What’s next in the HMV narrative?
The news cycle is a fast-moving beast. Last week’s HMV story had its moment in the spotlight and then something else took over. For those directly involved in the story, especially the 4,500 people who worked for the chain, this …
The news cycle is a fast-moving beast. Last week’s HMV story had its moment in the spotlight and then something else took over. For those directly involved in the story, especially the 4,500 people who worked for the chain, this is probably very hard to take as they’re thinking about nothing else morning, noon and night. It’s their jobs and income that’s at stake here.
The uncertainty about getting paid for work already done is what lead to the sit-in protests at various HMV stores around the country last week.These protests ended at the weekend when workers were assured by receivers Deloitte that they would be paid this week (per this report, they were not actually due payment until this week).
There is still some confusion around the issue – it doesn’t help when you have attention-seeking politicians seeking to make capital out of the story by manipulating people’s concerns – but it should be noted that employees are preferential creditors and are near the top of the queue to be paid once the receiver sorts out what is going on. That said, you can understand why the workers were irked and frustrated – clear information is what’s needed at times like this and clear information is often, unfortunately, rarely available and allows rumours and specualtion to run riot.
The macro narrative about HMV has already moved on to who comes next. It seems that Hilco UK are leading the 50-strong field kicking the tyres on the chain’s assets. Chasing the restructing company who were also involved with Woolworths, Denby Pottery, HMV Canada, Borders and Habitat when they hit the wall are said to be a bunch of private equity companies, Game (who are after 50 shops in the HMV pie and who have a chequered history when it comes to these matters) and a group which may – or may not – feature TV presenter Jonathan Ross, who must really miss browsing the aisles if he’s tabling a bid. There are also signs that the suppliers (ie the record labels and film studios) would be prepared to offer generous credit terms and discounts to a new owner.
None of the above ventures have given any indication about what they intend to do about the 16 Irish stores and, to be honest, that’s to be expected. They’re interested first and foremost in the bigger picture. Given that the Irish stores are in receivership as opposed to administration, they may well be viewed differently in law than the UK stores. Any potential new buyer may also note that the group’s Irish subsidiaries, Rustico and HMV Ireland Ltd, are guarantors of a £220 million credit facility agreed with HMV’s banks last April, making these companies liable for the debt which caused last week’s collapse.
Given all of the above, there has also been a bit of talk about a possible management buyout for some of the Irish stores. Staff spoke last week about how the Irish stores were trading well and had a busy 2012, but this meant nothing as the shops were part of a chain. This inevitably led to speculation about staff taking over a couple of the Irish stores and running them as independent entities.
While you can understand the reason for such speculation, you really have to hope that this is simply talk in the heat of the moment. Anyone seeking to take over any or all of the Irish stores needs to be quite hard-headed about this or otherwise, you’re just kicking the can down the road and postponing the inevitable for another day. You can bet that all of those private equity firms are hard-headed about this.
It’s one thing to look at the cash coming into the tills and quite another to look at the bigger picture with rent, rates, wages, the cash paid upfront to suppliers to ensure stock comes into the shop (many of the Irish labels had moved to a cash-on-delivery process with HMV in recent months), sundry outstanding liabilities, fixed costs, utility bills, the advantages of being part of a chain (something which the wokers probably took for granted in the good times) and the fact that you need capital to get you through the quiet weeks and months to pay all of the above. It’s not Christmas all year round in the retail business.
For sure, there’s still a demand for mainstream music and film products in their physical formats – especially if you’re flogging Declan Nerney and Tommy Fleming CDs and DVDs – but you need to temper this with the fact that such demand is finite, often seasonal and always diminishing. The disposable income is elsewhere. As a retail observer commented to me at the weekend, any new such retail offering should be 80 per cent coffee and 20 per cent vinyl, CDs and DVDs.
There’s still some way to run in this story. HMV may well return in some shape to a street near you, but it will be a far different beast to the one who stood there for decades. Entertainment retail has changed utterly and you can expect a new owner to reflect this with what they do with their new acquisition. Anyone simply throwing open the doors and hoping to trade as they used to trade is just asking for trouble and a repeat of this scenario in a year or two.