Times are tough, retailers have been facing a tough couple of months if not years. The latest casualty is Blockbuster, and this follows closely on the heels of HMV - both chains that have filed for bankruptcy in the UK. Has the worst already passed or are these a sign of things to come?
These businesses faced a fundamentally difficult task - extensive competition from the Internet. Especially because their product is probably easier to download from the internet than to go to one of the high street stores. The stores of course made it easy for customers, but as a cost centre, they added massive amounts. Facing increasing competition from a source that has lower barriers to entry and potentially lower operating costs was always going to be tough. If the business model was the only problem, then other retailers and sectors could relax.
But on the same day that Blockbuster brought in the administrators, Net a Porter posted increased sales in the previous year. But keeping in line with the economic environment, net profits were substantially lower. This was driven by expansion related investments, but one cannot but guess that the company has to have felt the impact of the global slow-down. The expansion into growing markets like China certainly help at a time when most of Europe is in recession.
But is this going to be enough to sustain continued growth? Are there going to be more casualties on the UK high-street? Very pertinent questions, but only time is going to give us the right answers, until then everyone is going to be guessing.