Analysis: HMV latest bricks and mortar biz to fail against online

THE LATEST round of high street collapses in January has seen iconic; highly leveraged; and large employers shut up shop. The latest to enter insolvency is music retailer HMV.

HMV has up Deloitte administrators and partners Neville Kahn, Nick Edwards and Rob Harding to take on the insolvency process.

Kahn has had some practice with large retailers, having recently worked on the administration and the closure of all Comet stores at the end of last year but also oversaw a similar fate at Woolworths.

The 92 year old HMV has been highly leveraged for some time and it came as no surprise to many that this was the future of the retailer.

In December HMV announced that due to tough market conditions and uncertainties it was probable that it would fail to comply with its banking covenants at the end of January but that it was in discussions with its lender.

It also revealed that sales from continuing operations were down 13.5% to £288.6m in HMV’s interim results for the 26 weeks ended 27 October 2012.

However, operating loss declined to £24.1m compared to £33.2m from the year prior, with group loss after tax also reducing to £36.1m from £50.1m the previous year.

It may not have come as much of a surprise, but the timing couldn’t be worse. Its announcement is just weeks after collapsed high street retailer Comet closed all 240 stores with 6,900 jobs made redundant; earlier this month Jessops also collapsed, putting its 1,300 staff and 187 stores under threat.

Charles Maunder, partner and head of the banking, restructuring and insolvency team at law firm Michelmores: said: “It is further evidence, if any was needed following Jessops’ demise, of the difficulties faced in particular by high street retailers trying to compete against the purely online traders.”

“It missed its chance to join the digital downloading revolution and has not caught up. It highlights the challenges faced by retailers with substantially fixed overheads trying to adapt fast enough in a rapidly changing market.”

According to insolvency firm Begbies Traynor 13,700 retailers are experiencing “significant” distress in the 11 weeks to 17 December.

“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,” explains Begbies’ partner Julie Palmer.

“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.”

Dan Wagner, CEO and chairman of mPowa and Powa Technologies, which implements online and mobile retail platforms, said: “Internet shopping is now more popular in the UK than any other country in the world, with UK spending an average of £1,083 a year on shopping online. While this is good news for British e-commerce businesses, those that didn’t have a digitally focused strategy from the outset are now playing catch-up and the consequences are clear to see.

Despite moving towards a more technology-oriented offering, through headphones and hardware in-store, it has not made up for the shortfall in physical music sales.

Wagner added: “Many more retailers could succumb to a similar fate because of the cumulative effect of poor sales throughout the year. Retailers have to stay ahead of the game and have an effective online and offline strategy in place if they are to survive in this new technology-focused era.”

It is reported that HMV has debts of nearly £300m and that retail restructuring group Hilco, which already owns HMV Canada, could be interested in rescuing the business.

Related reading