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 749.

    Banks should not be except from any failure. If manufacturers and retailers are too big to fall then the likes of RBS, HBOS and Northern Rock should have met the maker. It is for this reason why we are facing austerity.

    As for which companies will fall. Hedge your money on the likes of WH Smith, Thomas Cook, Thorntons or maybe a clothing retailer.

  • rate this

    Comment number 748.

    @747 'This is also why the bust banks need to go bankrupt - so that the debt can be deflated - prior to a recovery!'

    That's right then the debt of the failed Banks with bad loans,
    can be picked by the Government! or rather picked up by Joe public directly or indirectly.

  • rate this

    Comment number 747.


    change the 'why shouldn't ...' to PFI contract hospitals and see what I mean!

    Fundamentally uneconomic and uncompetitive contracts signed or not will without doubt create a longer than necessary depression - that is the purpose of bankruptcy to get out of these contracts!

    This is also why the bust banks need to go bankrupt - so that the debt can be deflated - prior to a recovery!

  • rate this

    Comment number 746.

    745. Why not get off the bandwagon of those who have abdicated all responsibility for their own actions - incompetent businessmen, irresponsible borrowers, governments - and see that banks (who do share part but not all of the blame) either lend responsibly or they don't. Problem is - when they do those that can't shout 'foul' whilst ignoring their own lack of creditworthiness!

  • rate this

    Comment number 745.

    Almost there Robert, you just need to take one more step after your comments about corporate zombies and point out that the biggest zombies causing the largest drag on the economy are the major banks.

  • rate this

    Comment number 744.

    Is HMV being sick as a parrot good


    Zombies etc, good for growth etc

    Nope, irrespective if dead or alive

    More like that defoliant Agent Orange being good for growth

    The problem is folks are deleveraging, YoY spending is flat. This is a consumer society, its trickle up not trickle down

    Business will not invest unless there is the prospect of growth and recessions trigger automation

  • rate this

    Comment number 743.

    "Queen sang a song about this....."

    I have no doubt that Trevor Moore has Moet et Chandon in a pretty cabinet.

  • rate this

    Comment number 742.

    Your guess is as good as anyone else Robert.
    But,notice,that one your colleagues,thinks David Cameron is facing a very difficult speech.About Europe...gosh..golly..Why,difficult?
    Why not trust British Public Opinion?

  • rate this

    Comment number 741.

    @650.grouting tiles
    "...I think people will like to go back to owning a "physical" product"

    Hopefully that will spell the death of the credit default swap.

  • rate this

    Comment number 740.

    JFH whilst I agree (mostly) with your views on BoE you are well behind the times on landlords.

    Rents are falling. Sometimes it is disguised by use of rent free periods and contributions to fit out costs. The use of CVAs in retail has also impacted on rents. But if a company signs a 25 year lease with escalating rent why should it not have to obey it?

  • Comment number 739.

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

  • rate this

    Comment number 738.

    Capitalism - it's a case of survival of the fittest and HMV were not fit enough.

    So unless you're in banking where capitalism means where my bonus and stuff the taxpayer, expect to see more high street failures and the rise of coffee, betting, charity and fast food shops.

  • rate this

    Comment number 737.


    'It isn't a case of adaption that destroys a business model, often it is the cost of implementation'

    Reduce number of stores, which saves money on rent/retail space etc. Invest that money into developing online music business (eg Spotify).

    There you go that's adapting. Too late now in case of HMV

  • rate this

    Comment number 736.

    To those commenting that HMV's "business model was not effective".

    Are you looking forward to fewer services and higher taxes when the offshore tax dodgers have a monopoly? Not to mention the loss of all the jobs that service those companies?

    Do you ever look beyond the end of the week? How do you think it affects your prospects long-term?

  • rate this

    Comment number 735.

    And blockbuster is gone too.
    Which Company will be next ?
    Something in Clothing ? Or Pharmaceuticals ?

  • rate this

    Comment number 734.

    High street commodities will be bought cheaper on line and with much wider choice and availability.
    If local boutiques replace them then the property owning SIPP commercial property pensioners and major retail landlords will see values plunge as proper rents become the norm. Its coming.

  • rate this

    Comment number 733.

    Business commentators are out in force stating how so and so hasn't adapted. If I were to start a business like HMV today, well I wouldn't start from where they are now, burdened by debt and inflexible and expensive retail space. It isn't a case of adaption that destroys a business model, often it is the cost of implementation, if you are indebted already who will finance this new model ?

  • rate this

    Comment number 732.

    731.bigmouth strikes again

    You post (read it again) inplicitly implies I was suggesting the whole economy was going under - but I said failing, not completely failed, which would have to happen for all business to go bust.

    I have only read what you said, whereas you implied I had said WAY more than I actually said....

  • rate this

    Comment number 731.


    You said it was failing and I suggested not for everyone, thats all.

    No one is arguing that our economy is struggling. Recessions generally dictate when bad businesses go bust

  • rate this

    Comment number 730.

    The high street of the future...
    Banks and charity shops!
    Could there be a connection?


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