The high street camera retailer Jesops is the latest business to have entered administration, adding to a string of closures last year following the failure of high street names including Comet, JJB Sports, Game, Peacocks and Blacks Leisure.
According to many company sources, they are still dong a good trade, but it wasn’t making a profit. Why? What is the actual issue?
I think I can sum it up like this: The problem is the over leveraging coming from debt from constant restructuring coming from the constant need to extract more and more value from the business because of the pressure to create high returns for their shareholders, who is mainly made up of…. A BANK!
A History of Acquisitions
Let me try to explain, (with the help of the Guardian’s article.) Jesops was a family owned business. Then in 1996 Alan Jessop retired, and it was sold in a management buyout. In 2002, Dutch bank ABN Amro’s venture capital arm bought Jessops for £116 million. Can you see where this is going?
But the company began to struggle, narrowly avoiding administration in 2009 thanks to a deal with HSBC, which became its largest shareholder. The company has debts of £80m, nearly £30m of which is held by HSBC.
The decision by HSBC to step in last time prompted the then chief executive, Trevor Moore, to take comfort. “I don’t think it gets much more secure than being 47% owned by HSBC. They are committed to a long-term plan for Jessops – it is not about a quick turnaround or spin-out,” Moore said at the time.
While the firm achieved sales of £236m in the year to December 2012 it has not managed to trade profitably in any year since HSBC took its stake and it reported a £909,000 loss in its last published accounts for the year to 1 January 2012.
This is the crisis in capitalism. We are seeing it over and over again. If free markets, and the wisdom of self correcting markets, actually worked there could be no bubbles; but there have been too many, and the constant refinancing to pay for the pass the parcel take overs are a part of the blame.
I would recommend that you take a look at “The Cost of Inequality” by Stewart Lansley, where he tackles the mirage of wealth creation created by constant debt fuelled acquisitions and mergers. The suck out the value, replace it with debt and in the end spit out a husk of business unable to perform, going bust and relying on the state to fund all of the failures of the risk taking.
Jesops should not by any normal sane measures be failing. But there we are, and unless we do something to change the model of capitalism, there will be nothing left.