Rumbelows set to disappear

Thorn EMI plans to announce a radical, three-part shake-up of its Rumbelows subsidiary next week, according to industry sources. In the process, the Rumbelows name looks set to disappear from the high street.

It is understood that all the managers of the 350 Rumbelows stores are being summoned to a meeting tomorrow, where they will be told that the shutters will come down on more than 100 shops.

The remaining 200 will, the sources add, be reflagged under Radio Rentals or Fona, the Scandinavian-style chain that sells televisions, stereo and video systems from 40 sites.

Thorn EMI, which is chaired by Sir Colin Southgate, refused to comment yesterday, citing the close season rule on information because it is set to announce third-quarter results on Tuesday.

Electrical retailing has become a cut-throat business, and many operators make profits out of the £6bn a year spent on goods only by selling extended warranties.

Thorn has apparently resorted to the break-up plan for Rumbelows after failing to tempt regional electricity companies into buying the stores. Some of the privatised utilities are already addressing their own retailing problems, either by looking to withdraw from the business or cutting the number of stores they operate.

The electricity companies have also come under attack from other operators, who have accused them of subsidising their retail operations. Stanley Kalms, chairman of Dixons, last month described their promotional activities as "profligate and uncommercial".

He added: "The expansion of their retail activities could not be sustained without the cash flow generated from their electricity distribution."

The high street retailers have also come under attack from the Office of Fair Trading. In a report published before Christmas, the OFT said customers were not well-served by the anti-competitive practice of selling extended warranties, which sport profitmargins as high as 80 per cent.

Despite the problems in the high street, analysts expect Thorn to announce an increase in third-quarter profits from £164m to about £200m, which will lift the nine-month total to December from £274.1m to about £340m. They said, however, that none of the improvement had come from Rumbelows, which they predicted was on course to lose more than £10m for the whole year.

The Rumbelows business performance contrasts starkly with Thorn's rental operations, which analysts reckon will make £140m in 1994/95.

One analyst said he would be encouraged if Thorn did break up Rumbelows; in particular, he said the expansion of Fona, a downmarket operation, would be very good news.

Thorn's shares, which have had a strong run over recent weeks, held steady at £10.50 yesterday amid a revival of the speculation that it might also sell or float off its EMI music operation. That business generates almost two-thirds of Thorn's profits, and nearly 70 per cent of results from the HMV record shops are lumped into the division's figures.

Rough calculations by analysts suggest that a flotation of the music business would equate to 800p, or 76 per cent of Thorn's current share price.

City opinion is divided over the merits of enhancing shareholder value by pulling out of EMI, which is widely recognised as having the best back music catalogue in the world. A partial flotation would, some analysts say, prove unpopular with investors and deprive Thorn of a good vein of cash.