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
    +3

    Comment number 209.

    In 2005 a private equity company bid £762M for HMV, the shareholders turned it down.

    In 2011 HMV accepted a bid from an asset management company for £53M, the shareholders accepted.

    What happened in those 6 years? HMV bought Ottakers & Waterstones, just as e-books became popular. Bad acquisitions caused this, and not much else.

  • rate this
    -8

    Comment number 208.

    198michaelj

    The Government need to get off their backsides and act to create a level playing field and close tax loopholes and pursue those who cheat the system and the UK taxpayer.
    ===
    If the govt taxes a company where does the company get the money to pay those taxes - customers or shareholders?

  • rate this
    +2

    Comment number 207.

    If the removal of HMV were to lead to a renewed opportunity for independent retailers (including second-hand sellers) in our towns (not the high street obviously, but tucked away from the mob), then that would be terrific. Unlikely, but I'll say a little prayer.

  • rate this
    +6

    Comment number 206.

    If the high street is going to sell physical product it needs to be items that the consumer needs to see/touch/smell before they buy.

    They also need to provide intelligent, informed customer service rather than employ surly teens.

    It needs to become a destination where people enjoy going (and might just spend a few quid).

    Is it really that hard?

  • rate this
    +82

    Comment number 205.

    HMV Chief Exec Trevor Moore was also CE at Jessops. And senior manager at Esporta (sold to Virgin), Threshers (went under 2009), Coffee Republic (went into admin in 2009)... if this man ever comes anywhere near your business, I'd start looking for a new job if I were you!

  • rate this
    +7

    Comment number 204.

    HMV priced themselves out of the market - ridiculous inflation of CD prices over many years. Customers realised they were getting fleeced and discovered Amazon, BOL etc. I gave up on them years ago.

    HMV were way too greedy and to slow/stupid to adapt. It's sad see the (likely) loss of jobs and High St presence, but basically: good riddance.

  • rate this
    +1

    Comment number 203.

    I tried several times to shop in HMV but the music volume was so loud that I had to leave. When I asked for it to be turned down the volume control did not work. The other issue for HMV is that 80% of my local store was selling DVDs. With the increase in TV channels I do not need to buy old movies or TV series as they are constantly repeated.

  • rate this
    -1

    Comment number 202.

    HMV, just like other failed retail chains have not been able to adjust their businesses to suit the changing market. People can happily shop on line with their phone or computer so do not need to visit stores. Also, many retail stores insist on displaying a lot of Chinese junk as shelf fillers, which in prior years probably balanced out Christmas sales but the public is now saturated with this.

  • rate this
    +1

    Comment number 201.

    121. JuaK
    Successive weak governments have allowed the likes of Amazon to kill the high street through not tackling the tax discrepancy"

    There is lots of FUD about this. Amazon didn't pay corp tax on PROFITS. They still paid "revenue" taxes (PAYE, VAT) etc. So, they don't charge less because of not paying tax, but because they have less overheads

  • rate this
    +3

    Comment number 200.

    Sadly, this has nothing to much to do with new media or online sales. HMV was simply an incompetent company.

  • rate this
    -3

    Comment number 199.

    This "zombie company" theory is utter tosh. The main economic benefit of a company to the nation is the 4000 people it employs and the taxes they pay. It matters little if the shareholders are suffering and the company is flatlining for years.
    The zombie theory is just spin to try to paint bad news as good. Takes a leaf from "1984".

  • rate this
    0

    Comment number 198.

    Is this not another example of offshore sellers such as play.com and amazon who do not pay full VAT and tax on their products destroying another high street business paying their way.

    The Government need to get off their backsides and act to create a level playing field and close tax loopholes and pursue those who cheat the system and the UK taxpayer.

  • rate this
    +4

    Comment number 197.

    Its a "no brainer" who wins between brick-and-mortar shops vs online shops providing the same service. High street retailers need to adopt a new strategy if they want to survive; to provide services that online retailers cannot provide.

  • rate this
    +6

    Comment number 196.

    RP is saying that Capitalism is a PROFIT and LOSS system. Companies that fail provide the seed corn for new enterprises to flourish. The problem with the economy is that the Government is not allowing house prices to fall as they should in a recession. There should be a house price crash, people who paid daft prices would lose, but low house prices would drive a recovery in the economy.

  • rate this
    +3

    Comment number 195.

    There is one area where HMV have not done themselves any favours. They frequently reduce the price of new release CDs and DVDs after only a few months - meaning that many will just wait and not buy it at RRP. They then don't sell enough. The net result is that they then feel the need to reduce prices after only a few months creating a vicious circle. They have cheapened the very medium they sell.

  • rate this
    +12

    Comment number 194.

    Sales of CDs at HMV were £1.8bn in 2010, of total sales of music, both offline and online, worth around £6bn a year. The retailer's management made the decision to target gadgets to replace falling CD sales, focusing on a headphones market worth a total of £150mn a year. Amazon, iTunes and online piracy aren't to blame for HMV's failure - it's those at the top of the company.

  • rate this
    +6

    Comment number 193.

    A few reasons for the demise (there is never a single reason):
    There is no real need to 'examine' CDs in a shop before purchase
    Prices are too high
    Staff are 'till operates' rather than music enthusiasts
    Cherry picking popular titles rather than offering a comprehensive range
    Playing over-loud chart music, and driving music lovers elsewhere
    Councils bleeding shoppers dry with parking charges

  • rate this
    +4

    Comment number 192.

    Perhaps an idea would have been for their constant 'sales' to have actually BEEN sales. Year after year, the same old CDs and DVDs were on the shelves, at the same price. Instead of trying to shift stock, they always found new ways to market old goods... and ended up with masses of stock left over again. Small wonder they went down. The staff were always pretty good though, and I feel for them.

  • rate this
    0

    Comment number 191.

    170. TRojandog
    "It's what happens when you charge £15 for a product that cost 10p to produce."
    A music CD does NOT cost 10p to produce (the physical materials alone cost more than that). Add in the costs of recording, producing, artwork, shipping etc, and you'll see that the actual cost per disc is significantly more than people often realise.

    HMV was still charging too much though.

  • rate this
    +2

    Comment number 190.

    I suspect retailing and especially the weaker operators will be under increasing pressure given the increased emphasis being given to saving, exports, dampening domestic consumption and continuing pressure on houshold budgets.
    We simply have too many shops.
    If businesses have to die, like people it's best if they go quickly.
    Tough but true.
    Alan

 

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