Reports today make it clear that Comet is about to enter administration, making it the 29th high street retailer to do so since the start of the year.

Reports today make it clear that Comet is about to enter administration, making it the 29th high street retailer to do so since the start of the year.

Even though OpCapita stepped in to try to save the brand last year, Comet had a number of fundamental problems.

For a start, it’s widely known that Comet has been trading without credit insurance, which means that it can’t offer its suppliers any guarantees that they will get paid if something were to happen to the chain. As a result, the company had come under increasing pressure from manufacturers to pay for its stock up front.

Given the current state of the market, this added pressure was the last thing that Comet needed. Electrical retailing has been one of the hardest hit by the growth in ecommerce as consumers turn to more flexible (and often cheaper) online options, and in fact closely mirrors what the music industry went through five or six years ago.

Just look at what happened following the management buy-out of Virgin Megastore, for example: the chain re-branded as Zavvi in 2007, only to enter into administration – and sell a number of its stores to arch rival HMV – just one year later.  Since then, the majority of players in this market have either moved online or gone out of business, leaving HMV as the last man standing.

The electrical goods sector is likely to go much the same way, which means tht Dixons will be the real winner in terms of this latest news from Comet. In fact, investors are probably rubbing their hands together as we speak, no doubt delighted to get rid of both Best Buy and possibly Comet in the space of year. Unsurprisingly, the DSG’s share price jumped by more than 12% less than an hour after the news broke this morning.

Despite this, it’s worth noting that another well-known retailer is still in the game: the company that everybody loves to love, John Lewis. The John Lewis Partnership is still outperforming the market with its electrical goods, having managed to pull off a trick that Comet just couldn’t manage, with much less stock and fewer stores to support. John Lewis has also been able to thrive in this market thanks to its legendary customer service, which is something that sets it apart from its online competitors, as well as its warranty extension scheme.

Clearly, Comet just wasn’t able to compete in any of these areas, and the roots of its demise go back much further than OpCapita’s involvement. Its entire business model - whereby it needed to have shops within a certain radius of every large towns - left the chain very vulnerable, as it needed to hold stock in more than 200 different locations, equating to hundreds of millions of pounds. 

Once a chain starts to become overstretched in this way, the speed at which the business can begin to unwind is incredible. So what’s the real lesson here? Unless retailers can offer the unique in-store experience of a John Lewis, the buying power of a DSGi, or the agile business structure of an Amazon, then they risk enduring the same fate.

  • Dan Coen, director, Zolfo Cooper