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, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    +8

    Comment number 189.

    Am i the only person who will not be shedding a tear at HMVs demise. It wasnt so long ago that they we throttling the supply chains of MusicZone which sent them under using bully boy tactics. Even during sales they are too expensive.Even trying to exploit vinyl collectors backfired it was cheaper to buy from abroad AFTER tax .... genuine music lovers will be glad to see the back of them. Bye bye

  • rate this
    +3

    Comment number 188.

    There seems a lot of nostalgia to the loss of HMV... "i used to like going and having a browse around..'

    Things change. People change. Young people demand different things, and why not?

    HMV was just not 'cool'.

    Its not just losing CD sales to Amazon. Its about Kids not buying CDs anymore. Just like people stopping buying cassettes when the CD came along etc.

    The challenge is keeping up.

  • rate this
    +11

    Comment number 187.

    @shaun

    'The less we pay for music, the lower the quality of the music becomes. '

    That's the same argument the bankers gave us for multi-million quid bonuses. It's the same argument MPs give us for them being so S**t.

    It's a rubbish argument.

  • rate this
    +17

    Comment number 186.

    As similar store "Dussmann" in Germany is doing just fine. They sell anything that could be called "culture" though; books, music, videos, tickets.

    HMV seems like your typical management failure to me. I'm sure they will all move on and destroy some other businesses.

  • rate this
    0

    Comment number 185.

    Yet another victim of the Amazon age. High Street shops simply cannot compete wih Internet ordering simply because of the high price of trading on the High Street. They have many millions of pounds wasted on expensive shop rentals, staff, distribution and the like. Still, at least they pay (or paid) their share of tax...

  • rate this
    +4

    Comment number 184.

    Hmv is no longer the giant it used to be, it dormancy has allowed the growth of other electronics chains, it isn't really a music stor anymore either, it has switched to electronics and games that are sold at extortionatly high prices, i go there and think "i had better just buy online", get a better price, letting this zombified giant die will be good, it will allow for small brands to expand.

  • rate this
    +3

    Comment number 183.

    It will be interesting to see whether this is the start of the banks getting tough with the Zombies.

    We are seeing the predictable loss of businesses whose business model has been undermined by technology changes. HMV with the switch to downloads/streaming, Jessops with the demise of low end cameras due to the increased capabilities of phones.

    Sadly for the employees these losses are necessary

  • rate this
    +1

    Comment number 182.

    @105. speechtherapy What of the human factor? Surely it is better for the country (and so people as a whole) for the economy to be allowed to die off a little and then recharge and prosper? Yes, pain in the short term will be great, but in the longer term it gives more hope. Think of a plant - you prune off the dead + infected leaves leaving it skinnier in the short term, but it lives much longer

  • rate this
    -1

    Comment number 181.

    Last Christmas, as the one before, I did all my shopping at stores such as HMV. Taking into the lack of 'shipping' (did that used to be called P&P!) charges, the constant trips to the sorting office on saturday mornings for parcels attempted to be delivered while I was at work during the week and the headache of things that never arrived, I reckong I saved about £25!

  • rate this
    +1

    Comment number 180.

    169. LizP
    Shop rents and parking charges
    ---
    Voted you up for 'shop rents' - we also have an online shop based from home: cottage industry ftw.

    On the other hand, I've stopped going into town precisely because everyone wants to park there. If I could walk / cycle in without fear of gruesome crushing death, large-car-small-man-road-rage, hearing damage or lung disease, I would be there every day.

  • rate this
    0

    Comment number 179.

    167. arcdef
    "The real reason no one shops at HMV anymore is they are overpriced 99% of the time, so many times you go into a shop and find chart items 20% more than online retailers"

    They do pay taxes here unlike many online retailers and you pay for the convenience. And do you rely on goods to be delivered to your workplace. Maybe they should charge you or Amazon for this convenience/service?

  • rate this
    -15

    Comment number 178.

    The less we pay for music, the lower the quality of the music becomes.

    After all if I wrote a song and played it on my synthersizer, and you paid me 69p I'd say sod this, by forgetting quality music formats and paying less your only hurting yourselves in the end. Mp3 is the future but vinyl and quality sound systems will never be matched by them

  • rate this
    +1

    Comment number 177.

    The writing was on the wall when HMV held its "sale" a week ago. Signs up in the window and ... err ... that was it. Same crap on the shelves at the same prices.

  • rate this
    +2

    Comment number 176.

    Let's face it, there will be many more stories like this. In ten years time the only viable High St businesses will be those offering something that can't be done online (hot food shops and beauty salons for example).
    A shame in my opinion, but inevitable. The only High St shops I now use are for clothes and occasionally Argos (after reserving the item online).

  • rate this
    +2

    Comment number 175.

    Shops selling any form of media have unfortunately become an antiquated waste of space. They have to modernise their business practices or die.
    The music industry is even worse. The public has just cut out two unnecessary middlemen. Today bands can sell directly to the public - live or digitally - rather than being ripped off by whining dinosaur record labels who only sell to on another middleman

  • rate this
    +4

    Comment number 174.

    It seems blaming poor sales due to internet sales and supermarkets are the new excuse for bad management. I found a DVD boxset I was after at hmv.com last year for £30,I didn't want to wait or hunt down my DVDS at the post office so went into my local HMV.The very same boxset was priced at £140!!! They refused to price match with their own website so this news is of no surprise to me.damn shame

  • rate this
    +30

    Comment number 173.

    HMV have been the front for corporate racketeering for many years.

    It wasn't that long ago that new music releases cost upwards of £15.

    Cosseted by the music industry, it has succeeded in deciding what people will listen to and has little respect for the real struggling artists who find difficulty getting coverage.

    I'd like to see Simon Cowell go bust next.

  • rate this
    -1

    Comment number 172.

    "Creative Destruction" must also be applied to the Banks....the root cause of our financial & economic problems.....

  • rate this
    +3

    Comment number 171.

    Simply put, HMV were not competitive enough. One example: the "Only Fools and Horses - The Complete Collection" on dvd. On the HMV website it is £49. On Amazon it is £32. £17 difference - it's a no-brainer really!

  • rate this
    +1

    Comment number 170.

    It's what happens when you charge £15 for a product that cost 10p to produce. Plus of course, dull stores and unsmiling staff.

    Am I really going to go into Brighton city centre, pay £6.00 to park for one hour, to buy a grossly overpriced product from a surly 17 year old?

 

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