The end of the line for HMV
The overnight news that HMV is about to go into administration (the UK version of examinership) means today will be a bad day for a lot of people. First and foremost, there’s the 4,500 people currently employed by HMV in …
The overnight news that HMV is about to go into administration (the UK version of examinership) means today will be a bad day for a lot of people. First and foremost, there’s the 4,500 people currently employed by HMV in its 250 outlets, including 293 in the chain’s 16 Irish stores. They will face uncertainity and probably job losses as the adminstrators try to find a buyer for the chain or assess how the business can continue. There can’t be any willing suitors out there for a chain of shops where the writing has been on the wall since 2007. Remember that the company has tried to stop the rot but one attempt after another to turn the business around in that time, from getting rid of the Waterstone’s book chain in 2011 to selling off its live wing, has failed. Perhaps Apollo Global Management, who were snapping up cheap shares in recent months, will now take over the ailing beast, though they’re currently denying this speculation.
But this hits more than just HMV employees. As we wrote before Christmas, record labels, film companies and other suppliers went all in on HMV in recent times. They needed a High Street showcase for their goods so it was in their interest to keep HMV open and trading. To ensure this, they provided the company with very favourable trading terms but favourable trading terms are no use when your customers are going elsewhere to buy the goods in question. It would be interesting to know, for example, if these favourable credit terms will be available to any new owner who takes over and seeks to make HMV a viable going concern or the suppliers will take a tougher line with a new regime.
In the end, even these suppliers knew the game was up as HMV currently stands. They may have reportedly supplied £40 million financial support in the run-up to Christmas to keep the shops trading in that busy period, but that was to be the final hand-out. Music Week reports that the end of the road came about when HMV’s efforts to borrow £300 million from their suppliers to service the underlying £176 million debt failed. You can’t keep a relationship going if it’s not working.
Again, it’s worth pointing out, as we did in that piece less than a month ago, that the suppliers’ efforts to keep the chain open as it currently stands made no rhyme or reason when you look at consumer patterns. It was noticable over Christmas that while there was heavy footfall at HMV’s Irish stores, there didn’t seem to be the same queues of people handing over money at the tills as in previous years. HMV provided a showcase for CDs, DVDs, books and other entertainment paraphernalia alright, but punters went elsewhere to get a better price.
This change in retail behaviour is not just confined to HMV. The Guardian lists a number of other retailers who’ve gone to the wall in recent times including photographic retailer Jessops, electrical retailer Comet, clothing chain Peacocks and JJB sports, while Robert Peston notes that HMV is “the 32nd significant retail chain to go into administration in just over a year”. The retail model is changing and it will take more than CEOs blaming Amazon to work this one out. The ongoing growth in online sales and the fall in traditional retail business tells us that this story is far from over.
We can also expect serious and widespread knock-on effects from HMV’s problems on the entertainment sector. Remember that despite its woes, HMV still accounts for 27 per cent of all DVDs and Blu-Ray sales and 38 per cent of the physical music market. We may think that physical products are on the way out, but they still account for a huge part of the market. Where will these sales go now? None of the answers are palatable from a record label’s point of view. The supermarkets are ruthless when it comes to getting a good price for the goods, online outlets are also a poor return compared to HMV and digital sales will not produce enough revenue to recoup costs (especially legacy costs). The labels know they have to change their model to make sense of the new way of doing business, but their long-running dependency on HMV, especially after other High Street music chains closed, means they haven’t moved as fast as they should have done.
Of course, one scenario which you can expect to be aired in the coming weeks is that the suppliers themselves take over HMV in a move to keep shifting those DVDs and CDs. However, you have to hope that sense will prevail and someone will point out that, firstly, those who actually buy those CDs and DVDs have already moved on from HMV and have gone online and, secondly, the labels know nothing about retail. But as we’ve seen again and again with the record business in the last decade, sense does not always prevail. While you have to hope that the labels will finally kick their addiction once and for all to keeping HMV open, you can be sure that various kites are already being prepared for flight in music and film boardrooms.
You have to hope for the sake of HMV’s employees that a viable solution will be found, but you also have to hope for the sake of the thousands of others who might be hit by suppliers getting in above their heads to try to save the day that this doesn’t simply mean kicking the can down the road for another few years.