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
    +1

    Comment number 309.

    Online shopping, out of town major retailers. That's all very well for those who use the internet or have access to a car. There must always be a place for the smaller trader to meet the demands of those not able to use todays modern shopping methods. Try getting to retail parks by public transport, where you can the ability to make a large purchase is out of the question you can take it home!

  • rate this
    0

    Comment number 308.

    Why pay HMV more for a CD when you could buy it cheaper from Tesco or iTunes or better yet just download the tracks you want (in seconds) from iTunes. I use playlists to listen to the music I actually want to hear - not necessarily whole CDs with more than half the tracks I do not. I also like the fact that less well known artists can publish digitally when they may not otherwise get a chance.

  • rate this
    +3

    Comment number 307.

    Tower Records in London was one of the best music shops i have ever been too and there is still a Tower Records in Paris. HMV is and was always too mainstream and never really offered anything different! Thats just my opinion!

  • rate this
    +3

    Comment number 306.

    The store died because it provided no service to the punter. The only thing would have worked would have been the ability to locate any music of interest and have it burnt to a CD instore in front of you. A hard copy to add to your collection. But that would mean allowing format transfer which the music industry dont want without you paying twice. HMV were murdered by the big record companies.

  • rate this
    0

    Comment number 305.

    For once Robert I think that you may have taken leave of your senses. There is no good news on the high street and its hard to imagine that a slimmed down HMV could ever prosper. Don't get me wrong, I love to browse and collect hard copies of movies and music, but the harsh reality is that they will go the way of the dinosaur, taking with it the pleasure that a web service could never replace.

  • rate this
    0

    Comment number 304.

    The emergence of internet services for retail must inevitably mean fewer jobs in this sector. Economic growth will not continue without jobs growth. It means more corporate profits but less employees and so less customers. This is inevitable and requires a new macro economic way of thinking which must involve more job sharing and less hours worked per individual to share the real work required.

  • Comment number 303.

    All this user's posts have been removed.Why?

  • rate this
    0

    Comment number 302.

    I have got to repeat what @21 said. How can companies compete when they are paying full corporation tax and Amazon are paying nothing. Soon we will have no choice left on the high street. This government needs to get a pair and tackle the likes of Amazon. Does this government not need the extra money!

  • rate this
    +1

    Comment number 301.

    @245 charlottem

    If the general feeling is negative, no wonder it went under? "Witter on about". Possibly if these were positive HMW might not be in such a bad position? Who can tell?

  • rate this
    +4

    Comment number 300.

    From talking to the few high street retailers that I know, I understand that their main problem is unrealistic levels of property rental and above-inflation increases in the same. How can retail property rental companies justify such high levels of rent for retail premises when clearly there is falling demand for their sites? That baffles me!

  • rate this
    +2

    Comment number 299.

    Let's hope we start seeing more small independant music shops popping up again and filling the hole where lacklustre HMV shops once stood. HMV going under won't make the slightest bit of difference to me or anyone i know apart from my year old mum! Shame that people will lose their jobs but that's the fault of the HMV management board for making poor business descisions too late in the day.

  • rate this
    0

    Comment number 298.

    The progress of PLCs along the growth conveyor belt can't be sustainable. When they drop off, it doesn't mean demand goes away. Others come to the market and there's a rebirth (hopefully new CD shops will spring up) Some of which will grow and jump on the conveyor in the future. The risk is that those on the longest conveyors continue to fatten and monopolise! Entrepreneurs required urgently!!!

  • rate this
    0

    Comment number 297.

    The High Street needs a specialist retailer for home entertainment. CDs are dead, but we are still a long way from digital film, TV and game downloads taking over. I do shop online, but much prefer browsing through HMV's shelves to see what's new. I recently bought three Blu-rays there in a deal, something I would not have done if I'd been forced online.

    You can't simulate that on Amazon.

  • rate this
    0

    Comment number 296.

    I remember HMV's dog & gramophone from my boyhood in the 1950s & in the 60s on the LPs I bought. I remember their Nipper label on the top right corner of their LPs. My favourite group, Manfred Mann, recorded with HMV. Though I neer shop there, I'm sad for nostalgic reasons that they're closing down, in spite of the smug comments. It's another sign, I think, of the decline & fall of Britain.

  • rate this
    +1

    Comment number 295.

    @BobRocket

    'He is now at Trinity Mirror where he will get the best part of £2M per year. (b4 they go the same way)'

    So, it's not all bad news then.

  • rate this
    0

    Comment number 294.

    All you people whinging about Amazon and tax, you'd soon be screaming "foul" if it was British businesses being forced to pay tax BOTH where they were based AND wherever they sold goods. All businesses pay tax in the country they're based in, not wherever they trade. If you don't like your money going to the US taxman, don't buy US products. Otherwise, don't whinge.

  • rate this
    -1

    Comment number 293.

    Wait for the recurring theme of nostalgia in society and they will probably come back into boom. It's a shame because record companies and artists don't make much off the digital sales of music and film as it is. The restructuring of retail sales of music and dvds should take a digital kiosk approach.

    Ahh the joy of the digital age, not only killing brains but killing our high street.

  • rate this
    +2

    Comment number 292.

    High Street will be mainly for service industry in 20 years.

    Remember that in 20 years, approaching 95%+ of country will be internet literate. In 50 years, approaching 100% will be.

    Most arguments FOR retailing on the high-street will die when the current crop of elderly people do.

  • rate this
    0

    Comment number 291.

    HMV have ripped off customers royally for years and years with vastly overpriced goods you can pick up cheaper online. I haven't shopped there in years.

  • rate this
    +2

    Comment number 290.

    Property prices went astronomical in the fake boom - they drop the property speculators & banks are all completely bust.

    The current Tory party is financed by a cabal of hedge funds and property developers. So - no readjustment of prices as the alleged free market demands. Instead an endless supply of free money & hidden bailouts to party donors

    The High St will get crushed like a bug

 

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