Comet: When a Retail Giant Couldn't Stock Up for Christmas
Imagine running a major electrical retailer just weeks before Christmas. Customers are looking to buy televisions, laptops and washing machines, but your suppliers are increasingly reluctant to let you buy goods on credit.
How do you fill your shelves if you haven't got enough cash?
That was part of the crisis facing Comet in 2012.
Founded in Hull in 1933, Comet became one of Britain's best-known electrical retailers, eventually operating 236 stores.
But by 2012, the business was struggling. Competition from online retailers, falling sales and continuing losses had weakened its position.
Then came a particularly damaging problem.
Credit insurers withdrew protection for suppliers selling goods to Comet. Without that protection, suppliers became increasingly unwilling to provide stock on credit.
Comet therefore needed more cash to purchase goods at precisely the time it needed to build up stock for Christmas.
Unable to secure sufficient supplier credit and additional funding, Comet entered administration on 2 November 2012. By December, every store had closed.
So, what is liquidity?
Liquidity refers to a business's ability to meet its short-term financial obligations when they fall due.
A business might own millions of pounds worth of stock, equipment and property, but that doesn't necessarily mean it has enough readily available cash to pay its bills.
Comet illustrates how difficulties obtaining finance and supplier credit can intensify an existing financial crisis.
The Examination Connection
Simply writing "Comet failed because it had poor liquidity" isn't developed analysis.
A stronger answer would explain how the loss of supplier credit increased Comet's need for cash, restricted its ability to purchase stock and threatened sales during the crucial Christmas trading period.
But liquidity wasn't Comet's only problem. Falling sales, ongoing losses and increasing competition were also significant.
Something to Think About...
Was poor liquidity the main cause of Comet's collapse, or was it ultimately a symptom of much deeper problems within the business?
A useful discussion question for both GCSE and A Level Business students.
References / Acknowledgements
Hull History Centre — the company's history, development and closure.
Hull History Centre
High Court judgment (2022) — details of Comet's financial position, borrowing and difficulties with supplier credit.
Bailii
Sky News, November 2012 — contemporary reporting of the administrators' explanation of the collapse.
Sky News
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