Dixons alert over falling prices

Analysts are anticipating an escalation in the high street price war as falling costs in the mobile telephony and computer games market bite into retailers' margins.

Analysts are anticipating an escalation in the high street price war as falling costs in the mobile telephony and computer games market bite into retailers' margins.

As it released its interim results last week, Dixons Group warned of increasing price deflation in the high street which it said will affect its gross margins. Rival Kingfisher has also alerted shareholders about similar price pressure.

Dixons Group interim results showed an increase in sales from £1.45bn in the whole of 1998 to £1.72bn in the period ended 13 November 1999.

Operating profit rose to £62.9m from £54.6m. The retail division made an operating profit before exceptional items of £71.5m on turnover of £1.67bn. The group also announced it would separate its successful Freeserve Internet operation from its core business.

Jeremy Davies, senior partner at analyst Context, said the separation of Freeserve "makes sense".

"The two businesses are different and it is safer to make sure one does not end up diluting the other," he said.

Davies said a high street price war might blow up, but added: "There is a limit to how low prices can go before people realise that it's not worth it."

- Games vendor Electronics Boutique also continues to struggle in the face of spiralling price deflation. It issued a profit warning blaming price cuts on software games and games consoles.