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 229.

    198. michaelj
    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 VAT loophole (by trading from the Channel Islands) was closed in April last year. So, Amazon/Play etc should charge/pay full VAT now

    http://www.bbc.co.uk/news/business-15646470

  • rate this
    +4

    Comment number 228.

    HMV was always massively expensive and the stores were not the nicest of places to go. The customer service I experienced every time I went there was poor at the most.

    With the ease of finding that rare track or album online rather than waiting for weeks on end getting a "hard" copy from HMV, it was no wonder they sunk.

    Yes it's a shame they have gone belly up, but it's their own fault.

  • rate this
    +1

    Comment number 227.

    It's always sad that long established Companies have to close their doors for whatever reasons. In the case of high street outlets, there are two main reasons, the cost of running the outlet , which then reflects in the price of the goods. Go on the internet and you will find the goods much cheaper. I for one would much rather go to a shop and see and touch the goods . RIP the High Street.

  • rate this
    -3

    Comment number 226.

    Well, if more high street shops close down because of lower online prices, and unemployment increases, then all that is left to be done is to nationalise online industries that have caused high street shops to close down i suppose.

    Not a bad thing that. I wouldn't mind being a shareholder of Amazon.

  • rate this
    0

    Comment number 225.

    It would appear the fact is online sales are crushing high street demand. Three major players gone in a very short time... I'd take the positives from this awful news and suggest Tesco should be very concerned. I'd also expect to see some very smug faces in the Ocado boardroom.

  • rate this
    0

    Comment number 224.

    Just out of interest - why is it that all retail premises are leased? A shop going under should mean some nice cheap premises being sold off, but that never seems to happen. Who owns all the premises - is it the local council?

  • rate this
    +2

    Comment number 223.

    Another problem with HMV is with their gift cards - for some reason they cannot be used online where other major retailers permit this including Waterstones (who HMV was once partnered with)

  • rate this
    +1

    Comment number 222.

    A question to others. Deano 123 shows the flow of technology.
    VHS -> DVD -> Digital Download -> Streaming
    Vinyl -> Tape -> CD -> MP3 -> Streaming
    The trouble is that with STREAMING you only have the music. When I bought albums there was the COVER too which was work or art itself. Is the music enough? The cover added to my enjoyment of the music.

  • rate this
    0

    Comment number 221.

    Where I live, HMV is the only shop to buy music and DVDs and i am certainly not planning on downloading films or music as i enjoy going into a shop and buying something unexpectedly.

  • rate this
    +32

    Comment number 220.

    The demise of a guy store... now where am I supposed to waste time when the missus is trying on frocks?

  • rate this
    0

    Comment number 219.

    With the growth of online sale we will see more high street shops close, due to their inability to compete with the lower costs of online companies, through online companies having fewer employees and paying less tax. This puts more pressure on the country’s finances. Although everyone likes a bargain, I would like to see a tax put onto all online sale made in this country.

  • rate this
    -1

    Comment number 218.

    They've had years to adjust their prices in line with...well, just about everywhere else...but they charge way too much most of the time, the occasional sale only brings the prices down to the level of all the other entertainment outlets. There's no reason to spend more on music, dvds, games than you have to, the savvy shopper knows this well enough. The second-hand market has hurt them badly too.

  • rate this
    +1

    Comment number 217.

    Also refusal to help themselves, one of my business partners offered them savings of £100k pa on their phone system maintenence and calls/lines, they stayed with the existing supplier, despite the costs and service, as and i quote, "we can't be bothered"

  • rate this
    +4

    Comment number 216.

    a prudently shaved monkey dressed in a suit could have run HMV a whole lot better. Their stores are a joke and an object lesson in how to haemorrhage money. It's nothing to do with parking or the death of hard copy in preference to digital media - they tried to peddle overpriced rubbish. No one was fooled. The managers should be hung out to dry with no payoff.

  • rate this
    -1

    Comment number 215.

    I totally agree with Chris 145. He nailed it!

  • rate this
    +4

    Comment number 214.

    It is interesting though that some companies that you thought would be affected by the rise of Internet selling (Waterstones, Currys, Argos, etc) seem to be doing well, but others (HMV, Woolworths, Comet) have gone bust. This surely proves that it's down to the attitude of the management over any consumer trends? I don't think we can pin the blame 100% on people being "disloyal" to the High Street

  • rate this
    +3

    Comment number 213.

    I think HMV were in a unique position to be able to allow people to come into their stores and listen to the music, have people on hand to advise and then offer purchases in the form of a digital download, either to an online account or there and then through whatever device the customer used. This would have given them a unique offering and an edge, instead they buried their heads in the sand.

  • rate this
    +4

    Comment number 212.

    87.Ian Duncan Donuts

    "Soon, all that will be left of retail in the UK will be Tesco and Amazon. Very sad."

    It is sad but it is the public's fault.

    I used to work in a supermarket that was undergoing an extension. A woman with a trolley full of shopping accused us of forcing high street shops out of business without realising the irony of what she was saying!

    Use it or lose it!

  • rate this
    +6

    Comment number 211.

    @michaelj

    'The Government need to get off their backsides and act to create a level playing field'

    Nope - the government should do nothing.

    All those empty stores will (eventually) force landlords to cut rents and councils to cut business rates.

    Then the High St would have a more of a chance of competing with online.

  • rate this
    +2

    Comment number 210.

    Why buy a physical disk when I suspect most people just stick it in their CD/DVD drive and rip it into iTunes (or equivalent) anyway. I have boxes and boxes of old CDs stored away in the loft - years ago ripped them all into iTunes and been able to enjoy all my music all the time. I have not bought a 'CD' for years when I can have it digitally in seconds and even burn to CD if I had to.

 

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