Tag: Comet

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His Master’s Voice is fading

Comet, Peacocks, Woolworths, JJB, Jessops and now HMV – they all have one thing in common. The recession has hit them so hard that they entered administration. HMV is the latest high street retailer to bring in the administrators, despite insisting that it does have a future on the UK’s high streets. With debts of £176m and huge competition from online retailers, the future of HMV is very uncertain.

Over the past decades, companies such as Amazon, ebay, LoveFilm, Netflix and apple have emerged providing very stiff competition to the last remaining high street seller of music and DVDs. People have been turning more and more to the internet to do their shopping, with cheaper prices and greater choice. The speed of delivery, which in the past may have been a disadvantage of buying from somewhere like Amazon, is now barely an obstacle and these substitute companies have created a difficult environment for high street retailers to compete in. Despite going into administration, it’s not necessarily the end of the much-loved HMV. Its Chief Executive said:

We remain convinced we can find a successful business outcomes. We want to make sure it remains on the high street … We know our customers fell the same way.

While the recession has undoubtedly affected sales at HMV, is this the main reason for its demise or are other factors more relevant? As discussed, online retailers have taken over the DVD and music industry and with downloading increasing in popularity and CD/DVDs on sale in numerous locations, including supermarket chains, HMV has felt the competitive pressure and its place on the high street has come into question. As Neil Saunders, the Managing Director of Conlumino said:

By our own figures, we forecast that by the end of 2015 some 90.4 per cent of music and film sales will be online. The bottom line is that there is no real future for physical retail in the music sector.

Further to this, prices have been forced downwards and HMV, having to pay high fixed costs to retain their place on the high streets, have been unable to compete and remain profitable. Another contributing factor could be an outdated management structure, which has not responded to the changing times. Whatever the cause, thousands of jobs have been put at risk. Even if buyers are found, some store closures by the administrators, Deloitte, seem inevitable. Customer gift vouchers have already become worthless and further losses to both workers and customers seem likely. It is thought that there will be many interested buyers and huge support from suppliers, but the former is likely to remain a relatively secretive area for some time.

This latest high street disaster will undoubtedly raise many questions. One theory about recovery from a recession looks at the need for many businesses to go under until the fittest are left and there is sufficient scope for new businesses to emerge.

Could it be that the collapse of companies such as Woolworths, HMV, Comet, Jessops and Blockbuster is an essential requirement for economic recovery? Or was the recession irrelevant for HMV? Was its collapse an inevitable consequence of the changing face of Britain’s high streets and if so, what does the future hold for the high street retailers? The following articles consider the demise of HMV.

HMV: a visual history BBC News (15/1/13)
Chief executive says ‘HMV still has a place on the high street’, as customers are told their gift vouchers are worthless Independent, James Thompson (15/1/13)
Potential buyers circle stricken HMV Financial Times, Andrea Felsted (15/1/13)
HMV and independents to urged to work together to save in-store music market BBC News, Clive Lindsay (15/1/13)
HMV record chain was besest by digital downloads and cheap DVDs The Guardian (15/1/13)
The death of traditional retailers like HMV started when we caught on to one-click and the joy of owning DVDs wore thin Independent, Grace Dent (15/1/13)
HMV shoppers: ‘I’m disappointed, but it’s understandable why they went bust The Guardian, James Brilliant (15/1/13)
HMV: Record labels could take HMV back to its 1920 roots The Telegraph, Graham Ruddick (15/1/13)
HMV’s future seen as handful of stores and website Reuters, Neil Maidment and James Davey (15/1/13)
HMV leaves social gap in high street BBC News, Robert Plummer (15/1/13)
Is there good news in HMV’s collapse? BBC News, Robert Peston (15/1/13)
Is it game over for UK retail? The Guardian, Larry Elliott (18/1/13)
High Street retailers: Who has been hit hardest? BBC News (16/1/13)

Questions

  1. What are the main reasons behind the collapse of HMV?
  2. Use a diagram to illustrate the impact the companies such as Amazon and Tesco have had on costs and prices in the entertainment industry.
  3. Has the value we place on owning DVDs truly changed or have other factors led to larger purchases of online entertainment?
  4. Why is online retail providing such steep competition to high street retailers?
  5. Explain why it can be argued that economic recovery will only take place after a certain number of businesses have gone into administration.
  6. To what extent do you think HMV’s collapse is due to its failure to adapt to changing social circumstances?
  7. Briefly outline the wider economic implications of the collapse of a company such as HMV. Think about managers, employees, suppliers, customers and other competitors, as well as other high street retailers.
  8. In which market structure would you place the entertainment industry? Explain your answer. Has this contributed to the demise of HMV?
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Comet fall from the sky

For those looking to buy larger electrical appliances at cheaper prices, things might be looking up, as Comet have begun heavy discounting after entering administration. Deloitte, as the administrator, will now begin the search for a buyer for this retailer, while Comet aims to raise the funds to rescue the company.

Comet was bought by OpCapita last year, but with poor performance continuing across the 200+ stores, we could be about to see the demise of this retailer. Over 6,000 jobs are now at risk, although Deloitte has maintained that stores will continue to trade and that redundancies will not be made. One of the administrators said:

‘Our immediate priorities are to stabilise the business, fully assess its financial position, and begin an urgent process to seek a suitable buyer which would also preserve jobs.’

The retail environment has inevitably suffered over the past few years, with well-known companies such as Woolworths, Optical Express and JJB Sports (to name a few) entering administration. Comet, therefore seems to be the latest in a long line of sad trading stories. So, which factors have contributed towards the collapse of this giant retailer?

Over the past few years, online retailers have gained a larger and larger market share. These internet retailers do not have the same overhead costs that Comet and other high street retailers face. To open a store in an area where customers are in high supply, premium rents must be paid and this adds to the cost of running any given store. In order to cover these higher costs, higher prices can result and this, together with consumers facing tight budgets, has led many customers to look at the cheaper alternatives online. Deloitte has also said that Comet has been suffering from a lack of credit, which has meant that it has not been able to purchase stock in the run-up to Christmas. Deloitte commented that:

‘The inability to obtain supplier credit for the peak Christmas trading period means that the company had no realistic prospect of raising further capital to build up sufficient stock to allow it to continue trading.’

Concerned customers are naturally emerging, wondering whether items they have ordered and paid for will actually turn up. However, Deloitte’s reassurance that trading will continue may go some way to relieving their concern. The following articles consider how Comet has fallen from the sky.

Comet officially enters administration, stores re-open for expected firesale The Telegraph, Graham Ruddick and Helia Ebrahimi (2/11/12)
Comet calls in Deloitte as administrators BBC News (2/11/12)
Apple sky-high as Comet falls to earth The Guardian, Zoe Wood (2/11/12)
Comet enters administration, Deloitte seeks buyer Reuters (2/11/12)
Comet electricals administrators formally begin search for saviour The Guardian, Zoe Wood (2/11/12)
Comet goes into administration Financial Times, Andrea Felsted (3/11/12)
Comet collapse: Deloitte blames internet and lack of first-time home buyers The Telegraph(2/11/12)
Collapse of Comet puts 7000 jobs in danger Independent, James Thompson (2/11/12)

Questions

  1. Why does the retail environment remain very weak?
  2. Explain why Deloitte suggest that a lack of first time home buyers has played a part in the demise of Comet.
  3. Why has a lack of credit contributed towards Comet’s downfall?
  4. Should customers be concerned about how Comet’s demise (if indeed a buyer is not found) might affect prices in other retailers such as Currys, given that they will now have a larger share of the market?
  5. Why has online trading contributed towards the harsher retail environment for the high street stores? You should think about fixed and variable costs in your answer.
  6. Why are companies such as Apple doing so well relative to other companies, such as Comet and JJB Sports? Is there a secret to their success?
  7. What impact might this collapse have on local labour markets, given Comet employs so many people? Think about the effect on wages, unemployment and on claimants of benefits.