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

    Comment number 329.

    Personally l think its really sad. The banks can be bailed out by the government yet no one else. My personal opinion is Simon Fox is to blame. We are all in this together l think not. He should be disbarred as a CEO for corporate incompetance. He needed to be Innovative and rebranded HMV to be fit for purpose, Come on Deloittes lets see HMV reformed and be the success it could be

  • rate this

    Comment number 328.

    #297 Paul

    "You can't simulate that on Amazon."

    Online retailing is appauling, websites that would be at home in the early 90's.

    First Person Perspective active browsing through the stock in a virtual shop is what should be available now with same/next day delivery.

    Established retailers might want to upgrade their systems though, most are still running software written in COBOL.

  • rate this

    Comment number 327.

    4. Scott
    So Robert - if letting zombie companies die to make room for new companies and new jobs is good for economic recovery (which makes sense)...why are zombie banks the world over continuing to be bailed out? Japan's growth has been stifled by zombie banks for decades.

    That is all.

  • rate this

    Comment number 326.

    More viable businesses? Such as? The amount of Tory journalists churning out abhorrent propaganda is increasing daily at the BBC. From having a former president of Oxford University Tory Assoc. (Nick Robinson) being the political correspondent (impartial if I ever heard of it) to quite obvious Tory supporters in Peston.

    We'll soon have a high street full of banks. Ooh, lets go buy a bank account.

  • rate this

    Comment number 325.

    It's tragic that HMV are going, and will continue the journey which will end with every high street consisting of a Tesco metro, Starbucks, a pound shop, Primark and betting shops. Those people who don't care now, will at some point soon. Amazon are simply going to make more profit on which they pay NO tax. They are a disgrace.

  • rate this

    Comment number 324.

    I suspect that complacency was killing some of these high street firms. A visit to the flagship HMV store was an annoying, noisy, crushed, wearing, ripoff experience. They should have removed all the T-shirts, mugs, books etc and used the space for computer hardware that would allow downloads in the store, or at least spaces where you could sample the music you want. Online you can do this.

  • rate this

    Comment number 323.

    Another point to on the specious argument that Amazon benefit from avoiding paying VAT on CD sales and HMV suffer:

    since the retailer only collects the VAT from the purchaser (you) and passes it on to the government, when Amazon use a loophole to avoid charging VAT, then it is YOU, the purchaser who avoids paying it, and the exchequer that loses out. You save, at the nation's expense!

  • rate this

    Comment number 322.


    'The retailer, eg HMV, then pays the £2 VAT it has collected to the HMRC. It costs them nothing. Turnover reported in company accts is always BEFORE VAT.'

    Riiiiiight. So the punter can afford £12 for the CD but HMV has to send £2 quid to HMRC.

    It's a tax on turnover.

    In the same way that NI should simply be added to income tax instead of pretending it's separate.

  • rate this

    Comment number 321.

    I've honestly mixed feelings about this. I'm very sad to see them go (and feel terrible for the staff about to lose their jobs), but HMV pricing has been ridiculous for years. They didn't spot that music and video are just data, and the Internet serves data VERY well. I hope some way is found to retain a smaller chain. But that smaller chain will have to be competitive.

  • rate this

    Comment number 320.

    The zombie companies approach is very much in the spirit of Schumpeter and Hayek's business cycle analysis.Since this approach is being offered as an explanation for the recent fall in UK productivity it would be interesting to test it with some econometric work.

  • rate this

    Comment number 319.

    Corporation tax is a rad herring as they are not making any profit.

    Business rates on the other hand at almost 50% of their rent will be massive, certainly many times Amazons for their few sheds.

    If the government wants shops to survive cutting business rates on retail premises would be a good start.

  • rate this

    Comment number 318.

    I don't actually understand the negativity towards the high street on here.(I get online is cheaper) I'm presuming you want to live in an online utopia where you don't leave the house and everything is brought to you on a plate.

    We will never be able to sustain ourselves because the UK only buys and doesn't make anymore. When industry died, we became a society who only consumes. It doesn't work.

  • rate this

    Comment number 317.

    a slimmed down of HMW would be viable. I have noticed that some small cities have two or more HMW stores in which they have both identical stock. They should follow the route taken by GAME a few years ago when they closed down stores in cities which had mulitple stores and consolidate their local stock into one area.

  • rate this

    Comment number 316.

    Finally some sense from Peston, although this principle should be extended into every industry. The music and entertainment sector is small fry in the UK compared to others, such as banking.

  • rate this

    Comment number 315.


    Personally, I don't want to buy everything online, but the British public in general seems to desire everything immediately without having to expend any effort to get it. They seem to settle for mass market lowest common denominator product.

    Very sad and the end of bricks and mortar specialist retailers everywhere.

  • rate this

    Comment number 314.

    It would have been better for us all if we'd let a few of the "zombie" banks go bust, at least we'd all have more money to spend and put back into the economy. Now these so called financial experts (few if any of which could run their own business) will make £millions breaking up and selling off HMV's assets.

  • rate this

    Comment number 313.

    251. jgm2: "What is VAT if not a tax on turnover?"

    It's a sales tax, paid by the ultimate purchaser of the good or service, not the seller! Simple example: you buy a DVD for £12, which includes £2 VAT (it will say so on your receipt). The retailer, eg HMV, then pays the £2 VAT it has collected to the HMRC. It costs them nothing. Turnover reported in company accts is always BEFORE VAT.

  • rate this

    Comment number 312.

    Perhaps a short term fight back for local economies may be local currencies.I think the UK has 3 at the moment,Germany has over a hundred.With good local supply chains this could help generate local wealth & show which companies care about their communities.Not a complete solution but gives nations & their currencies time to detach themselves from the most defunct businesses of all, private banks.

  • rate this

    Comment number 311.

    digital is great IF YOU HAVE A FAST BROADBAND, what about the millions of us that have very limited broadband capabilities. I live in Cornwall and contra to all the hype about superfast its not widely available, it is quicker for me to drive to HMV or Tesco.

  • rate this

    Comment number 310.

    Will the majority of the population care if HMV disappears? I think you will find the answer is no. People are voting with their feet so to speak and I know I am one of many people who only order entertainment products from online. It's cheaper and you often get it delivered 2 days after ordering. HMV going under is a sign of the times... economy wise and technology wise.


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