Bloomberg reports that Kesa Electricals may need a specialist restructuring firm to buy its U.K. Comet chain or to discard more of the unprofitable unit’s stores to placate activist investor Knight Vinke Asset Management LLC, analysts say.
The company should try to make the 248-outlet chain “more saleable,” said Kate Calvert, a retail analyst at Seymour Pierce in London. Kesa may sell Comet and developing- market businesses in Spain, Turkey and Italy, two people familiar with the matter said this week.
“There are plenty of private-equity restructuring-style firms who may look at this,” said Calvert, “It’s unlikely that industry players would be interested.”
Knight Vinke, which has built up a stake of 18 percent in Kesa since last June, succeeded this month in getting Carrefour SA of France to postpone a plan to list 25 percent of its property unit. Comet Managing Director Hugh Harvey stepped down earlier this month before the chain posted a 15 percent decline in same-store sales in the past three months.
The Kesa chain is struggling to arrest the decline in revenue as U.K. consumers defer spending on major purchases. Rival Dixons Retail is shifting its focus to adding services such as customer support and computer repairs even for products it doesn’t sell to stem the drop in spending on new goods. The shift could add tens of millions of pounds in profit, Chief Executive Officer John Browett said this week.
A spokesman for Kesa declined to comment on the company’s plans for Comet.
An “accelerated restructuring” in which Kesa closed the worst-performing Comet stores and kept the chain would be “the most benign solution,” said Simon Irwin, an analyst in London. Retaining the brand and some stores would allow the company to tap into any upturn in consumer sentiment.
Kesa has already committed to closing five to 10 Comet stores this year.
Other options include placing the whole U.K. unit under a so-called company voluntary arrangement, or CVA, where creditors such as landlords are offered compensation in return for ending leases, though this isn’t being considered, one person said, declining to be identified because the talks are private.
Kesa’s biggest unit is Darty in France, where sales rose 7.6 percent in the three months ended April 16, compensating for declines in the U.K. and developing markets.
Kesa may consider moving its stock listing from London to Paris, the Sunday Times reported this week. Doing so would mean funds that track the FTSE 250 Index (MCX) having to withdraw from their investment in Kesa.
“It would kill the share price, but I can see long-term it would create value for the new shareholders,” Calvert said.
Kesa Chief Executive Officer Thierry Falque-Pierrotin has said consistently that he will stick to his plan of refitting Comet stores, extending its online offering and cutting costs by closing service centers and warehouses.
“Should this corporate shake-up happen, it would have to be seen as a significant positive” for both Kesa and Dixons, said Andy Wade, an analyst at Numis Securities in London.
On the whole though the outlook for Comet is not particularly rosy regardless of how it’s sliced and, the future is looking bleak for the service centres as they have been singled out as one of the possible cost cutting targets.
The market in high street electrical retail is an ever decreasing battlefield. Its market has been decimated by the increasing popularity of online retailers. As profit margins are squeezed retailers such as Comet become ever more dependent on high pressure selling of overpriced extended guarantees and accessories. How do they compete against the likes of John Lewis offering a higher level of service and free extended guarantees and Amazon and its counterparts?