HMV is poised to appoint administrator Deloitte after the struggling entertainment retailer suspended shares last night. Retail Week takes a look at what the retail market thinks.
Although there is a sense of poignancy over the potential administration of HMV, this outcome was always inevitable. While many failures of recent times have been, at least in part, driven by the economy, HMV’s reported demise is a structural failure. In the digital era where 73.4% of music and film are downloaded or bought online, HMV’s business model has simply become increasingly irrelevant and unsustainable. As for HMV, its future is uncertain. The brand certainly has some value, however, while someone could arguably turn a profit in running some of the stores for a period of time they would still be betting against the future. By our own figures, we forecast that by the end of 2015 some 90.4% of music and film sales will be online. The bottom line is that there is no real future for physical retail in the music sector - Neil Saunders, Conlumino
The banks clearly demanded a significant shrinking of the 230-store base, to continue their support after the covenant breach, but HMV’s suppliers (like Universal Music, EMI, Warner Brothers and Disney) refused to inject enough new equity to finance that and so it was inevitable that the administrators have been called in. There are some assets to sell off, including the stake in 7Digital, but these won’t make a huge difference to creditors. It is a shame that no information has been provided on Xmas trading by HMV, but we can safely assume that the -10% LFL sales trend seen in H1 persisted and that the company had moved back into loss, overwhelmed by the structural collapse in its physical markets - Nick Bubb, independent analyst
HMV’s failure - as was the case with a number of the 2012 administrations - was down to the significant amount of debt they had taken on over time. HMV have only managed to struggle on this far due to very favourable credit terms provided to them by the major record labels. Like Jessops earlier this month however, the twin impact of e-commerce pure-plays such as Amazon, and the same products being sold for cheaper in supermarkets such as Tesco - in addition to the newer trend given faster broadband speeds of downloading media content directly on to a device and bypassing physical media entirely - have collectively led to HMV’s inevitable demise - Jonathan De Mello, CBRE
“HMV’s notice of administration was inevitable with online retailers, downloads and supermarkets combining to marginalise a brand which has become out-priced and out-dated, despite its strong heritage. Whilst its suppliers had been supportive, the scale of the risk to them of supporting such a legacy retailer in its current form has now been laid bare. With 140 UK retailers already on our ‘critical’ watchlist, HMV’s administration should be a warning shot to the high street that bricks and mortar retail will not be propped up in the face of a migration to online retail and digital products. It remains to be seen what proportion of the HMV estate can be salvaged, with record and film companies keen to maintain a high street portal for hard copy sales. But its pending administration can only be seen as a further blow to landlords and employment in the sector - affecting many primary high street locations and a workforce with a high level of already under-employed youth workers.” Julie Palmer, Partner at Begbies Traynor
“No one can say this is a surprise, but it is still a shock. HMV has been part of the fabric of the music and entertainment business for decades. But there are signs that this may not be the end of the story.It would be wrong to underestimate the affection which HMV is held by consumers and the determination of music and video companies to see HMV survive in some form. At the same time both music and video companies are painfully aware of the consequences of losing a retailer responsible for around a third of UK physical music and video sales. We have to hope they will not stand by and watch HMV go down.There has been much misinformation published in the past 24 hours about the relative strength of physical and digital entertainment formats. Physical formats like CDs and DVDs still account for three quarters of the entertainment market. In other words HMV going from the high street is in the interests neither of consumers nor of suppliers.We believe it is possible for the administrators to rescue something out of this situation. There is a precedent that you can streamline your costs and in particular the number of stores a chain trades from and still retain the bulk of sales – that’s precisely what happened with Game.” Kim Bayley, Entertainment Retailers Association