challenges. The retailer said lower levels of contract sales and price reductions on pre-pay were behind the slowdown. The company revealed a 21% fall in like for like sales at The Link this year.
The company has been losing ground to high street competitors. Rivals like Carphone Warehouse, which has been developing its own telecoms services, Phones 4u, and online competition which all operate on a much larger scale. There is also the issue of the mobile market reaching saturation point, due to poor contract sales, fewer network subsidies and network providers.
For O2 and its parent company, Spanish giant Telefonica, the acquisition will enable it to launch services directly to customers and is its biggest expansion to date. This also comes at a time when the company has made a decision to move further into the residential telephony market offering converged mobile and broadband services which are currently being offered by rivals like Orange, with Vodafone set to follow suit.
Looking ahead, if speculation surrounding the sale of The Link is true, this will confirm the electricals retailer's intention to significantly speed up its revamp and show acceleration in terms of the strategic repositioning of the company. This will help to simplify the group's structures and generate a war chest which could boost the group's financial resources and help with external growth. Disposing of The Link will enable DSG to get rid of the one remaining thorn in its side and continue on its quest to become a true multinational retailer.
Source: Verdict Research