Retrenchment in action - Comet turns off the retail lights

This is a pretty terrible time to be a high street retailer of high-priced electrical items. UK consumers are reluctant to take their credit cards out whilst great uncertainty remains about rising unemployment, higher consumer prices and tight disposable income. The problem is probably even worse for a retailer without a strong online presence, and electrical retailer Comet seems to fit that profile. This article explains Comets new short-term strategy of retrenchment.

There is a simple driver of the retrenchment. Sales are falling - rapidly. Comet’s sales are down 15% during 2011 so far. Imagine just what damage that does to the profitability of a retail chain where a significant proportion of costs are fixed (store rental, staff costs etc). The toxic combination of falling sales, gross profit margins under pressure from online retailers & high fixed costs implies a problem with break-even. Comet is not alone. Retailers like HMV have been facing exactly the same challenge - and their strategic response has been similar.

The maths of Comets strategy are pretty straightforward - but interesting for business students looking for some data-based evidence of strategy in action.

Comet is planning to close 10 stores and 13 service centres. The one-off cost of the decision is £20million, but Comet estimate that it will reduce annual operating costs by £10million per year. A simple payback calculation for those inclined!