Troubled electricals retailer to appoint administrators, putting 6,500 jobs at risk
Troubled electricals retailer Comet has confirmed that it will go into administration next week, putting 6,500 jobs at risk.
The company has filed an intention to appoint an administrator, with a view to entering administration next week. It said: “The board is urgently working with its advisers to seek a solution to secure a viable future for the company.”
Deloitte is understood to be waiting in the wings to handle the administration of the 240 stores, which will remain open for business in the meantime. Comet said it would honour deliveries of items that have already been paid for. Shoppers were advised by Comet to spend any gift cards or vouchers as soon as possible – “whilst stocks last”.
The notice to appoint administrators gives companies five working days’ breathing space to discuss a sale or other survival plans with administrators, which can be extended to 10 working days – but this does not usually prevent them going into administration.
Comet’s demise is set to benefit rivals Dixons and Argos owner Home Retail, whose shares leapt 15% and almost 6% respectively.
Comet, the UK’s second largest electrical specialist after Dixons, has struggled to make headway as supermarkets and online retailers such as Amazon targeted the cutthroat market. It is estimated to have made a loss of £35m in the year to 30 April. In a sign of the toughness of the market US giant Best Buy pulled out of the UK last year after struggling to gain a foothold.
“The mooted collapse of Comet will come as little surprise given weak sentiment and the shift towards online channels for consumer electronics,” said Jon Copestake, retail analyst at the Economist Intelligence Unit. “Not only has Comet has faced deflationary pressures thanks to stiff competition and cheaper production costs but core audio visual products are being undermined by combined platforms on smartphones and tablet computers. Even the recent improvements for market leader, Dixons Retail, cannot gloss over pre-tax losses in three of the last four financial years.”
Industry sources said Comet faced a cash crunch after trade insurers cut credit lines to suppliers, forcing them to ask for payment for goods upfront.
The retailer has been hard hit by the collapse in consumer spending caused by the financial crisis, and French company Kesa paid OpCapita a £50m dowry to take the loss-making chain off its hands just nine months ago. OpCapita paid a token £2 for the chain.
Comet’s failure would be more bad news for a retail sector that has been hit by a series of collapses this year, including household names such as JJB Sports, Game, Peacocks and Blacks Leisure. Although the brands still survive, the subsequent restructurings have resulted in hundreds of store closures and thousands of job losses. Last month more than 2,000 jobs were lost at JJB alone after administrators were unable to find a buyer for the stricken sportswear chain.
The spate of collapses has contributed to the blight of empty shops on Britain’s high streets, with a recent report from PwC and the Local Data Company calculating an average of 30 store closures a day in July and August.
In the original sales document, OpCapita had promised to keep Comet going for 18 months and its rapid decline will attract scrutiny of its stewardship. In a previous guise the same firm, which is run by former investment banker Henry Jackson, took over the running of furniture chain MFI in 2006 after securing a £130m dowry from its owner. It was sold on two years later but fell into administration soon after the deal went through.
In an interview this year with the Financial Times, Jackson, the former head of Deutsche Bank’s consumer and retail practice, insisted its strategy was not to make money from winding down businesses. “We are not liquidators. We don’t look at businesses based on realising asset value,” he said. “What we are about is operational change.”
OpCapita had drafted in industry heavyweight John Clare, a former chief executive at Dixons, to lead the turnaround of Comet. On OpCapita’s watch, staff numbers have been reduced from nearly 10,000 to 6,500 as it cut costs and closed stores. In a recent interview Clare said trading had stabilised but last month the mood music changed after reports that OpCapita had received unsolicited approaches from rival groups interested in buying it although industry sources suggested there was little appetite for the chain, describing it as a “basket case”.
Reports that the business could change hands again were said to have caused suppliers to toughen their terms for dealing with the retailer, magnifying its financial problems.
OpCapita took on little financial risk when it bought Comet and the source suggested the firm would not be out of pocket in the event of an administration. OpCapita bought about 300 Game stores from its administrators.
Comet was previously part of stock market listed Kesa, which has since renamed itself Darty and the former parent remains on the hook for Comet’s pension scheme which is thought to be around £40m in the red.
It is unclear whether the administration of Comet would be a precursor to a sale, or result in a break-up with stores sold off to other retailers.
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