Business World

Tuesday 16 September 2014

Core of chain’s operation had been in terminal decline for years

Holly Williams

Published 15/01/2013 | 12:52

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ONCE a cherished brand, HMV's collapse has been described as inevitable for a business that has been in "terminal decline" in recent years.

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The retail chain has struggled amid the boom in music downloading and intense competition from online rivals and supermarket giants.

After years of store closures and asset sales, the 92-year-old business is a shadow of its former self with 239 outlets - far fewer than the more than 600 stores it owned two years ago before drastic steps such as the disposal of bookstore Waterstones.

HMV's management under former boss Simon Fox and more recently Trevor Moore sought to revive flagging sales by shifting the emphasis from declining CD and DVD markets into growth areas such electronics and gadgets.

Mr Fox, the ex- Kesa Electricals chief operating officer, quit last year to head up Trinity Mirror, but had hoped his vision to transform HMV into an entertainment retail hub would save the business.

The group also hoped to carve a name for itself in the live music and festivals market, but sold its live music division Mama Group last year soon after it offloaded the Hammersmith Apollo as it sought to shore up its balance sheet and focus on its retail division.

It sold Waterstones to Russian billionaire Alexander Mamut for €65m in May 2011.

HMV has not been alone in suffering amid changing consumer demand, with other retail entertainment businesses also having hit the wall over the past few years.

Music retailer Zavvi went under in 2008, while only last week Virgin Megastore in France filed for insolvency as it also fell victim to the internet.

There had been hopes that as the last major high street DVD and CD chain left in the UK, HMV stood a chance as the "last man standing", but experts said it failed to move quickly enough with the times.

Julie Palmer, partner at corporate recovery specialist Begbies Traynor, said: "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."

The demise this month of British camera chain Jessops has also highlighted the risk of failing to adapt to changing habits in technology buying.

Neil Saunders, managing director of retail consultancy Conlumino, said: "HMV did not react early enough to the digital trend; it did not give shoppers a reason to keep buying from it.

"Admittedly, the company has tried to innovate through selling more electricals and gadgets but, unfortunately, these initiatives were never going to be enough to counteract the terminal decline in its core business."

The expense of having such a large physical presence will also have contributed to HMV's decline, according to experts, who said the group was lumbered with a big rent bill.

HMV's suppliers are said to have been supportive, but "the scale of the risk to them of supporting such a legacy retailer in its current form has now been laid bare", added Mr Saunders.

Universal Music and a number of other suppliers helped shore up HMV in January 2011 with a deal that reduced some of its mammoth debt pile.

But it is understood they called time on demands for more financial support last week when HMV requested around €360m in additional financing to pay off its bank debt and fund an overhaul of the company's business model.

The part played by its lenders will also be scrutinised, with part-nationalised Royal Bank of Scotland and Lloyds Banking Group the lead banks that reportedly decided to pull the plug ahead of lending covenant tests due this month.

Their role will be of particular interest, given that they are backed by taxpayer cash.

There are still hopes that administrators will find a rescuer for the business, but experts said the business model faces a very uncertain future.

Mr Saunders said: "We forecast that by the end of 2015 some 90.4pc 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."

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