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Developing story - Jessops is not the only high street name attempting a transformation

24/09/2013

Andrew Lyddon

Andrew Lyddon

Fund Manager, Equity Value

After camera retailer Jessops was forced to call in the administrators at the start of the year, it had to close its network of 187 stores. The fate of those stores in the intervening months offers some interesting insights into the current health of the high street, not the least of which is that 110 of them are still closed – shunned by any kind of retail operation.

Of the 77 premises that are being used, according to recent figures, 25 have been kept on by the revamped Jessops – to which we will return in a moment – three are unconnected photographic businesses and the remainder are a combination of convenience stores, coffee shops, jewellers, pawnbrokers and so forth.

It is more than six months since Jessops went bankrupt, yet well over 50% of its former premises are still shut. Nothing has persuaded any retailer of any kind to take them on, which may say something about the favourability of current business rate and rent levels but certainly would suggest Jessops had over-expanded and was operating from far too many shops.

That much is underlined by the fact Jessops’ new owner – telecoms entrepreneur and Dragon’s Den regular Peter Jones – has judged 25 to be an appropriate number of locations to take the revamped business forward. He has been able to streamline the operation so quickly because Jessops was bust but a number of listed companies are attempting a similar type of transformation.

These are unlikely to be as stark as with Jessops because the businesses are probably not so thinly spread or in as much trouble – and anyway things necessarily move at a slower pace for listed companies – but it is happening.

The likes of Home Retail Group – and other unfashionable retail names that are all more appreciated by The Value Perspective than the wider stock market – have embarked on this kind of journey to transform their store footprints and reduce store numbers. Furthermore, while such journeys can be very painful and take a long time – particularly for listed businesses – they can also have happy endings.

It is too early to judge whether a profitable business will emerge from the old Jessops – and to talk of both a phoenix and a dragon in the same story may be overdoing things. More generally, however – provided you believe you can end up with a profitable group of shops and have a valuation both looks attractive on the basis of this new level of profits and compensates you for the risks involved – then such high street recovery stories can still prove a good investment.

Author

Andrew Lyddon

Andrew Lyddon

Fund Manager, Equity Value

I joined Schroders as a graduate in 2005 and have spent most of my time in the business as part of the UK equities team. Between 2006 and 2010 I was a research analyst responsible for producing investment research on companies in the UK construction, business services and telecoms sectors. In mid 2010 I joined Kevin Murphy and Nick Kirrage on the UK value team.

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