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Can HMV reinvent itself?

Robert Peston | 08:16 UK time, Wednesday, 16 March 2011

In its last full year, HMV had sales of more than £2bn. It employs 13,000 people. It has 600 stores in the UK. And it is responsible for more than a third of all music CD sales here and more than a quarter of all DVD sales.

HMV in Norwich

 

It owns the only remaining chain of recorded music stores in this country of any size, the eponymous HMV shops. And its Waterstone's chain is the dominant force in specialist book retailing (from real shops) by a country mile.

On the face of it, HMV is an important employer and it is pretty important to our creative industries. Smaller record companies, for example, find it hard to shift their back catalogues at a profit anywhere else (Tesco won't take stuff outside the charts; online margins are wafer thin).

Here is the jaw-dropping statistic. At last night's closing share price of 11p, HMV has a stock market value of just £47.65m - down from £650m less than two years ago.

What's going on?

Well HMV is about to breach the terms, or covenant, on a £240m borrowing facility provided by eight banks, led by those semi-nationalised giants, Royal Bank of Scotland and Lloyds.

That means the banks have the right and ability to demand all their money back. But, of course, HMV can't possibly repay in an instant the £130m it has actually borrowed out of that £240m.

So unless HMV can reach an accommodation with the banks, its directors would have no option but to call in the administrators under UK insolvency procedures. HMV - a legendary name in the history of the recorded music industry - would be bust; the shares would be worthless.

What's going to happen?

Well early next week HMV will make a presentation to its banks - which are expected to be advised by the accountancy firm Deloitte - on how it intends to regenerate its business.

Then the banks are expected to take two or three months deciding whether to pull the plug or keep the lights switched on.

As for the breached covenant, it relates to the minimum permitted ratio between HMV's earnings before interest, tax, depreciation and amortisation - a proxy for cash generated by the company - and the total rent paid by HMV for its stores.

The covenant matters to the banks because landlords rank ahead of them in the queue of creditors; landlords get their money first in a wind-up. So for any retailer, as and when aggregate rents represent too high a proportion of EBITDA (or cash flow), the banks start to fear they'll lose money on their loan.

Which is one reason why HMV has already announced that it will close 48 HMV stores and 12 Waterstone's.

But simply reducing the number of rent-paying stores does not get to grips with arguably the more fundamental problem.

What will ultimately determine whether the banks decide to keep HMV afloat is whether they are convinced HMV has a credible survival plan to cope with markets that are vanishing into cyberspace before its eyes.

To put it another way, Apple - with its iPod and iPad - is the silent white assassin of HMV, because more and more of us are choosing to download music, games and films, rather than buying those silvery discs. And Waterstone's is being squeezed as we opt to download books on to so-called tablets.

The magnitude of this shift can be seen all over the world: chains that specialise in films and music barely exist anywhere these day (there is no equivalent of HMV in the US any longer, for example); and book stores are going bust wherever you look (Borders Group in America filed for bankruptcy protection last month).

That said, HMV remains in profit, although profit is shrinking. And, unlike Woolworths - which disappeared at the end of 2008 - consumers have a pretty clear idea what the group's two brands, "HMV" and "Waterstone's", represent; they know the kind of product they will find if they enter one of the stores.

The problem is that they don't want as much of that product, in its traditional form, as they used to do.

So what is HMV's cunning plan? Well part of it is to join them rather than beat them: it is aiming to refit 100 stores this year, to give 25% of selling space over to the sale of new digital devices, those beastly tablets and handheld devices that are killing sales of "hard" software (the CDs and DVDs). Its aim is to generate a quarter of all sales from these assorted i-Thingummies.

Through its 50% ownership of a digital downloads business called 7digital, it plans to stay in the business of selling recorded music. 7digital has negotiated agreements with the likes of RIM so that the new Blackberry Playbook (a soon-to-be launched competitor to the iPad) will come with the 7digital download app already built in. Which means HMV should share in income from downloads on these devices.

HMV has other digital ideas too - such as trying to persuade publishers to provide hard copies of books that incorporate a right to download those books to a tablet.

The plan recognises that HMV can't survive by simply doing what it has been doing for the past few years: it has to acquire a meaningful share of the digital cake.

Will the banks be persuaded it can work?

It is not a plan which requires more money from them. HMV believes it can reinvent itself for the new digital world so long as the banks allow the group to continue to use the £240m already in place.

Even so, this is not a risk free decision for the banks. Corporate graveyards are filled with businesses that tried and failed to adapt to the kind of industrial shifts that confront HMV.

And if the banks do back "new" HMV, the controlled dematerialisation of HMV would still have pretty painful consequences for the group and its employees: over the coming three years, it will have to close more shops; not far off half of the 600 may eventually go.

Whatever happens, there will be quite a price for high streets and staff. But the highest social and cultural price - if not necessarily the maximum financial one - would presumably come from the business going kaput.

Which may or may not weigh on the minds of the two semi-nationalised banks, RBS and Lloyds, that are HMV's most important creditors.

Comments

Page 1 of 2

  • Comment number 1.

    In many cases people don't want hard copies of everything any more, why buy CD/DVD/Books that are going to clog up your home when you can download and save thousands of these files on your PC? In bsome cases it's cheeper too!

    Let's not forget Piracy here, why buy something if you can get it free? No matter how hard the-powers-that-be try and crack down on it people will find a way round it!

    The future of shops like HMV is online. Perhaps they should have download points so people can download directly to their MP3 instore?

  • Comment number 2.

    Yes iBooks and iTunes are the silent killer here, but thats not bad for the consumer.

    HMV, at least according to their advertising around towns, constantly have a sale on. When you spend the petrol to visit a store you find prices that are still above those online or at the supermarket.

    Ironincally, HMV moving away from music by turning their stores over to gadgets / clothes (again at a higher price), opens up the market for small record shops where real music fans go to find rare collector items.

    For my 2 cents, I think HMV would do well with some vertical intigration. Get a record label going and find unsigned acts. Sell their songs online and push selling tickets to gigs / festivals. Both are low cost to entry and are expanding markets.

  • Comment number 3.

    High Street retailing in this country will change beyond all recognition within the next 5 years. Waterstones/HMV will be the victims, unless they change tack very quickly.

    Waterstones are the new libraries.

    They have comfy chairs, they have coffee shops. You can chose a book, look at it over a coffee, go online using a smartphone and order the book from Amazon.


  • Comment number 4.

    I wont be buying any HMV shares. Selling digital age toys seems to me trying to break into a very competitive market where margins are not great. No. 1 seems to have a good idea which could be developed to create an attractive buying experience. Providing services to help people choose the music they want becoming a source of knowledge and expertise - not far removed from the traditional record and book shops?

  • Comment number 5.

    As some of you may know HMV's online sales outlet is based in Guernsey.

    If, in the upcoming budget, Georgie Boy gets rid of the LVCR then I can hear the nails being banged into HMV's metaphorical coffin...

  • Comment number 6.

    They are toast.

  • Comment number 7.

    Myexperience is that, if you're looking for anything other than the most popular, HMV is the only place to go apart from the internet. And where else than Waterstones can I look at possible books?

    Yes, they need to change and grow, but not disappear.

    A lot of thoughts come to my mind and none are sympathetic to the banks or those individuals who seem happy to allow HMV and Waterstones to fail. These banks, saved at our expense, were always close to useless in protecting British public interest, they are useless and they will continue to be useless.

    The sooner our wonderful banks and the bankers that run them are replaced by online providers and Tesco, the better.

  • Comment number 8.

    It's ironic that specialist booksellers have built the career of the likes of J K Rowling by stocking books that Tesco wouldn't touch, but then get forgotten when that success has been ensured, with Tesco etc selling theatre Harry Potters at slashed prices.

    Perhaps JKR can buy HMV with money from the back of her sofa

  • Comment number 9.

    There will always be a market for "hard" stuff, rather than "soft". Whether the market is big enough to warrant a store in most high streets is another matter.

    What will hurt HMV is that a lot of the online retailers, use the Channel Islands no VAT shipping loophole. This allows them to sell stuff without any VAT applied. Not many busineses can remain profitable when they are charging 20% more than their competitors for the same product.

    I understand that the stuff doesn't even have to be shipped from the Channel Islands if it can be bonded over here first.

    Although this works against the punter, removing this loophole would allow a more level playing field.

  • Comment number 10.

    The move to digital is very much the right way. Though dinosaurs like me still like to have the shiney discs (to then add to my i-thingys). Likewise, as a gamer i would still prefer to own the game discs (given the risk of a YLOD & a RLOD) - unless xbox and PS allow a cloud facility on live & PSN.

    However, i digress. I also think that a move to a store model along the lines of argos might help. This will allow them to downsize the sizes of the stores they offer - as landlords seem to think the recession doesn't apply to them!

  • Comment number 11.

    Let's hope that the electronic download does not win the day as not all people have or want these gadgets.

    HMV are, unfortunately, in a bit of a sticky situation:

    They could sell on line only and this would be cheaper and require less staff and so increase their margins, but then the range will be severely limited and there will be less people employed and more empty shops on the high street

    They could carry on as they are and hopefully come to an agreement with the banks and begin to renegotiate lease costs with landlords for I should think many of these were signed at a time when rental prices were at a high point. And let's face it, if you were a landlord and had a choice between an empty shop with no income or an occupied shop with a reduced income, which are you going to opt for?

  • Comment number 12.

    It is not just downloads, I think the problem for HMV is that there is nothing they sell that cannot be more conveniently ordered and bought over the web. With clothes it is nice to try them on before you buy them - so clothes shops won't disappear any time soon.

    However on HMV's own web site, Amazon and a myriad others you can buy practically every book or CD currently published. And on sites such as e-bay you can buy most back catalogue items even if they are no longer published. Also, who needs to buy DVDs with companies like LoveFilm.com around? There are precious few films I would actually want to watch more than once.

    If I were HMV I would consolidate into a few mega-stores in the big cities where they can offer a huge range of back-catalogue items and let the rest of it go. Sad, but the world has moved on.

  • Comment number 13.

    Ultimately there will always be people who want to 'browse' and exist outside a digital bubble whether that is for music or other goods.

    But they won't pay a massive premium for doing so. Which means that the enormous rents that cripple HMV and others retailers are going to have to reduce. Which means that the price of commercial property owned by investors or funded by our banking system is going to have to fall.

    We are a nation of shop keepers but when so much of what is spent on the high street is a 'levy' to the wealthy property owners then something will have to give when consumers have a choice about whether to bypass the high street and go online or to an out of town supermarket.



  • Comment number 14.

    Isn't this precisely the point that the government has been trying to make around lending to business? Total level of bankers' bonus pool for 2010 = approx. £7.3bn (CEBR fig.) Total level of debt from a business with 13,000 employees = £130m or, 0.0178% in the context of the bonuses paid. Put another way, around £10,000 of "debt" per employee. Level of bonus paid to highest earning Standard Chartered exec - £16,000,000. Whilst clearly there's a case to be made for banks not supporting a failing business model, perhaps if the banks were less avaricious in their covenants, rate of borrowing and overall attitude (i.e. we're in it for ourselves), then businesses such as HMV, will have a chance to succeed in what is undoubtedly a difficult trading environment.

    If HMV fails, another part of the High Street goes with it too; welcome to the world of internet shopping and ultimately the retail death of the British High Street. As the Specials once put it, "this town, is becoming like a Ghost town...."

  • Comment number 15.

    I think they will have to separate the two businesses to allow Waterstones to survive.

    Sometimes progress is sad but inevitable, and HMV has no other natural close market to move and integrate with that is not already well served and very competitive. I think it's days are numbered.

    Waterstones is different and has a future if it is well managed and evolves. The book is not like the plastic CD disk, it will survive. It has done for 1000 years and there is emotional attachment in all of us to the physical concept of a book. My daughter has a kindle, I have books on my phone, but its not the same experience as picking up a book. My local Waterstones always seem very busy with people browsing.

  • Comment number 16.

    I agree with #2 post

    "I think HMV would do well with some vertical intigration. Get a record label going and find unsigned acts. Sell their songs online and push selling tickets to gigs / festivals. Both are low cost to entry and are expanding markets."

    Without doubt there is less margin in recorded music as there is so much of the same thing that no-one wants to pay for it. However, take a look at the silly prices some people are prepared to pay for concert tickets (ebay/ticket touts) - that's where the money can be found! It will also sift out the "wheat from the chaff" regards talent

  • Comment number 17.

    HMV needs some fresh ideas. I think its made a few bad decisions over the past few years.

    Firstly, HMV Apollo and its ticketing service. I personally dont think of HMV for ticketing, I would think of See tickets or Ticketmaster to look for event tickets. If it sells this off I think it would be useful. It may have just been a brand awareness attempt, but it doesnt need that.

    Secondly, they need to analyse the way people buy its products. Say I went into Waterstones looking for a specific book. If I cant find it, I will go on Amazon. At that point I think they could capture that customer and convert a sale. If they had a service whereby if the store doesnt stock what you want, you can order it from Waterstones online from an in store terminal and get it price matched with Amazon, with free delivery. This way they get that customers sale and the customer is happy.

    I would also revamp HMV to capture people in the same way. People are increasingly using iTunes and online services to 'Preview' albums and tracks before they buy them. If HMV put some stations in the store where you could browse and collect some CD's/DVD's and bring them to the terminal to preview. Maybe scan the barcode, put the headphones on and listen to tracks or watch the trailer if a DVD. If you dont like them, you can just put them in a 'reshelving' box so you dont have to do it yourself.

    This lets you preview like you used to be able to, but if other incentives were also offered like 'Other music like this' for the people searching out new music, or the ability to buy a digital copy from 7Digital and have a link to download emailed to them for when they get home. That way, people are using the store, but also using the online service. They may still decide to get the CD and import it to their PC. Win Win.

    A lot of people still love the physical formats, me incuded, and I would hate for HMV to make bad decisions now and fail 6 months from now.

    They just need to convert sales from people who are in the mindset to buy. They need to promote the fact that they can have the product now, not wait for delivery. Also, stop with the god damn sales and get some kind of real price competition going on!

  • Comment number 18.

    I had shares in Ottakars when they floated and pleaded with the MD to get digital and online. The pompous response was "we do shops well, Amazon etc do online and we"ll leave them to it". Surprisingly, Ottakars is no more and their former chairman is a Tory MP!

  • Comment number 19.

    In our little Devon town we used to have a Woolworths - it shut.
    We had a nice regional bookstore chain - Waterstones took it over - and shut it.
    We had a DVD rental store - a chain took it over - and shut it.

    The proportion of shops now empty is heading for a third - only independent businesses remain other than W H Smith and Argos, with Tescos, Morrisons and the Coop mopping up most trade. Meanwhile in the old market, secondhand booksellers do good trade, as does the farmers' market selling specialist products not on supermarket shelves directly to the local population.

    I think the likes of HMV simply expect to make too higher margins to fund their leveraged borrowing, so they can't make enough money in the real world to make the numbers add up.

    This is the reality of retailing - private equity has created a model of stripping out assets like shops, leaving the company heavily geared, but in such a competitive market with the very real alternative of online shopping with a much lower pricing structure, the idea that this dual burden of financing and operating shops and being competitive is simply impossible.

    And with the devaluation of Sterling, any retail model based on very cheap imports is also becoming unviable, that's why even large supermarket prices have risen recently.

    The ground HMV seeks to move into is already very heavily occupied by online sellers, supermarkets and superstores - it's hard to see how they can succeed.

    I'd say the business model was doomed as soon as they got so heavily geared and in hock to the banks - now it's only a question not of if - but when - the game is up.

    This will take out another layer from the UK's high streets and further concentrate market shre and power into the hands of the big supermarkets on the edge of towns, whilst our town centres go back to the ghost towns they were in the 1980s. I'd say that the rents expected now will need to plummet if independent retailers/cafes are to be able to rent them and there must be a big questionmark over the capital values of small to medium sized retail units of the type Waterstones/Woolworth used to occupy.

    For local authorities used to milking motorists and coining in business rates, this is not going to remain a viable option because the high street is now becoming so depleted that the need and cost of visiting it by car is rapidly reaching the point of no return, as whole layers of retail types disappear.

    I expect a number of towns in the south west to simply cease to have any high streets left - no shops worth visiting, the odd estate agent and self-employed cafe owner - the rest empty - and the revenue to the local authority will collapse, so services for the high Street will cease. This happened in the USA and other countries, but we've never seen it on any scale in the UK.

  • Comment number 20.

    Survival of the fittest and by that I don't mean the strongest, I mean those best adaptable to change.

    Pity for the shareholders but you can't win every time.

  • Comment number 21.

    @ 2 "MyVoiceinYrHead" - absolutely in a nutshell. You just stole my thunder!!!

    The music industry as a whole have been horrendously slow to react to emerging technological trends. File sharing, Social Media etc have all caught the middle aged men in suits on the back foot.

    It is the newer, younger and hungrier artists who are driving things forward and leading the way. Creating profiles and gathering fans on facebook, posting videos on youtube, engaging with fans on twitter, selling songs on iTunes and a mixture of all the above on Myspace (although that now has ironically been killed buy the suits @ newscorp).

    HMV have the chance to go cutting edge, to reinvent themselves and steal a march on the others. The problem with a being a Plc is that the shareholders may not understand the needs of the clients and resist such a radical shift.

  • Comment number 22.

    11. At 09:42am on 16th Mar 2011, yam yzf wrote:

    > if you were a landlord and had a choice between an empty shop with no
    > income or an occupied shop with a reduced income, which are you going
    > to opt for?

    Judging by the empty shops in each high street in England, landlords would always opt for starvation. Don't know why - maybe they've got their fear and greed back to front like the bankers (i.e. they get greedy when they should be frightened)?

  • Comment number 23.

    Robert,
    You overlook the most likely cause of the problem. It is not just the electronic/internet age or fashion although at #1, Ginger Spam is absolutely right.

    It is rent and rates. And in prime locations.

    'Enemies of enterprise'? There are another two to add to the list.

    Dave and GO & Co, are you noting this?

  • Comment number 24.

    Elbows new cd £5 inc delivery on ebay,hmv are charging £8.99 inc delivery. Go figure where people will buy it from.

  • Comment number 25.

    I would hate to see hmv/waterstones dissappear from our high streets..I like 'looking and feeling' real life things not invisible downloads..but I guess I am perpetrator to their demise..I 'look' in the high street and like a product..but I go home and buy it online (usually from hmv anyway)..Its a question of economics..Money is tight,we take the cheapest option and online physical or download is cheaper than the high street outlet.Its not going to be nice if HMV/waterstones in the high street go..but I guess its a business,and like a lot of music/movie/book shops they will dissapear to coffee shops/pawn brokers/clothing or 99p..sad times really sad times. Not really progress is it?

  • Comment number 26.

    Simple solution - put a 10% tax on any items purchased online (over VAT) - this will align their prices with the high street, generate huge (and much needed) tax income and allow those who value browsing over saving 10% and being told by Amazon what I'd like to read to at least have a choice in the future. Add on a fixed fine of £1,000 for anyone file sharing or pirating - its THEFT, end of - regardless of defence or extent. This will reset every 6 months for repeat offenders.

    Re bank financing.. WolfiePeters bigotted anti-banking response aside..

    Saving the group means the banks writing of £230m as losses (they will, infact, probably have already taken some as losses on a mark to market bases) that HMV as a business has failed to repay or show an ability to service on an on-going basis.
    Clearly it makes no "commercial" sense to anyone to extend further financing to an already struggling business but maybe its time that 'public interest' was instead made a criteria - at least till things improve? The UK banks could support this - it would hurt their share price and profits but save the group and jobs. It would (in my mind) be good to show some support to British companies as other countries seem to be doing

    As an aside..
    The loss of Borders in the UK - in Islington it was replaced by an H&M megastore of all things - was, to my mind, an absolute tragedy and totally wrong.

    Apple..
    Blaming Apple is poor journalism as usual from you Peston - it has, at least as much, if not more to do with Amazon as others have noted. Amazon are located in tax beneficial areas and aid consumers in avoiding tax on products sold (hence they are cheaper). We've all agreed this is bad - so here's a chance to hit back.
    Tesco / Sainsburys are also culpable in branching into dvd and cd markets as a one-stop-shop.

    I would go further to suggest the expansion of Tesco / Amazon are a bigger blight on 'must-have' society than banks are. If Waterstones go then aside from WH Smith, you will almost HAVE to use Amazon or similar to buy a book in the UK - that surely must then go to monopolies and mergers ?
    What is actually happening to our choice - everything is superstore driven.. this week 'chicken is 20% off' - why??? were the chickens going off ? Why is it 20% more the week after ? Bring back the local high street, farming of animals on a healthy (and organic) basis and please, please save our bookshops

  • Comment number 27.

    Good post at #19. It is possible to tax and restrict too far and kill the revenue source. It is toughest - really hard - on those outside cities and major towns.

    Interestingly, the business that can provide a link to these people in the 'online age' - The Royal Mail - is, at present, being mismanaged/killed off! Daft, innit?

    There are times when I start to lose the will to live ... :- )

    Hey! Let's be c a r e f u l out there today ;-)

  • Comment number 28.

    RP: The covenant matters to the banks because landlords rank ahead of them in the queue of creditors; landlords get their money first in a wind-up.

    The public like to go on about banks (as do I) but as they have no dealings with commercial landlords they are unaware that in many cases it is the property owners that have the upper hand. They shape the high street. The consumer far less so. Commercial landlords make the financial sector (to which they are inextricably linked) look like saints.


    11. At 09:42am on 16th Mar 2011, yam yzf wrote:
    .....let's face it, if you were a landlord and had a choice between an empty shop with no income or an occupied shop with a reduced income, which are you going to opt for?

    In many cases a landlord does prefer empty premises. Rents are generally negotiated on the basis of other nearby properties. Leases that allow for rent reviews every few years (always upwards only, another sign of landlord power) will define the formula in relation to other similar properties nearby. This formula does not include vacant properties. Therefore rent agreements can be kept artificially high (as compared to any true free market) by keeping shops (and warehouses / factories / pubs) empty. The landlord does not mind a proportion of his portfolio being vacant.

    The reason many very large national retailers, such as supermarket chains, can be so succesful is that they have grown to the point where they are property companies themselves and therefore cease to have this problem.

    We are still ruled by the property owners.

  • Comment number 29.

    re #18
    Says it all! See penult para of my #27.

    Effect. And cause.

    Woe!

  • Comment number 30.

    "3. At 09:09am on 16th Mar 2011, whirlygig wrote:
    High Street retailing in this country will change beyond all recognition within the next 5 years. Waterstones/HMV will be the victims, unless they change tack very quickly.

    Waterstones are the new libraries.

    They have comfy chairs, they have coffee shops. You can chose a book, look at it over a coffee, go online using a smartphone and order the book from Amazon.
    "

    Good investment for Amazon then!

  • Comment number 31.

    Robert wrote "The covenant matters to the banks because landlords rank ahead of them in the queue of creditors; landlords get their money first in a wind-up."

    ROBERT: this is wrong. The banks are secured creditors, landlords are not. Landlords only rank ahead of banks if the administrator or liquidator decides to keep shops open because then the rent would be an expense of the insolvency but even in that situation expenses as a general rule can only be paid from assets subject to floating charge (ie stock - but that assumes HMV owns the stock which is probably not the case due to suppliers having retention of title clauses in their supply contracts).

    So the legal situation is the complete opposite of what you have described. Practically landlords have a lot of power because HMV can only generate the cash if the shops remain open but that practical power is much reduced compared to 5 years ago- after all in most high streets the landlord would struggle to get the premises re let at any reasonable rent if they kicked HMV out.

  • Comment number 32.

    HMV's "cunning plan" is simply a matter of doing the right thing, but probably too late.

    Like many large companies they have concentrated too much on trying to ward off competition based on new technology, instead of exploiting the new technology themselves. If they had started soon enough, Waterstones, with its knowledge and experience of the book trade, could have rivaled Amazon, and if HMV had developed a cheap, easy and legal way of downloading from its vast library of recordings soon enough, instead of continuing to sell CDs at ridiculously uncompetitive prices, it might now dominate that business.

    The chain of high street stores should have converted into internet cafes long ago.

  • Comment number 33.

    Debt, debt, debt. Why?

    The so far unasked question is why a declining company in a shrinking market is in such debt? I can understand why a new company borrows money to expand in a growing market but surely HMV should have been living off its cash reserves as it lives out its decline, much as an elderly person lives off savings earned years earlier in their prime?

    And why have out two failed, now nationalised, banks (rather than the successful private banks such as HSBC and Barclays) been the banks stupid enough to lend large amounts of other people's money to such a declining company?

  • Comment number 34.

    Thanks Bob for an excellent and clear analysis of the inevitable shipwreck that is HMV. The only hope for their long term survival, is a total move out of the bricks and mortar to a place in the clouds.

  • Comment number 35.

    It is somewhat ironic that HMV faces the same problem today that many of the banks faced 3 years ago although the outcome may well be very different. HMV's debt problem is partly due to a couple of reasons. They have expanded in recent years to move away from their traditional product line, into live music, clothing, digital, etc, but all of this costs money up front and the returns may often not be seen for some time. They have already largely given up on selling clothing and they are latecomers to the digital game. Unfortunately for HMV, financial markets expect returns almost immediately, especially when accomapanied with fears, rational or otherwise, about decline in sales of your core product line. Needless to say, HMV in part made these moves to please the City, to show that they were doing something to move away from those areas of decline in the business.

    Secondly, HMV's debt burden recently went up in a classic catch 22 situation that companies face when burdened with bad news. Recently their debt burden went up by about £50million, which supposedly shocked the City. It is believed that this happened because HMV's creditors reduced the creditor days on the back of the bad news of falling sales over the Christmas period. This is the catch 22 for HMV, who are now caught up in a spiral of creditors wanting their money now in much the same way as the banks were in 2008. The main difference of course being that those banks had the jolly old taxpayer to fall back on and put the burden on, whereas HMV are now at the mercy of those same old banks.

    HMV is still a profit making company, £40-50 million this year. It has made a profit most years that it has been on the stock market. HMV had around £140million of debt in 2007 and by 2008 it had almost paid it off while still making a proft. HMV is and has been for years one of the most heavily shorted shares on the market, all because the so-called City experts believe people will no linger be buying cd's and dvd's anymore and doing everything on line in the future. Every time there is a bit of bad news about this company its share price takes a hammering, which only adds to the problems it is facing. Good news, like paying off the debt in 2008 hardly registers with the city.

    HMV would probably survive better as a private company, away from the kneejerk reactions of the city and short sellers. A Russian billionaire was buying up the shares, although it is thought that his main interest is in buying Waterstones. The current "market" value of just over £47 million is probably chump change to him, he could buy the lot, close HMV and just keep Waterstones open. According to the Financial Times, Waterstones is valued at between £50-70 million. So how come the stock market values HMV in total at just £47 million (this gives HMV a P/E of about 1, which when you look at some of the rubbish companies on the stock exchange with P/E's in their 100's or 1000's and making no profit tells you a lot!) ? Your guess is as good as mine.

  • Comment number 36.

    I often go in waterstones and browse. If I see anything I like I come home and guy it cheaper from Amazon - maybe that's why it's making no money !

  • Comment number 37.

    HMV: Technology, which was the source of their business model, has moved on so like Zavi before them they have no future as retail shops in their present trade.

    The question is: Given they have a lot of well positioned shops can they find something else to do?

    I fear not - at the present price (rent) of retail premises. This is yet another example of why we MUST get property prices down to rational levels or destroy our Nation.

    Given the long Depression we are now entering - only food, clothes and footwear (i.e. essentials) have a guaranteed retail existence in some form - all the rest is frippery and can be delivered direct from the distribution depots or over the internet.

  • Comment number 38.

    @ 3. At 09:09am on 16th Mar 2011, whirlygig wrote:

    > Waterstones are the new libraries. You can chose a book, look at it
    > over a coffee, go online using a smartphone and order the book from Amazon.

    Forget the coffee.

  • Comment number 39.

    Gilthead #5, and where do you think Play, Tesco and all the other online music retailers ship their cd's and dvd's from?

    If what you state "If, in the upcoming budget, Georgie Boy gets rid of the LVCR" does actually happen, then this would actually make HMV stores more competitive with online retailers on price. I would not see this as a nail in the coffin unless everyone dumps physical formats for downloads only.

  • Comment number 40.

    Why are there all the constant plugs for a certain fruit based companies products and services. We most not forget that fruit based company is only a small part of the digital music revolution. Fruit based product also has one of the worst pieces of software out there but is very clever at marketing a poor offering and products with a very limited lifespan that have no reason to be so limited (Except to protect profit margins). Maybe this is where HMV is failing the marketing is not good enough to sell a sow's ear like fruit based product.

    People in the UK will buy any garbage if enough marketing hype surrounds it.

  • Comment number 41.

    The comments 22 and 28 underline the need to replace the rating system by something like a land value tax.

    A tax based directly on the value of a site, rather than the rent it earns, and payable by the owner, regardless of how the site is used and even if it is not used, could correct these and other abuses, like developers buying up sites and waiting until scarcity forces up prices before building on them.

    A site value tax would be easier to administer than rates because valuation would not have to take into account the state of development of each individual site. If the tax continued to be collected by local authorities, they would have an additional incentive to provide good infrastructure such as roads, transport etc, because this would increase the value of sites served by this infrastructure and therefore their revenue.

  • Comment number 42.

    I buy about 50% vinyl and about 50% cds, mostly online (includingHMV). Most of the vinyl, new and secondhand, comes from small sellers. There is quite a bit of profit available in this and a growing market. HMV needs to look closely at the current vinyl market and address the hi-fi listener rather than the mass-market. The hi-fi listener will pay well for quality, the mass market want cheap stuff.

  • Comment number 43.

    Until Business Rates are modified and reduced - high streets will decline into ghost towns.

    Plus, incompetent Local Authorities must stop spending £billions of Council Tax constantly on digging up and re-organising perfectly good town centres every 5yrs to justify their departments - while destroying independent business and their employees jobs in the process by driving shoppers away.

  • Comment number 44.

    I agree that for music the digital era, probably through torrents/file sharing rather than distributors such as iTunes has pretty much eradicated the need for HMV. After all, once you've bought the physical CD, all you do is burn it to your computer anyway, then the disc is just taking up space. Films are also easily downloaded, though there is probably more demand for physical copies there.
    However, in terms of books I disagree that ebooks are having any effect. Though a Kindle would be convienient I would rather have the physical copy, and when the price of an ebook is only marginally cheaper theres no point choosing that. The problem Waterstones and other high street retailers have is that they is very expensive. Amazon is always the cheapest retailer for books with a huge difference between their price and that of Waterstones, particularly with the option of buyiing second hand, and there is no way a shop with rents to pay can ever compete.

  • Comment number 45.

    It will be sad to see HMV going down the tube, but lets face it! They are fighting a losing battle. Apart from the nostalgic folk, no body wants CD's gathering dust in their house any more. I have 500 albums on my computer and a one bedroom flat. Where am i suppose to put 500 albums if they were on a cd format?

    The future is online, HMV should have realised that when Napster was introduced. I fear it is now too late to do anything to stop the impending doom that awaits HMV now!

  • Comment number 46.

    I have no sympathy for HMV as this shift in the industry has been signalled for over a decade yet the management has done nothing about it. I believe more creative use of the shop space and a greater focus on the customer is needed in both the music and book businesses. HMV have not gone far enough with making the shopping experience compelling and they are now suffering for their slowness in responding to the digital threat to their business.

    As for the banks, they are not in the business of subsidising institutions and will make the decision based upon their judgement of risk. The fact that we have bailed them out will not even be factored in the decision.

  • Comment number 47.

    I feel really sorry for HMV, not only are they receiving huge pressure from internet retailers, piracy, and downloading sites such as ITunes, but the products they have to sell are appalling.

    The music industry in general is in decline, download sales have reached a plateau, and most labels are re-issuing eg Beatles back catalogue, various album re-issues, to gain any sort of sales.

    Simon Cowell and co release glorified karaoke, but are clever enough to realise that there is little money in music itself, and instead maximise other revenue streams such as TV, and merchandise. Hence why they dont care when their latest offering bombs, because they know they've got another TV series to flog.

    Record Labels need to take more responsibility for their actions!

  • Comment number 48.

    Also forgot to mention that there is very little choice in Waterstones..there is a limit to what you can fit in a shop, and so their selection on what I am looking for is always basically non existant. Again, theres just no way they can compete with Amazon and its unlimited space for an online catalogue.

  • Comment number 49.

    It is difficult for HMV to compete with the likes of libraries which lend the same products HMV sells and for free! I can see the point behind reference libraries in places of learning but why libraries in the middle of town lend out the latest Hollywood blockbuster on DVD is beyond me. What makes this worse is that libraries are paid for by the taxpayer! The state should never go into competition with the private sector (look at the education system!) but to compete at a loss, well words fail me.

    Fortunately, the Big Society is gearing up and public libraries will be consigned to history.

  • Comment number 50.

    When you look at the cost of setting up a store or an internet operation it is a no brainer. Not only do companies have to adapt but our tax system does to. When there was no alternative business rates looked like a nice little earner but now that model has changed. How can business rates be justifiable - it is a tax which prides itself in providing no benefit to those who pay it (those who we expect to employ us - there's gratitude just like employers ni tax, (seriously,taxing jobs, you couldn't make it up) you even have to pay separate charges for waste collection. Councils are going to see big,big drops in this cash cow,sorry revenue stream. And I never heard of a landlord who benefited from an empty property. Sure he doesn't like to lower his prices as everyone will want the same - the reality is that everyone is very soon going to turn into hardly anyone and then property prices may start to really reflect their true value and not as previously when pension funds bought all and sundry at any price to hit their bonus figures or not miss out on the "can't fail" shopping centre boom .

  • Comment number 51.

    While the demise of HMV is inevitible I have to say I will mourn its passing. Not only is it my haven from shopping when I'm out with the better half it is also a sort of shrine of hands on music. Being an old Motorhead stereotype with hair longer than Lemmy and an attituide to boot I like to browse HMV but I do recognise their days are numbered because I also download (all legally paid for) LOTS of music. The funny thing is, what's the first thing I do with music downloads - write it to a CD and make a copy of the all the covers.

  • Comment number 52.

    49. At 12:01pm on 16th Mar 2011, Lindsay_from_Hendon wrote:
    It is difficult for HMV to compete with the likes of libraries which lend the same products HMV sells and for free! I can see the point behind reference libraries in places of learning but why libraries in the middle of town lend out the latest Hollywood blockbuster on DVD is beyond me. What makes this worse is that libraries are paid for by the taxpayer! The state should never go into competition with the private sector (look at the education system!) but to compete at a loss, well words fail me.

    Fortunately, the Big Society is gearing up and public libraries will be consigned to history.

    .......
    Free DVDs for those on subsistence level wages who cant afford to buy them ought to be removed right? Cant have those at the bottom receiving 'treats' can we. With your approach we would be back to the work houses of the 1800s. So much for progress. If I'm good, master will give me crumbs from the table.

  • Comment number 53.

    @1. At 08:58am on 16th Mar 2011, GingerSpam wrote:
    "In many cases people don't want hard copies of everything any more, why buy CD/DVD/Books that are going to clog up your home when you can download and save thousands of these files on your PC? In bsome cases it's cheeper too!"

    I purchase "music" (my definition, obviously won't necessarily conform to somebody else's :-) online primarily, however my last purchase in HMV was last Saturday - it was the first series of "Yes, Minister" on DVD. I expect this could be downloaded from somewhere and someone has probably put it on Youtube, but as it was available there and then while I was in the store I bought it. And arguably, one of my more sensible and worthwhile purchases, certainly the episode "Jobs For The Boys" is unfortunately altogether TOO apt for the way government seemingly works. A good insight into satirical political representations from just before I was born. How little it changes in 30 years. I wonder if HMV sells anything by Half Man Half Biscuit. The album with "National Sh*te Day" on it might be my next purchase if so.

    I prefer purchases to be on hard copy really - perhaps anyone who has ever had a hard drive die on them might agree to a certain extent.

  • Comment number 54.

    £40-£50m profit, valued at £47.5m. Surely not correct. Even if you paid off the £130m debt in one go, it would still represent ridiculously good value that would have been snapped up 10 times over if those figures were correct.

    why are they £130m in debt in the first place? Greed for more profit by any chance...I have no sympathy whatsoever for anyone who was already well off and then lost it all by wanting more.

    Shorting on the stock markets needs to be illegal. Commodity trading needs to be much more heavily regulated so that it cannot interfere with the normal supply and demand curve. Hedge funds need to be illegal. Commercial Landlords and lease law need to be scrapped and started again.

    People need to stop funding their lives on debt, how about go out, earn some money and save up for the things you want, then buy them. It's quite simple. Our "way of life" or expected "minimum standard of living" is false because we haven't actually earned the money to pay for it and that's why all the countries with a lower standard of living are now growing so rapidly, while we are struggling quite badly.

    Not everyone should go to university, it is not a human right as the previous government would have had you believe. it should be for the elite. not financially elite but academically elite. people moan about lack of university places but there are people getting into some uni or other with grades of 2 d's or worse in some cases. that person should not be going to uni. they should go and flip burgers at mcdonalds and maybe, just maybe, have enough common sense to teach their own children to listen in school and try harder rather than be proud of their crass ignorance and still "expect" to go to university. how did jade goody become a celebrity? by being possibly one of the stupidest people to be given a public voice. why was she celebrated? because most of the nation these days is just as stupid as she was.

    People largely bring about their own financial misery, so they deserve it. the number of people in this country who truly can't find work, i.e the people who would actually go and flip burgers at mcdonalds if they had the choice because earning money has more honour in it than begging from the state, is absolutely nowhere near the circa 3m that gets reported. I'd be amazed if it were more than 500,000. The problem is our collective, Labour riddled, conscience has us believe that certain jobs are beneath us.

  • Comment number 55.

    @46. At 11:46am on 16th Mar 2011, David wrote:
    "As for the banks, they are not in the business of subsidising institutions and will make the decision based upon their judgement of risk."

    Er, do they really make decisions based on risk?

    If so, what caused the economic hiccup a few years ago?

  • Comment number 56.

    In response to ArthursAshes question in #35, I haven't seen the FT article, but my guess is that the value attached to Waterstones is a debt-free value ie how much a potential sale of the Waterstones chain might raise for HMV or its creditors.

    Personally I think that HMV is probably doomed - the point made in Robert Peston's article that there is no equivalent to HMV in the US is a powerful one. Whether the Waterstones chain can be rescued is not so clear - in the short to medium term I think that it probably has a future. Its fundamental issue for me is less about the future of books - I think books will survive for longer than my lifetime - but more about the business model of operating expensive High St shops in competition with online retailers and supermarkets.

  • Comment number 57.

    A drear, one-sided story from Peston I feel!
    HMV are currently expected to generate around £40m profit this year. Included in this £130m debt they bought Mama and 50% of 7digital (around £60m) and they own HMV and Waterstones.
    Therefore, when Peston says HMV cannot pay back this £130m, he is conveniently forgetting that in the extreme HMV could sell assets, Mama, 7digital and Waterstones (along with the expensive Waterstones shop leases) and still have a trading business generating £25-30m profit per year. Also there is the (getting more difficult by the day I admit as the sp plummets on news stories such as this one) possibility of a £50m equity raising from exisiting shareholders

    IMO Robert Peston is the Leonard Cohen of news reporting.

  • Comment number 58.

    They missed the boat years ago. Instead of adapting their business to the new digital age they put their faith in corporate lawyers to try to keep upstarts like Napster at bay. Unsurprisingly, this has strategy not worked and now they are paying the price.

  • Comment number 59.

    Given that the banks are subsidised by the taxpayer then there is every reason for the banks to support HMV whilst it reinvents itself.

    There is room on the high street for a book and record retailer even if it just for back catalogue stuff. The internet is for people with credit cards wanting to buy not people with money wanting to shop.

    Mind you, when the lights go out due to no electricity as we can't burn coal, can't run nuclear safely and have to wait for a gust of wind, a book will look a devilishly cunning device to read by candlelight after a hard day in the fields.

  • Comment number 60.

    @58. At 12:34pm on 16th Mar 2011, That_Ian wrote:
    "They missed the boat years ago. Instead of adapting their business to the new digital age they put their faith in corporate lawyers to try to keep upstarts like Napster at bay."

    I suspect that they were coerced into doing so by mainstream music publishers but I have no proof of this.

  • Comment number 61.

    @16 & @2 - good points regarding live gigs. Live performances are one of the few 'goods / services' that it is impossible to digitise, hence the emphasis on higher costs with these over the past few years (charging a premium for a product that is unavailable elsewhere)

    Haven't read all the rest of the comments but think people may have missed the point that 'digital' goods are always prefered by the publisher (owner) of the work - be that that music, film, games, or books, as with digital there is no COGs (cost of goods - no manufacturing costs for hard parts such as disc, paper, plastic case etc). This makes the profit margin much higher and reduces risk (in maufacture) substantially

    As the owners / publishers of the works much prefer the high margins of a digital version then the days of 'hard goods' stores such as HMV are numbered.

    Not very strange that the publishers haven't passed the savings of digital goods vs hard goods onto the consumer, of course

  • Comment number 62.

    @40

    'Plugs for a Fruit based company' ??

    Which one are you talking about - Blackberry or Orange? ;-)

  • Comment number 63.

    37. At 11:18am on 16th Mar 2011, John_from_Hendon wrote:

    I fear not - at the present price (rent) of retail premises. This is yet another example of why we MUST get property prices down to rational levels or destroy our Nation.

    --------------------------------

    Completely agree, as usual, on that point, JfH. A lot of businesses, not only music-related, had to move out of High Street across the country because of those sky-high rents. A lot of short-term thinking around...

    On another note, quite a few retail businesses were busy in the 90s getting rid of their freehold properties for quick boost to their profits (again, that short-termism). I was always amazed at the perceived "wisdom" of such actions....

  • Comment number 64.

    HMV might as well be called Woolworths , because its high st existence will follow the same path.

    No one under 40 buys CD's / DVD's often and anyone under 25 NEVER..

    Suggest they put all their efforts into the on line side of the business, in this format it might survive

  • Comment number 65.

    As regular browsers and occasional purchasers in both Waterstones and HMV my teenage daughter and myself will be sad to see either brand disappear from the high St. But the key issue, it seems to me, is not that people are deserting either books or CDs, but that they (like us) can no longer afford to pay premium prices for them.
    For years the book industry (publishers, distributors, and retailers) made huge profits until the collapse of the net book agreement. I won't continue to pay list price for books because I can't afford to - if I can't get them from Amazon or The Works (discount retailer) or a charity shop I won't buy them. If Waterstones are to be anything other than a specialist non-fiction retailer they need to sort out their costs and supply chain.

    Music is a similar case. I used to buy 5-6 LPs a month before CDs came out but stopped when the price went up and the quality went down. I gave up visiting EMI/HMV record shops when they stopped keeping classical music, and went to specialist shops instead. But I am not prepared to pay £7-14 to replace music I already have with digital copies. My daughter doesn't buy Cds at all, but downloads music from the web. When I can get classical music the same way for my MP3 player I'll probably do the same.
    So is the retailing model broken?
    If it is, its probably the retailers who broke it.

  • Comment number 66.

    54 - ShoreyR. At the current share price, now 11.25p HMV is valued around £48-49 million. The share price is up slightly today.

    The company has sales of £2billion a year and profits are expected to be around £40 million for this year. This is lower than City expectations by a few £million. Since HMV announced this lower profit for the year, the share value has fallen by about 50%, approximately £50 million knocked off of the market valuation (it was around 25p a few weeks ago).

    56 - Noise Pollution. I agree that it is partly a break up value for the company which tends to be higher than current market value. I read recently that one City "expert" put the takeover value of HMV at around 46p. That was a few weeks ago after the news of it breaking its banking covenants had already been released. If the Russian billionaire Mamut does make a bid or offer for Waterstone then the share price will go up. The only time HMV's share price has gone up recently is when his name is mentioned. He wouldn't be able to buy HMV for £47 million because as soon as any bid was made public the share price would go up closer to a true takeover valuation which is a lot more than 11p.

  • Comment number 67.

    The idea that you can just buy some stuff, stick it on shelves and then expect people to come running to you is over and done with. The shareholders of this business have nothing. They even have no premises. They only have themselves to blame for not keeping abreast of changes. We want the stuff as cheaply as possible. We'll pay the producers, but the middlemen will have nothing from me whatsoever.

  • Comment number 68.

    Im no business mogul but for any company selling £2billion and not making a profit is a joke. They need to spread themselves across to online (to compete) and keep stores open AND THEN connect the two, gaining a niche.
    For example:
    Your out and about fancy a new song pop into HMV and download it direct to your iPod?
    They could also:
    sell tickets
    do gigs of their own
    more celeb signings in store
    gain exclusive rights to bands

    Anything that gives people a genuine physical reason to go into a shop rather than buy online.

    To cut costs, they should relocate some of their stores. Some HMV's are HUGE and spread across several floors: major overkill!!

    In addition, expanding into clothes and gadget is throwing money away.

  • Comment number 69.

    37* JFH raises a good point in what "physical" high st shops we need , suggesting food and clothing will always be there.

    I believe ALL shops are up for grabs .

    At the moment the "Shopping Experience" is not at the top of many peoples priority , quality and value are the watch words.

    However "Brands" are still critical especially on line ie Amazon , Tesco etc. However niche's still exist for small firms that offer something new to the consumer..



  • Comment number 70.

    23. At 10:27am on 16th Mar 2011, Up2snuff wrote:
    Robert,
    You overlook the most likely cause of the problem. It is not just the electronic/internet age or fashion although at #1, Ginger Spam is absolutely right.

    It is rent and rates. And in prime locations.

    'Enemies of enterprise'? There are another two to add to the list.

    Dave and GO & Co, are you noting this?


    ==============


    Retail landlords are in many cases agents acting on behalf of pension funds. I happen to know that the Coal Board Pension fund for one has a large chunk of the prime retail in the county town (city actually) near where I live. For years retail rents have been geared to always rise for most retailers, whilst anchor tenants such as John Lewis, Debenhams, HoF etc pay a much reduced rent. I guess that what may be perceived as greed on the part of landlords is actually driven by the imperative of funding generous final salary schemes for baby boomers and the private pensions of those who started to draw one prior to Gordon Brown's raid in 1997. In the end I feel it all comes down to the 'Pig in the Python' again.

  • Comment number 71.

    37. At 11:18am on 16th Mar 2011, John_from_Hendon wrote:
    I fear not - at the present price (rent) of retail premises. This is yet another example of why we MUST get property prices down to rational levels or destroy our Nation.
    ================
    Surely the major determinant of the price of commercial property is the rent that can be earned.

  • Comment number 72.

    there's been an earthquake in Japan

    GC

  • Comment number 73.

  • Comment number 74.

    I can't belive some of you are trying to make out that this is a banking/landlord story. It's all about a flawed business model.

    For a company that witnessed the demise of vinyl and VHS first hand should have appreciated how quickly technology can change a market place, to be so far behind the curve with regard to the online and download revolution was and is proving to be incredibly negligent.

    The age of of the debt drven consumer boom on the high street is over - we are moving in to a post consumer age - landlords will inevitably have to adjust as their customers dissappear.

    The high street is going to become the place for food, fashion and entertainment (witness the return of cinemas to City Centres) - councils in particular need to get their act together re: parking, accessibilty and cleanliness or face missing out to their neighbours.

    There needs to be a zero tolaerance of anti social binge drinking in towns/cities to allow families and the increasing older generation enjoy these places into the evening/night.

  • Comment number 75.

    @58. At 12:34pm on 16th Mar 2011, That_Ian wrote:
    "They missed the boat years ago. Instead of adapting their business to the new digital age they put their faith in corporate lawyers to try to keep upstarts like Napster at bay."

    -------------------------------------------------------------------------------

    HMV Digital online store is very good, even provides flexible download options to a variety of musical libraries. Better preview options than a certain "i" branded product and identical prices, I downloaded a decent size back catalougue for a mere £30 from them the other day, mind you it was Soundgarden.Too little too late though possibly.

  • Comment number 76.

    If HMV brought their DVD box sets down to a reasonable price - closer to online prices rather than twice as much - then I reckon many people would buy there, simply because you know you are not going to get the box damaged in the post (this has happened to me in the past, it is a pain to return them).

    People who browse at Waterstones and then go home and buy on Amazon are slitting their own throats - what do they plan to do when Waterstones closes as a result of their actions? Nowhere left to browse, and a virtual monopoly for Amazon to start charging whatever they want, yeah, thanks a lot. I prefer my books from the high street with corners undented by the post - especially expensive graphic novels that tend to be heavier, more prone to damage to corners from the postal system, and less valuable as a result of that damage. Not everywhere has a Forbidden Planet or a Gosh to go to.

    If places like HMV and Waterstones go, it will effect other high street businesses too - because people will be less likely to take a trip into town to get something, less likely to stop for a sandwich or a coffee nearby, less likely to stroll through the market. Shopping online to save 50p on a book - and contributing to the death of the high street, and a breakdown in communities, as a result - is incredibly short-sighted.

    Borders going was already a huge blow - they were the only real high street stockist for many small press magazines who can't afford what WH Smiths charge for shelf space. Some of them can only survive on subscriptions and now, and the extent to which ebooks will take up the slack isn't a sure thing at all. The lack of high street presence means that browsers simply cannot discover such publications for the first time now. This impacts many small presses and also writers who cut their teeth with short story publications.

    If you want your high street, shop there. If you don't, don't complain when it turns into pound shops, charity shops and empty shops.

  • Comment number 77.

    Gilthead #5, and where do you think Play, Tesco and all the other online music retailers ship their cd's and dvd's from?

    If what you state "If, in the upcoming budget, Georgie Boy gets rid of the LVCR" does actually happen, then this would actually make HMV stores more competitive with online retailers on price. I would not see this as a nail in the coffin unless everyone dumps physical formats for downloads only.
    -------------------------------------------------------------------------------

    The irony is that HMV online is about its most profitable "division".

    Cut that off and it will simply bring on the demise of HMV that bit sooner.

  • Comment number 78.

    52. At 12:19pm on 16th Mar 2011, Averagejoe wrote:
    Free DVDs for those on subsistence level wages who cant afford to buy them ought to be removed right? Cant have those at the bottom receiving 'treats' can we. With your approach we would be back to the work houses of the 1800s. So much for progress. If I'm good, master will give me crumbs from the table.

    - So the rich who are the business owning elite should pay to subsidise a loss making competitor. Explain why please.

    Also, the rich should pay to allow the poor to borrow things that they have to pay for. Explain why please. Do you expect me to buy you a telly and a car too? Why not cheaper petrol for the poor? Where will you stop? I suggest you read up about killing the goose that lay the golden egg.

    One of the largest music publishers is Japanese. Shouldn't we try to help them out and hence help the Japanese people due to the current debacle in their country?

  • Comment number 79.

    All this talk about greedy Landlords is cheap talk.

    The retailer usually has 3 year rent reviews and leases don't last for ever.

    The "Dot Com" age has been with us for over 10 years and that is a reasonable time for any business to adjust.

    Everything has a shelve live (Ask Rover) and its HMV's turn to fall off the shelve...

  • Comment number 80.

    RE: 57, Cash is king. Without cash flow it could end up becoming another Woolworths, where debt simply wipes out the viability of the company.

  • Comment number 81.

    It’s good to hear from J @ 26 that I’ve a “bigoted anti-banking response”.

    Bigot = obstinate, intolerant, devoted to their own opinion. Well I do have an obstinately negative opinion of banks. Not because of any treatment that I have received, but for their general conduct and treatment of others. However, if it’s a defence. I have pointed out in the past that there are foreign banks far worse than the UK ones. Intolerant: looking through my old posts, I have reserved my whole stock of intolerance for bankers and UKGov, but I feel with reason.

    I have a long and deep appreciation for how our banks and our government have failed so many of our industries by not supporting them or, worse still, providing drip-feed loans that are sufficient for them to struggle on, but not to modernise or re-organise, sufficient to prolong their life in a cash-hole, but not to climb out of it. How can they get away with it? Because the impact on the majority is incremental and the minority, who suffer directly, carry insufficient influence. However, the summation of those incremental impacts has cost the UK dear, most of our manufacturing industry and, as an ultimate consequence, we will eventually lose banking and finance as well.

    I think that I recognise the need for HMV to transform itself as much as most. Undoubtedly, the very nature of books and music is changing dramatically. Still, for me, a visit to a book or music shop is productive and worthwhile. In contrast, banks offer me nothing that could not be better done via the internet, if only they had the capacity to provide a system that worked. Thus, devoted to my own opinion, roll on Amazon-Bank.com.

  • Comment number 82.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 83.

    78. At 13:34pm on 16th Mar 2011, Lindsay_from_Hendon wrote:
    52. At 12:19pm on 16th Mar 2011, Averagejoe wrote:
    Free DVDs for those on subsistence level wages who cant afford to buy them ought to be removed right? Cant have those at the bottom receiving 'treats' can we. With your approach we would be back to the work houses of the 1800s. So much for progress. If I'm good, master will give me crumbs from the table.

    - So the rich who are the business owning elite should pay to subsidise a loss making competitor. Explain why please.

    I do very quickly have to point out, and I believe this to be the case in all Public Librbaries in the UK, that an extra charge is payable to rent DVDs and CDs, this less then to buy but still more than some DVD rentals stores.

    I kind of agree with LfH that DVDs are a luxury and shouldn't be subsidised, but they are not completey free.

  • Comment number 84.

    Bottom line is that the Company is broke. The banks are holding a bad debt and the bankers will be taking another bonus next year.

    So who's next up?

    Blacks?
    Southern Cross?

    A whole load of CEO's who will be breach the terms, or covenant, on their borrowing facilities this year.

  • Comment number 85.

    firstly i would like to point out that im not an Apple fanboy and in fact i will be the first to point out how overpriced and useless their computer and laptop range is.....however their ipods/iphones are pure brilliance.

    and the real killer for these is ofcourse Itunes. this effectively made apple one of the most important companies in media and effectively signed the death warrant for Albums being on CD's. why pay up to £10 for an album when i can buy the songs i want for 99p each on itunes.

    browsing is a lost art and also an un-necessary one. if i hear a song i like it takes about 5 seconds to go to itunes and find it and then i can buy it straight through my iphone and listen to it straight away. why bother going and walking around town for 30 mins or so when i can get all the music i want while im on the bus home.

    but dont get me wrong, i will still miss HMV if/when it falls as its the best place for me to go buy video games, if they could set up small games stores then i think those would do very well (but only if the employees knew what they were selling).

  • Comment number 86.

    HMV going to fail ! - 13,000 people out of work !

    I know, maybe we should bail out HMV and underwrite their debt

    WHAT AN ABSURD IDEA,

    Unless of course you work for a multinational, greed driven, monolith, which succeeds in paying minimal corporation tax, as your "star performers" recieve outrageous bounses for gambling with other people's money in the most unscrupulous and unethical of fashions.

    But remember people "we're all in this together"

  • Comment number 87.

    37. At 11:18am on 16th Mar 2011, John_from_Hendon wrote:

    "I fear not - at the present price (rent) of retail premises. This is yet another example of why we MUST get property prices down to rational levels or destroy our Nation."

    John, I think you'll find that these landlords don't actually own the properties and are in hoc to the banks. Unless they receive full rents the Landords themselves will be breaking their banking convanants. The landlords are maxed up to the limits and therefore now that the price of these retail units have fallen the banks are sitting on more bad debt. Will the landlords let HMV renegotiate their rent, of course not the landlords can't afford to.




  • Comment number 88.

    HMV have pretty much contributed to their own downfall. An over-aggressive expansion policy with buying up Waterstones and a ludicrously expensive pricing policy in the 90's/early 00's (before the likes of Amazon took over) created a double whammy of huge debts and a less than shiny public profile. Saying that the fact is they are, for most towns, the only option. Buying online is fine and I'm sure some people will be quite happy shopping in cyberspace, the fact is that Amazon is a faceless warehouse just outside Milton Keynes, content to sell anything that will make them an amount of money and have always, from day one, been prepared to absorb vast losses as part of a grand plan to get to where they are now. And don't get me started on Tesco's, Sainsburys etc as being valid entertainment retailers.
    It's a sad day for anyone who likes to browse through physical products and I for one hope that HMV does survive in some form, but the whole system of music retailing has become an absolute joke.

  • Comment number 89.

    Sad times for all high street retailers. A declining cycle caused by ludicrous business rates charged by Local Authorities. Furthermore, a particular company are buying up Local Authority off-loading their own run industrial estates. The purpose of these buy ups aren't just about revenues, but more to do with the freehold value of the land that lies beneath these sites.

    The biggest fraud has to be Local Authorities spending £billions on digging up perfectly viable and working town centres - for what purpose? Ultimately, destruction of these town centres that drive out business, jobs and allow major supermarkets to scavenge on that destruction paid for by Council and Business Tax payers. Where is Eric Pickles when you need him? In the House of Commons tax-payer subsidised restaurant one might suppose?

  • Comment number 90.

    Anyone planning to open a retail chain now would be mad (take note Sheffield Council and their £10m gamble on a new shopping centre).

    Shop prices will never be competative again because:

    - Rising consumer fuel costs, people have to pay more before they get to the store.
    - Rising car park prices as Councils look to increase income.
    - Rising rents pushed up by inflation.
    - Higher building insurance costs.
    - Wage inflation for shop staff.
    - Rising delivery costs to stock the shops.
    - 20% VAT compared to having items shipped from a tax haven.
    - People are getting too lathargic to leave their houses / have to stay in waiting for the post.
    - Digital Marketing is more effective / generally cheaper.

    Food, Clothes, Gadgets, White Goods, Cars, Furniture, media - all can be easily selected and bought online.

    If you must expand on the High St learn from Apple (like Microsoft has) and open user experience stores. This doesn't work for most items but it will for some.

  • Comment number 91.

    The Beatles Remastered Box. Set Amazon price £130.. HMV price £250!! I think that might be part of the problem.

  • Comment number 92.

    So the board have failed to pull a rabbit from the hat (a reference to the last post that Robert did on HMV)

    Perhaps the demise of HMV is directly proportional to the remuneration of the board.

    HMV = dead duck

    Sack the board for incompetence whilst there is still time.

  • Comment number 93.

    #92 me

    that should be inversely proportional.

  • Comment number 94.

    hmv = hasnt much value

  • Comment number 95.

    Hello. My name is John and I am a Vinyl Addict. Much as I love the net and all things technological, when it comes to music there is only one possible format for me: the vinyl record. CD's are ok for the car and mp3's are ok for the train to work but neither comes within a million miles of the clarity, beauty, authenticity and warmth of a vinyl record. I would never listen to music on any other format if I had the choice.

    It seems to me that what HMV are failing to do is to break their market down into its various constituent components. By proposing a move towards ever-more digital, they're ignoring the percentage of customers who simply aren't interested in all this new technology (at least when it comes to music). Sure, there are a lot of people who just want to own an iPod and download mp3's, and do away with physical formats. But that's not everyone!! I'd say that perhaps 40, 50, maybe 60 % of HMV's customers still want physical formats, whether CD or LP...

    But despite Robert's comment in his article, I think that HMV have been steadily turning into a type of Woolworths, albeit one focused on home entertainment rather than household cleaning products etc. In any given store there's music, films, books, gadgets, memorabilia, birthday cards, and plenty more besides.

    I'd suggest that the way forward for them is to use their stores to specialise, rather than diversify further. They have 600 stores, and in bigger towns and cities that often means more than one store. In a town with, say, 2 stores, why not convert one into a hi-tech gadgets/electronics type store, and leave another one to focus purely on music? Thereby giving the music obsessives like myself what they want, while catering to more mainstream tastes as well. A similar approach to their online operations might make sense as well. But at the moment, to use the old cliché, they're jack of all trades and master of none...

    However, I for one would be very concerned if HMV were to fail completely. They've helped to introduce successive generations in the UK to music, and in doing so have helped the UK music industry to remain strong, creative and forward-looking. Without HMV, I can see future generations thinking little of music other than as something to download for free with one click of the mouse and then left to play in the background, nothing more than a noise or a distraction.

    The UK, along with the US, has been one of the key players in the global development of modern (non-classical) music. We gave the world the Beatles, Stones, Led Zep, Pink Floyd, The Clash, The Smiths... (add your own, there are numerous others of course). And what do we have today? The last chain of record stores about to topple, and a musical climate which doesn't amount to much more than the karaoke-for-teenage-girls of the X Factor. Heartbreaking.

    Mind you it's not necessarily all bad news. I recently heard that French/European music/entertainment retailer Fnac is looking to break in to the UK market. Their stores and product mix are similar to HMV's (more and better vinyl though...). I bet they're rubbing their hands with glee at the thought of HMV capsizing. If it happens, fingers crossed that an operation like Fnac wil move in fast...

  • Comment number 96.

    Totally agree with BobRocket - its been badly managed since Simon Fox and his motely crew arrived. My personal SP has been decimated by the incompetent board. Maybe should they should invest in a traveling circus, the board would make a fabulous bunch of clowns!

  • Comment number 97.

    I still buy CDs, rather than download, I've got about 3000 so far.

    Although I'm very techy, I really don't like the download concept, becuase I'm experienced enough to know what computers can do.

    I can only lose my music investment by theft or fire - both insured. However a crashed hard disc can lose you all of your music - how are you going to get this back?

    You might start to wonder at the investment your company makes on data backup, and how involved it is. Mere consumers haven't got a clue how to protect their data, I'm afraid CD-Rs and hard disks just don't cut it.


    At the end of the day, my pressed CDs will still be working 100 years later, and can be transferred onto any good storage system I choose in the meantime. What are you going to do with your copy protected AA3 file?

  • Comment number 98.

    Ah HMV! In the 90's, I spent a fortune in the Oxford Circus branch, but I'm afriad the digital music revolution is killing on the last giants of music retail. I even joined up to HMV's online service when it came out first time but when the mighty Apple arrived I quickly switched. Some people do like having a physical CD but I'm afraid they are in the minority. iTunes and to an extent Amazon have killed off the music high street. RIP.

  • Comment number 99.

    Lets hope it doesnt fold eh......if all the stores close there'll be several thousand spotty Goths out of work wandering our streets :-)

    Seriously though, my heart goes out to the store staff who have always been very helpful and knowledgable about the various products they sell, it will be a terrible blow if they all lose the jobs they work so hard to do, not because they fail to shift the stock, but because the board has failed them, us and themselves - which reminds me, when is red nose day, soon isnt it

  • Comment number 100.

    97. At 15:32pm on 16th Mar 2011, Crookwood wrote:
    Although I'm very techy, I really don't like the download concept, becuase I'm experienced enough to know what computers can do.

    I can only lose my music investment by theft or fire - both insured. However a crashed hard disc can lose you all of your music - how are you going to get this back?
    ================================

    You cannot be that techy if you havn't heard of cloud storage. Surely the days of the hard disk like the CD and Vinyl before it are numbered.

 

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