One of the worst kept secrets in retail was confirmed today with the merger of Carphone Warehouse and Dixons in a £3.7bn merger deal. The rationale would appear to be to create a retail group to serve customers as the interconnectivity of the internet of things converges with electrical appliances. While there is little overlap in what the two companies offer in terms of stores and products the deal comes across as more defensive as anything else, with cost savings of around £80m a year to begin with. The companies are being squeezed from both sides with Carphone Warehouse feeling the pinch from the big mobile operators selling out of their own high street stores, negating the need for a phone provider middleman. Electrical retail is increasingly becoming extremely competitive with new kids on the block like AO World, eating into market share and margins, while John Lewis has a pretty solid offering in electrical retail which people seem to trust, along with extended warranty cover. The fact is that while these two retailers have endured the worst of what the financial crisis has thrown at them over the past few years a quick look at their sales growth tells you that they are finding it increasingly difficult to improve their revenues. Dixons revenues look set to remain fairly flat over the next three years at around £7.5bn, while profit estimates look optimistic, unless they pare down on costs. As for Carphone Warehouse they’ve been down this road before with US electrical retailer Best Buy in 2008 and by 2011 Best Buy was packing its bags back to the US. Maybe the timing was bad with the financial crisis, but Best Buy is a much better retailer than Dixons, and the fact they couldn’t make that work doesn’t bode well for this particular merger. The retail landscape is changing and as the “internet of things” evolves and consumer shopping habits change, store real estate is becoming less and less relevant. Consumers want to order their goods over the internet, and either have them delivered or use “click and collect” and then pick them up at a convenient location. The two companies say the merger will prepare the company’s for the arrival of a new interconnected world where mobile devices can talk to electrical appliances, though I’m struggling to see how this could work given that I can already control my central heating with my iPad through a third party App, neither of which I bought from either company. Where does Dixons Carphone fit into that? The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person