Is there good news in HMV's collapse?

 
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Here are two big questions about the collapse into administration of HMV.

Will it go the way of Jessops and Comet? Will all 239 stores be closed, with the loss of all 4,000 jobs?

And is there a rising incidence of corporate insolvencies which could actually be a good thing, in the widest possible sense (please bear with me; I haven't taken leave of my senses or transmogrified into some kind of insane company necrophiliac)?

On the first question, what future holds for HMV and its people, the outlook looks considerably better than for other recently kaput store groups.

And the reason, according to influential sources close to HMV, is that the music industry and the film industry want its survival, albeit they recognise that will have to be with fewer stores and with fewer locations.

Record labels (are they still called that or am I showing my age?) and DVD distributors don't want to be wholly dependent for sales on Amazon and Apple's iTunes.

So Deloitte, appointed as administrators to HMV last night, is working on the assumption that these important suppliers will help the creation of a slimmed-down and viable HMV.

This is unlikely to involve these suppliers actually buying HMV out of administration. Much more likely is that they would provide easy credit terms to a buyer - which will very likely be a private equity group (right now, again, there is too much money in private equity chasing too few deals).

Start Quote

We do need to have a situation where bad businesses fail, otherwise the economy will stack up with progressively weaker business models and growth will go into reverse”

End Quote Jon Moulton Investor and entrepreneur

Now on to my hideously heartless question whether the collapse of HMV is good for the rest of us.

First of all, I had better explain what I mean.

The evidence of past recessions is that economic growth doesn't resume at any great velocity until unviable and inefficient businesses are put of their misery and excess capacity in various industries is eliminated.

Now, although there has been a fair old number of retailing collapses in the past year or so (according to FRP Advisory, HMV is the 32nd significant retail chain to go into administration in just over a year), there have been many fewer corporate collapses since the financial crisis of 2008 than was predictable on the basis of past economic experience.

As you will know (don't yawn) if you read this column, this economic malaise has been characterised by many weak businesses being put on life support and turned into the living dead, or (to use what is now a cliche, so sorry) zombies.

This is good for the employees of these companies, for a while at least.

But, many would argue, it is not good for the economy in the long run. Because it preserves excess capacity, in a way that makes it more difficult for new business to grow and thrive, and it also holds back the progress of bigger more successful businesses.

So if HMV's demise signals a rising incidence of banks and other creditors being more ruthless in putting lame companies out of their misery, that might in a fundamental sense be quite a good thing.

And if those rising corporate mortality rates were real, it would also show that banks were feeling increasingly confident that they have sufficient capital to absorb the consequential losses - which would also be a very positive sign, in that banks would also have sufficient capital to extend necessary credit to viable businesses.

Here's the bad news (please forgive).

According to leading administrators, so far the underlying trend of corporate deaths does not seem to have risen much. The number of companies going into administration is still bumping along at a relatively low level.

If it doesn't feel that way, that's simply because recently companies that have gone down - Comet, Jessops and HMV - were so visible and famous.

But there are still plenty - far too many - corporate zombies that are clinging on and holding back job creation by companies with much better prospects.

 
Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    +2

    Comment number 9.

    I'll miss HMV if they go. I'm old school. I don't do MP3 players or tablets. I blame Apple for ring fencing music buyers with iTunes. It's killed the market. We can't really blame Amazon or Play (the latter are changing their business model away from retail) as HMV survived long after they started.

  • rate this
    0

    Comment number 8.

    Aside from the attractions of buying online, and there are many, why hasn't HMV (and others) embraced the offering of downloads within their stores? And whilst I'm on it, this could happen in bookstores as well..

    Just a thought. Then there'd be another reason to visit these shops.

  • rate this
    +4

    Comment number 7.

    Two of the Jessops executives left their positions less than two years ago to take up similar positions at HMV. Will they now be moving onto W.H Smith?

  • rate this
    +1

    Comment number 6.

    I am pretty sure it is basic business sense to keep your company at the forefront of the market, driving change not reacting to change. HMV will die due to poor management. Staff will suffer and I wish them well and hope they get a new job soon. The high street is changing and as soon as councils allow it to change the sooner people will return to it but not to shop, more likely to relax and chat.

  • rate this
    +1

    Comment number 5.

    Ive not bought a blu-ray,cd or dvd from a hight street store for years. if you want choice and price the only place to buy is online

  • rate this
    +102

    Comment number 4.

    So Robert - if letting zombie companies die to make room for new companies and new jobs is good for economic recovery (which makes sense)...why are zombie banks the world over continuing to be bailed out? Japan's growth has been stifled by zombie banks for decades.

  • rate this
    +1

    Comment number 3.

    It's sad to see it go but if i'm honest, I can't remember the last time I went into HMV.

  • rate this
    +4

    Comment number 2.

    HMV had an out of date business model, did not serve its customers and overcharged for its product. One problem with UK companies rising from the ashes is management. For some strange reason we appoint failed managers to eventually destroy yet another business. The UK has got to get out of the short term mode of operation and plan and invest for the future. Try convincing greedy shareholders!

  • rate this
    +3

    Comment number 1.

    Hopefully they will keep trading, its always nice to browse DVD's etc in store, and much greater selection than supermarkets to.

 

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