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
    +13

    Comment number 149.

    This business model is dead. Amazon, the biggest music retailer in the world, stocks only half of all available music product. HMV chose a path of dumbing down to the lowest common denominator and severely restricted its product range. Plus it is overpriced. I've not bought a CD from HMV in years. In this download age, there is still a niche for a quality music retailer but HMV isn't it.

  • rate this
    0

    Comment number 148.

    96.FNUSNU
    Unfortunatley this appears to be the same view that is mostly due the the state of the high street. Yes you can buy cheaper online or from a supermarket that will claim to be 'creating' 100's of jobs when the open a new store. But recent publicity has show why Amazon, for example is able to slash prices on popular purchases while other companies had to service all interests.

  • rate this
    +2

    Comment number 147.

    Does anyone think the HMV brand will still be used but only online, much like what happened Zavvi ect.? It is a shame though, HMV was often a store to go in and have a look around...maybe shops should become more 'branded showrooms' than concentrating on sales in-store and worry about making transactions on their sites (maybe the Apple Store is a good example of what I mean).

  • rate this
    +3

    Comment number 146.

    When are the people responsible going to feel the pinch, Simon Fox et al, just wander from business to business (comet - HMV) etc and ruin the lives of the employees as the business folds - doesnt stop him getting another high profile/high paid job though!!!!

  • rate this
    +22

    Comment number 145.

    I can go in any number of stores in the town centre, receive no level of customer service and pay the top price that the product I want is available for.OR I can order it online, receive no customer service and pay the cheapest price available for the product. Before we get into petrol costs and parking. High street needs to get customer service sorted to win out

  • rate this
    +5

    Comment number 144.

    sadly - HMV looked out of date 10-15 years ago. People need guidance more than ever to find the good music and films from the ever expanding sea of poor and worthless releases - a challenge HMV never met.

  • rate this
    -1

    Comment number 143.

    Banks have to learn that without other companies they are also out of business in the UK. They either properly participate and become partners with those who need their help or, as in this case, they pull the plug. The usual slow death on a drip feed of inadequate credit helps no one.

  • rate this
    0

    Comment number 142.

    "Another one bites the dust".
    Remember,
    Home streaming is killing music (stores)....

  • rate this
    +1

    Comment number 141.

    If only the vinyl, SD, USB mp3, reader/player was put into the mass market years ago they people would have had the choice all in one unit!, mp3 and vinyl player together in a single unit, the 2 best formats, would have saved HMV

  • rate this
    0

    Comment number 140.

    A few key points to consider:
    - How can the high street compete with online when you consider parking, business rates and the total investment required to run a shop? There has to be taxation/regulation to balance things
    - Digital purchases are all well and good however typically the quality is less than physical media and you have no rights to sell it on. When will people notice this trap?...

  • rate this
    0

    Comment number 139.

    Most of these failures want to blame someone - and internet companies are the obvious primary cause. However, all businesses must modernise to keep pace or indeed, beat off competition. High Street shops are doomed due to online buying - they cannot keep costs down. IMHO, 'offshore' websites should have to pay a UK sales tax. UK shops should provide a better service to attract shoppers.

  • rate this
    +3

    Comment number 138.

    As in nature, businesses who do not get their structure right, will wither and die.
    Their business model did not adapt with the changing market.
    I have not bought a CD in a shop for over 10 years. They had plenty of time to adapt.
    Sad but not the governments fault, although the Trots will blame them.

  • rate this
    +1

    Comment number 137.

    @IanSmithISA

    'With limited liability there is no incentive for socially skilled but bad managers to "leave the game".

    What's Alex McLeish got to do with HMV? I wouldn't class him as socially skilled either.

  • rate this
    +3

    Comment number 136.

    Excellent article Robert.

    There is a missing bit though, and that is why these zombie companies have managed to stagger on for so long.

    The reason is the very low interest rates which have propped up zombie companies, and have also propped up inflated property values. Both are very bad for the health of the economy - the sooner interest rates rise the sooner we can get back to real growth.

  • rate this
    0

    Comment number 135.

    There's no point in DVD distributors supporting a future incarnation of HMV because DVDs will go the same way as CDs soon, all movies will just be bought in digital format. I think booksellers need to watch out next, their days are numbered too unfortunately.

  • rate this
    -14

    Comment number 134.

    More lost private sector jobs.....



    ....when will our inept Chanceloor & PM fainally shake off the Omnishambles & realise how economies really work.....



    ...instead of sticking their heads in the sand & pretending it works how Milton Friedman claims it does......


    ....despite ALL the evidence showing Neo-Liberalism does not work.....

  • rate this
    +2

    Comment number 133.

    Simple question.

    Can anyone remember the last time they shopped at HMV? I can't.
    10 years ago I'd frequently buy there, but not in several years. Even their sale prices are more expensive than buying online!

  • rate this
    +1

    Comment number 132.

    Amazon prvoide the platform for many SME's to sell their products online. Ask those SME's if they would be better off without Amazon

  • rate this
    +8

    Comment number 131.

    HMV, when it was competing with Virgin, Our Price and independent stores, used to stock a solid range of music and be staffed by people who knew a thing or two. Cutting back its stock in favour of cheap DVDs, HMV drove the enthusiast online while the mainstream was being sucked in by iTunes.

    Sadly, in the current climate, there is little chance of independent stores returning to fill the hole.

  • rate this
    +1

    Comment number 130.

    121JuaK

    Successive weak governments have allowed the likes of Amazon to kill the high street through not tackling the tax discrepancy between UK based companies (HMV etc) and those offshore. There should be high rate of VAT on all sales to offshore companies to protect the jobs in the UK.
    ===
    If Amazon sell cheap enough we'd not need high paid jobs to buy the goods, would we? Just a thought.

 

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