When the world changes, past experience is less valuable than it once was.
Comet, the electrical retailer, has just been sold to OPCaptia. Previous owners Kesa, the third largest electrical retail group in France, effectively paid OPCaptia £50 million to take Comet off its hands. Comet is anticipating a loss of £35m or so, on sales of £1.3 billion, when its results are announced in April, having been hit harder than high-street peers, Dixons and Argos, over Christmas.
By comparison, Dixon’s festive season was only half as bad in terms of sales decline, and it does seem to have something that others find attractive – its management. Last week, it was announced that Dixon’s chief executive John Browett was leaving to run Apple’s retail business and now John Clare, his predecessor and chief executive of Dixon’s for 15 years, has been appointed as a rather hands-on chairman of Comet.
Clare seems to think that Comet is fixable without major restructuring. He plans to refocus Comet on its historically successful ”sell ‘em cheap” proposition, cutting back-office costs by, for example, outsourcing its repair and delivery divisions. Selling more “accessories” is also seen as a way of driving up margins.
The strategy seems to be that the low-price business model used in the 1980s is still valid for electrical retailing today and that Comet’s previous owner, who mistakenly thought it could drive margins up by competing for the “John Lewis segment”, would have done better if it had left things alone. We British don’t like paying too much for our electricals.
As a short-term opportunity, Clare maybe has a point. I am sure he can cut costs and build on his Dixon’s success, to significantly improve Comet’s lot. But in the longer term I am not so sure.
We are not too far from having fast broadband in our homes. This will make it much easier, with the use of video, to bring the retail experience to us – we won’t have as much need to go to actual shops, particularly those competing on price. It will accelerate the rebalancing, already under way, towards “clicks” and away from “bricks”. This will significantly undermine Comet’s traditional proposition, which has until now turned a profit despite the higher costs of its traditional retail supply chain and running a geographically distributed service business. It won’t work in the future.
Clare has two choices, a quick clean up and resale of the business, or significant reinvestment in online retailing capability. However, such a radical realignment of a business is in the ‘almost impossible’ category for most businesses. It is just too big a change. At times like this it is often new entrants who take the business from the incumbents.
Perhaps my recent personal experience is a foretaste of the future. I went into Comet to buy a TV to take home. I got some good advice, but when I went to pay, there was no TV, although the stock system had promised there would be. Pah! I went home, bought my TV online from Amazon and it was delivered the next day.
Clare’s Comet may return and burn bright for a while, but unless it truly embraces the internet era it won’t return for good.