Is there good news in HMV's collapse?

HMV's Nipper dog Will HMV's iconic Nipper dog brand now be put to sleep?

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

    Comment number 29.

    Nobody can turn back the tide of technological innovation and new business paradigm. I remember aficionados waxing lyrical about valve amplifiers, 45s, hybrid turntable parts, coloured waterproof walkman etc.

    Manufacturers and retailers may be able to rake in on the latest consumer demand, but in time the market will leave others behind.

    Its all like fencing: don't be too late nor too early.

  • rate this

    Comment number 28.

    DVDs/BDs haven't been chesaper online for *years*. "Dark Knight Rises" BD: 19.99 online, 18.99 in Sain***** stores. When they are "on sale" or "on offer" they are *still* the same price everywhere.
    The idea that "online" is cheaper died before the Credit Crunch.
    Sure, it is easier to find the cheapest source online, but only because walking from store to store take longer.

  • rate this

    Comment number 27.

    Life without H.M.V. Will be no better or worse. It will only be different.
    This is the "New High Street" that we are creating.
    It will be our ability to adapt to the new high street that will make life better or worse.

  • rate this

    Comment number 26.

    ", it is not good for the economy in the long run... 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."

    As it stands this is just glib.
    I don't see bigger and better industries in the UK after previous recessions,

  • rate this

    Comment number 25.

    Whilst Mr Peston has rightly identified the conflicting aspects of HMV's demise, it leaves us with a supplier that essentially pays no tax. The major online download suppliers are in a similar position.

    A sad day for our economy as a whole.

  • rate this

    Comment number 24.

    While there is economic & town-planning sense in creating a more level playing field between online and on-the-ground retailers, we have to accept that the majority of consumers wish to download their music and film content. But not all, and room exists to reinvent the specialist store. Falmouth now has a book shop that's also an ale-house(!); and paper books are still selling well despite Kindle.

  • rate this

    Comment number 23.

    There are plenty of vacancies in the High Street now. If I was a dentist I would be looking for other life critical health issues as the cause. There is something very wrong here. We all know the online world is transitory and yet the future is imagined sound according some economic theorists?

  • rate this

    Comment number 22.

    HMV has been a drowned man waving for nearly ten years. The business model is outdated and flawed. Even with less bigger shops it will still lose money. People, especially men, like downloading and ordering online. The only future for HMV is its website. Sad, but true.

  • rate this

    Comment number 21.

    I suppose HMV have a massive disadvantage against Amazon, because Amazon are cheaper because they don't bother to pay any corporation tax.

  • rate this

    Comment number 20.

    George @ 11: "Inflated prices" will be the ones keeping people in jobs.

    If you care to read Charles Fishman's 'The Wal-Mart Effect', you'll see how the constant drive for ever lower prices does two things: lowers quality, and reduces jobs, in many cases off-shoring them to China etc.

    So unless you're really counting the pennies, you might consider "inflated prices" as anything but in reality.

  • rate this

    Comment number 19.

    Why are companies, whose directors know they are in trouble, allowed to sell gift vouchers? This is unacceptable and needs to be prevented by law.

  • rate this

    Comment number 18.

    A very gloomy and sad start to 2013. This is not the end of the bad news as the economy shrinks and retail sales diminish. Online has a lot to answer for but so does the governments policy and the depressing spread of fee music downloads.
    Will we see the end of music CDs and even DVDs in this constant technological roller coaster.
    The UK high street is becoming a depressing place .

  • rate this

    Comment number 17.

    This is capitalism at its best. Creative destruction as tastes and wants change over time.
    One of the reasons the US has recovered so strongly is because a lot of their businesses went bust during the crash and so did households helped by bankrupcy law than we have here.
    This allowed them to recover quickly and their financial sector is a lot better at serving local business than ours.

  • rate this

    Comment number 16.

    This is a shame, I admit I have been buying from HMV Digital in the hope that they will continue to sell digital music, after all apart from iTunes, HMV offer a lot of choice and with there new website you can discover new music easier. On another note I think the younger generations are losing quality sound, Ipods and docking stations can't produce a quality sound, flat no feel, no bass warmth.

  • rate this

    Comment number 15.

    Whatever happens to HMV (and I hope it remains open for the sake of all its employees), how could it possibly get into this mess? Not only is it the market leader in High Street entertainment sales, it's probably the only national provider since the demise of Zavvi et al.

    From the outside looking in that seems harder to mess up than to run?

  • rate this

    Comment number 14.

    HMV only have themselves to blame. Only 10 yrs ago the group had a value of £1bn. If they had used that & their huge brand influence to properly invest in online and digital then they could have concievably played the likes of Amazon and i-tunes at their own game. We would now be looking at a really strong business. Instead they were happy to live in the past and go through this slow death. Shame

  • rate this

    Comment number 13.

    I'm gutted for HMV. In our town, there is (or was), just one music and DVD store which is (was) HMV. I love to browse through music and DVD's. When you buy online, you have to look for something specific, in the store, you browse, and maybe inspired to buy what you didn't go in for. I feel like i'm going to be forced to buy everything online soon, which is sad for the High Streets

  • rate this

    Comment number 12.

    Will nipper get a good home?

  • rate this

    Comment number 11.

    HMV was perfectly positioned to do what Amazon did and mop up the online market. The reason it didn't was it had a vested interest in keeping the prices inflated. As with all companies that refuse to reinvent in the face of a changing market it paid the ultimate price - that is Darwinism meets capitalism.

  • rate this

    Comment number 10.

    Music is a bit like porn these days, there's so much of it that's free I'm surprised they can still sell it!


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