One – or two – swallows do not make a summer

Following on from the demise of Jessups the camera retailers the news that HMV had finally called in the administrators comes as no surprise.

What is perhaps more surprising is that a couple of commentators have seized on this development as perhaps an early sign that banks are feeling more confident about surviving losses and that better times are on the way in 2013 on the grounds that there is usually a rise in insolvencies as an economy starts to recover.

The more realistic view, K2 would say, is that insolvencies are still at a very low level and it is way too early for anyone to be so optimistic.

More likely, and there has been plenty of evidence in the cases of Comet, Jessup’s and HMV, is that their business models have been found wanting in the new world of consumer caution, shopping around for the best prices and the move to online shopping.

With a raft of year-end reports due out this week, including Mothercare, Home Retail Group (Argos and Homebase), Bookers, and Asos the picture will gradually become clearer.  One to watch is Mothercare, which did alter its business model last year to focus more on out of town retail stores rather than the High Street. This measure does seem rather late, being at least 10 years after others took the same initiative. The question will be whether Mothercare has done enough to survive without further and more dramatic restructuring.

While the pain is most obvious on the High Street, reduced consumption, changing consumer behaviour and inappropriate business models apply to many businesses that have not yet gone bust. There is no sign yet of a lift in bank confidence as they continue to prop up zombie companies rather than lending to companies wanting to change their business model or new ones with a vision and growth potential.

For the foreseeable future, businesses would be wise to examine their business models and if necessary to implement change early rather than put it off as restructuring becomes more difficult the longer it is left.  This is still no market for dramatic moves to improve turnover.

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