David Prosser: Comet's new owner is going to need some box of tricks to pull this challenge off
Thursday 10 November 2011
Outlook Best of luck to OpCapita, the new owner of the Comet electricals chain. It is certainly going to need it, for despite having some advantages compared with Kesa, the seller of Comet, this is the worst possible moment to be attempting to rescuea retailer.
First, the points in its favour. The first is that OpCapita has persuaded Kesa to retain responsibility for Comet's pension liabilities, in addition to parting with a £50m dowry that will provide ongoing funding. Second, OpCapita has experience in turning around businesses in this sector: it has worked wonders with BUT, a French electricals and furniture retailer. Third, there is already a cost-cutting blueprint in place for Comet – Kesa had intended to implement such a plan and OpCapita will stick to many of its proposals. Fourth, the announcement by Best Buy earlier this week that it will close its 11 megastores in Britain takes a competitor out of the marketplace.
Against that, however, the problems for Comet look formidable. The biggest one of all is the economic outlook. At a time when the squeeze on household incomes is ever-more vice-like, it is difficult to see how even the most robust of big-ticket-item retailers is going to be able to trade its way out of trouble.
Comet's fortunes, moreover, are too closely tied to the housing market, where the outlook is particularly bleak. Many of its products are bought by people moving house – unfortunately there are fewer folk doing that just now than at any time in living memory.
Putting the economic issues aside – not that they are going to improve much in the 18 months that OpCapita has given as a minimum period over which it will trade Comet – this is a retailer that also faces new and dynamic competitive threats. Not least from the internet, where price-comparison sites have made it simple for customers to find the goods they want at a cheaper price than Comet can often offer, and also from supermarket groups, and from the likes of John Lewis.
Might Comet be able to prosper by dramatically improving service levels in its stores, catering to those not confident enough to make online-purchasing decisions with no advice from an expert? Maybe so, though this was the great hope of Best Buy, and it didn't work for them. That's partly because service standards at other retailers haveimproved, noticeably at market leader Dixons, Comet's biggest rival.
OpCapita, in other words, has a battle on its hands. It is not one people expect it to win. Kesa is writing off the £50m it is "investing" in Comet, even though it is entitled to a share of the proceeds should OpCapita sell the business at a profit in a couple of years' time.
The market agrees with that analysis. Kesa shares leapt on the news of the disposal yesterday. Dixons' stock, meanwhile, was more or less flat, despite the potential threat from a competitor renewed, just as its investors did not get excited about the departure of Best Buy on Monday. This is a sector ofretail for which it is very hard to find much support right now.
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