What Really Killed HMV, Jessops And Blockbuster?
After Comet failure, three more high-street chains bite the dust: Hmv, Jessops and Blockbuster.
This year is already shaping up to be another rough ride for Britain’s high-street retailers, as three major chains go under within the first 16 days of 2013.
First to fail was photographic retailer Jessops, which was founded in Leicester in 1935.
The company went into administration ( a form of corporate insolvency) on Wednesday, 9 January. Within two days, administrators PricewaterhouseCoopers decided that Jessops could not continue as a going concern, so it closed the chain. As a result, 187 stores shut down, costing 1,370 jobs.
The second chain that fallows into administration this year is music and entertainment retailer HMV. Its landmark store in London’s Oxford Street was opened by Sir Edward Elgar on 20 July 1921, it appointed administrators on Monday, 14 January 2013 – just five days after Jessops.
HMV’s administrators Deloitte are keeping the group trading as buyers circle for scraps. This could mean the sale of some of HMV’s 238 worldwide outlets to save jobs among the workforce of almost 4,500.
Just after 2 days of HMV failure, Blockbuster went under. The video rental business has 528 stores and employs 4,200 staff in the UK. Lee Manning, a partner at administrators Deloitte, said they were hoping to save as much of the business as they could. “We are working closely with suppliers and employees to ensure the business has the best possible platform to secure a sale, preserve jobs and generate as much value as possible for all creditors.”
The most frequently cited reasons for these big companies collapse are recession and the internet. While they have failed, other high street chains – both new and old – have seen their fortunes soar.
The John Lewis Partnership (owners of John Lewis department stores and Waitrose supermarkets) is one of the winners. It proudly announced record sales over the recent festive season, with Waitrose’s sales up 5.4% to over £300 million in the last two weeks of 2012.
Halfords is another British company that is thriving in this new age of austerity, as squeezed incomes drive spending on bicycles and car maintenance. On Tuesday, Halfords’ trading statement revealed that sales at its Autocentres surged by an eighth (12.4%) in the 15 weeks to 11 January.
So why do some retailers thrive, while others dive or merely survive? Here are eight reasons that separate high-street winners from losers:
1. Digital deathWith strong growth of high-speed broadband over the past decade, online sales have exploded. In 2011, we Brits spent over £68 billion online, with Amazon at the forefront of this retail phenomenon.For some retailers, notably giant supermarkets such as Tesco, Sainsbury’s and Asda, this online revolution has opened a new channel for extra sales. For others, its spelled death, wiping out sales of, for example, singles and albums in favour of digital downloads.
This is just as true with films – Netflix and Lovefilm let you see the latest blockbusters without heading to, well, Blockbuster. Combined with that, a digital television revolution means people can now see films on free “catch-up” services or record them on “+” boxes and surf more than 50 channels. There are just fewer days with nothing on telly that might see you head to a rental store.
Unfortunately, this is not a good start for companies like Blockbuster with singles and physical albums and films, because the future of entertainment is clearly online and digital.
2. Supermarket sweep
Another structural issue for the likes of HMV and Jessops is supermarkets muscling into their territory.As supermarkets diversified into new product ranges, electronic goods appeared in-store and on their websites. Thanks to their huge size and scale, these retail Goliaths can undercut their specialist rivals on price, snatching business away from what were once market leaders in niche sectors.
3. Prices plummet
When competition is low and prices are high, retail margins stay fat and produce healthy profits. However, online retailing ignited a price bonfire that continues to this day, especially in the field of consumer electronics.With prices plummeting by four-fifths (80%) in 17 years, it’s hardly surprising that so many retailers in this sector are dying out.
4. Rapid product evolution and innovation
Thanks to the new gadgets, smartphones, tablets, computers that are constantly must have products and launched day by day, traditional retailers are struggling to manage stock level.
On the other hand, online retailers with streamlined systems and superior stock control gain a competitive advantage when replacing unsold and outdated stock of consoles, tablets, phones and cameras.
5. ‘Super’ stores
As well as promoting lower prices, online retailers have huge warehouses full of stock. Instead of offering, say, 5,000 to 10,000 different products, their product ranges and stock levels are magnitudes greater. For example, Amazon has 1.5 million different books for sale – a range that cannot be matched by any high street outlet.
Stores also suffer from ‘browsers’ – consumers who visit shops to compare goods, only to return home to buy their goods online at lower prices.
Also, costumers prefer to shop online to avoid crowded aisles, checkout queues and busy car parks.
6. ‘High’ street costs
A bricks-and-mortar business costs vastly more to run than a website. Thanks to high rents (payable quarterly in advance), business rates and staffing costs, traditional retailers operate at a competitive disadvantage to nimble, web-based rivals. In addition, high-street shops cannot up sticks and relocate offshore and pay the same corporation tax and VAT as Amazon and Starbucks, for example.
7. Death by debt
By becoming ‘leaner and meaner’ through cost-cutting, a few high-street retailers have managed to overcome declining sales, lower margins and reduced cash flow. However, those who fail have generally been brought down by their banks when lenders lose patience with rising debt levels.
In fact, thanks to a credit famine and rising borrowing costs, excessive debt is probably the single biggest killer of British retailers – as the likes of HMV (with debts exceeding £176 million) will confirm.
8. Housing problems
The sluggish housing market is yet another setback for retailers. At the market peak in 2006, nearly 1.7 million UK homes changed hands, falling to 1.6 million in 2007. Unfortunately, housing transactions haven’t risen above 900,000 a year since 2008 and are running at roughly half of their peak.
Due to lack of first time buyers and home-movers, retail sales found fail,especially at firms such as Comet and Carpetright, which rely heavily on consumers kiting out their new homes.
9.Who loses out when retailers fail?
Every British person suffers when big businesses fail.
Hardest hit are workers who lose their jobs when companies crash. It’s an uphill struggle to find work while struggling to get by on benefits as welfare cuts bite.
Comet’s collapse left our Government with a £23.2 million bill for outstanding pay for nearly 6,900 ex-employees.In addition, insolvent companies often leave large tax bills unpaid. For Comet, this unpaid tax debt came to £26.2 million – a little over £1 for each of the UK’s 26 million households.
Banks and other lenders lose out when businesses fail, as bad debts batter their balance sheets. Inevitably, these losses are passed on in the form of higher interest rates, charges and fees to both corporate and individual borrowers.
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