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Shift to online behind Comet administration, expert says

The shift to online sales in the consumer electronics sector led to the "downward spiral" of High Street retailer Comet, an expert has said.02 Nov 2012

Tom Leman of Pinsent Masons, the law firm behind, was commenting as the company announced that a notice of intention to file for administration had been issued at the High Court. The formal appointment of administrators is likely to take place early next week, according to press reports. Comet's website was unavailable at the time of writing.

Private investment firm OpCapita purchased the struggling chain from its previous owner, Kesa, earlier this year for a nominal fee of £2. According to an associated press announcement, Kesa paid a "dowry" of £50 million to the new investors in order to "rid itself of the lossmaking business". OpCapita, which specialises in the "operational turnaround" of retail, consumer and leisure companies, purchased computer game retailer GAME from administration earlier this year.

According to a report in the Guardian newspaper, Comet made an estimated loss of £35m on sales of £1.3bn over the last financial year. The company employs approximately 6,500 staff across its 243 UK stores.

The company is the latest High Street name to file for administration this year following similar announcements by retailers including GAME, Clinton Cards, Peacocks and JJB Sports. However, Leman said that although commentators would be likely to point to "the depressed consumer market as the cause of yet another insolvency", the "huge shift" to online sales had made consumer electronics one of the most competitive retail markets.

"Comet was in trouble the first time round when Kesa sold Comet to OpCapita, hence the £50m dowry and retention of the pension scheme," he said. "It looks like even that drastic surgery and the expertise of OpCapita has not been able to address the downward spiral of essentially a bricks and mortar retailer. Landlords will be upset, but perhaps only a real carve-up through administration will provide the business with a cost base and new ownership that can enable it to start to build from the bottom up again."

Filing a notice of intention to appoint administrators prevents any third parties from commencing legal action against a company or continuing any existing legal action without express permission of the administrators or the court. Once the notice has been filed, a company has 10 working days to discuss a potential sale or rescue agreement. It may be possible to extend the period by filing a further notice of intention if a deal is imminent. Once administrators are appointed they will take control of the insolvent company's assets in order to extract the best possible value for the benefit of its creditors.

Earlier this year, Leman called on retailers to focus on "multi-channel" shopping as a means of adapting to decreasing sales on the high street and the growing online market. By reducing their exposure to the real estate market, brands could continue to be successful, he said.

In September, insolvency trade body R3 warned  that 18% of retail businesses were struggling to pay their debts as they fell due with quarterly rent payments proving of particular difficulty.