Behind the spin - Jessops

The fortunes of the UK's leading photographic retailer are fading. Floundering Jessops has issued three profit warnings and suffered a 90% drop in its share price this year. T

by
Last Updated: 31 Aug 2010

Two senior heads have been offered on a plate to shareholders, but time is running out for the 315-store chain, which could breach its bank loan limits by the autumn.

CEO Chris Langley (ex-Dixons) has ordered an emergency cost-cutting strategic review, due to report next month. A number of store closures and redundancies are expected. Meanwhile, the firm's core market of compact digital cameras remains soft and its price-cut promotions are hardly giving profit margins much of a boost. The company expects a first-half loss of £8.5m and about £5m for the whole year.

THE SPIN

Says Langley: 'Jessops is experiencing unusually tough trading conditions, driven by severe price deflation in the camera market, leading to pressure on both revenues and margins. Against this backdrop, I've ordered a strategic review of the business.' His words are less woolly than Jessops' official strategy, which is 'to leverage its core strengths and develop new opportunities for growth'.

THE STRAIGHT TALK

'The situation is similar to Woolworths and HMV,' analyst Christian Koefoed-Nielsen of Panmure Gordon told the FT at the end of March. 'They are desperately chasing volumes in a lousy market. It's like running up a down escalator.' Experts say the digital photography market has passed its peak and, unlike rival retailers Comet and Dixons, Jessops is exposed to a continuing fall in camera sales. Some say the problems date back to 1996, when the company moved out of family control into the hands of private equity. Its new owners pushed geographical growth (the chain went from 70 stores to 315 stores in a decade) at a time when people couldn't fill their homes with enough digital gadgetry. Now we've had our fill, Jessops is left wondering what it can sell to a mass market.

THE VERDICT

Jessops has an excellent customer service reputation and is the retailer of choice for many serious amateur photographers. But by making a landgrab for the digital compact camera market, Jessops has left itself vulnerable. With websites and supermarkets covering the same ground and mobile phone technology chipping away at the market, maybe Jessops should re-focus on high-end photographic equipment. There, at least, its expertise and reputation give it an edge.

Tags:
Finance

Find this article useful?

Get more great articles like this in your inbox every lunchtime