Comet management today confirmed to staff that the retailer would file an intention to appoint an administrator with a view to enter administration next week.
Chief executive Bob Darke told staff in an email, and seen by Retail Week, that the retailer is “urgently” working with advisers to secure a future for the beleaguered electricals business. As the wheels of administration are set in motion, what does Comet’s possible exit from the market mean for other players in the electricals sector?
With a market share of 20.9%, according to analyst Verdict’s estimates for 2012, Dixons is the most dominant retailer in the electricals sector and stands to benefit in the long term from Comet’s possible demise. The 600-store group has already pursued a strategy of aggressive investment in stores targeting struggling Comet outlets, according to Verdict analyst Patrick O’Brien. It also invested in customer service, which should increasingly bear fruit, especially as Comet performed particularly badly on this front.
However in the short term, any possible winding up of Comet stores may cause some disruption for Dixons during the critical Christmas trading period, depending on how much stock the ailing retailer still holds. “It will have to clear [the stock] and that will disrupt the lower end of the market,” Panmure Gordon analyst Philip Dorgan points out.
The department store has been one of the recent success stories in the electricals markets, with sales in the category consistently driving growth at the retailer. The group has an estimated 5.4% share of the electricals market this year, and occupies the sixth spot in the sector, “and rising”, according to O’Brien. Its focus on customer service has stood John Lewis in good stead, as it carves out an attractive position in the sector, and it is one of the obvious beneficiaries should Comet cease to trade.
With more than 50% of its sales from electricals, and occupying the second spot by market share, Argos is a key player in the market, and can only benefit from one less competitor. The retailer has been struggling, however. “It is unable to offer much in the way of customer advice in stores,” O’Brien points out. “Its most recent results did show that it had stabilised, but that was compared to low [performance the previous year].” Being at the lower end of the market, Argos is also likely to be hit by the disruption the divestment of Comet stock may cause to the market.
Even though the might of Amazon has to a certain extent exacerbated the struggles of traditional retailers in the electricals market, online pureplays are “under the cosh”, according to Dorgan, as suppliers increasingly tend to favour the multichannel operators. He therefore doubts that Comet’s possible demise will significantly benefit pure plays in the sector. Nonetheless, online generalists such as Amazon (which is currently fifth in terms of market share in the sector) and eBay are in a good position to attract those customers looking for the cheapest deals.
A market that is notoriously hard, the electricals sector will benefit overall from one less competitor. “It’s a difficult market and the reason it’s difficult is that there’s too much capacity, taking Comet out will be helpful,” Dorgan points out.
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Analysis: Who will benefit from Comet's potential demise?