What Next For HMV?

Wednesday, January 2 2019
What Next For HMV?

With the retailer in administration for the second time this decade, The Raygun reports on what’s been happening at head office and in stores, assesses the reaction to the news and looks ahead for Nipper and co…

“I can’t actually believe we are going through this again. The last time nearly killed me!”

Those were the words of an HMV store staffer, someone The Raygun has been speaking to on and off since the retailer first went into administration some six years ago.

He was speaking after the shock news emerged that the entertainment retailer had gone into administration again emerged early on the morning of December 28.

To say it was a surprise is an understatement. Last time, the writing was on the wall for days if not weeks, with columnists and journalists, social media users and other across the “who still buys physical media any more?” and “I went into HMV about five years ago and it was rubbish” camps sharpening their pens in anticipation of the retailer’s failure.

This time around, it was different.

Staff The Raygun spoke to, both those at head office and at stores, were taken aback at the swiftness with which the news came out.

The first many heard was on the news on Friday morning, facing the prospect of staring redundancy and job losses in between Christmas and New Year. This news tends to come after the December 31, the fact that this fell between December 25 and in the middle of the retailer’s post-Xmas sale shows just how quickly it descended.

The retailer has been hit with a perfect storm of pressures. The decline in physical media has been well documented, with HMV itself suggesting an overall market decline of around 30 per cent across music and DVD and Blu-ray in the final weeks of Q4.

The full figures on 2018 sales are being prepared, the obituary for physical has yet to be written, but there is no denying sales are down. HMV’s malaise is much the same as that experienced by other retailers – albeit in slightly different variations – physical sales were down, and not being completely replaced by other areas (either online sales or, on other cases, digital downloads

The narrative suits many, not least the likes of The Guardian. But this over-simplification masks a wider story.

For starters, HMV had been outperforming the rest of the market. The week of Mamma Mia: Here We Go Again’s release was one of the biggest ever on DVD for the retailer – a notable achievement, but one that was tempered by the wider malaise across the entire business.

The Raygun had spent some time in one of the retailer’s leading stores, in the giant Bluewater shopping centre in north west Kent, less than a week before Christmas Day, with senior staff from the retailer as well as Universal. There was no denying that trading conditions were tough, many noted, but the store was busy and its sales were holding up compared to the rest of the business.

Its market share had stayed strong throughout the year, while the retailer was also innovating. The Raygun had been seeing its hologram initiative with the studio up close and personal, while it had worked its catalogue promotions and innovations hard. Ongoing activity throughout the calendar year, its DVD and Blu-ray awards season promotions, for example, had lifted sales, while its VHS catalogue offering and the Premium Collection had shown a real desire to appeal to film fans and collectors.

What’s more, for those claiming that the retailer was too slow on the uptake when it came to online sales consider this – year on year online sales through hmv.com were up by a third, according to sources.

And, again, there was more good news overall. Contacts suggest that HMV would have turned a profit for the calendar year.

So what were the problems?

Well, there has been a genuine downturn in DVD (and CD) sales, that is certain. And yes, some of those figures have been accelerating at a faster rate than some might have envisaged. And, again, yes, streaming is replacing some of those lost sales.

Those are, one could argue, elements that our business could do something about (and is, when you consider the efforts of trade organisations as BASE and ERA).

And yet news of the death of physical media, one often used (again), have still persisted.

But there are other factors too.

The overall decline in footfall on the high street has been noticeable. Stories about the lower shopper numbers in stores in the run-up to Christmas are legion.

And then there are the inflation-busting rises to rent and rates. The former has seen landlords insisting on high rises, refusing to take into account other retail problems. Even a seemingly successful large shopping centre such as Westfield’s Stratford, east London operation, appears to have vacant units (including the one, incidentally, once occupied by HMV, which exited due to exorbitant rents). Landlords would rather chance their arm on potentially getting in new stores and businesses than negotiate reduced rents with its existing tenants.

The business rate rises are the killer, however.

Rates aren’t a vote winner, so inaction in recent years, and constant delays to the much-heralded reform, meant that an unworkable system is still in place. With new calculations brought in in 2018, retailers have been hard hit this year. The Tories should have sorted it, but it wasn’t deemed important enough. Inconsistencies mean some smaller retailers and those who put in for reviews succeed, others fail. Mike Ashley – an unlikely hero for a noble cause – told the parliament as much, but, as the Sports Direct boss wryly noted, some seemed more concerned about his business practices (dubious as they are) than solving the key issue facing all retailers, not just the UK’s last standing entertainment retailer.

Retailers across the board, from small, independent corner shops, through to the major high street chains are all suffering. Take HMV’s flagship Oxford Street store (363, aka Bond Street store). Its business rates rose by a whopping six figure sum, possibly as much as £400,000, in 2018. That’s not the total bill, by the way, it’s just the increase.

HMV was attempting to renegotiate terms with some landlords and suppliers through January and, as we understand it, intransigence from some of the former made administration inevitable.

That fact was acknowledged by Hilco chief Paul McGowan. The specialist had picked up HMV after it fell into administration and had turned the business around, but the perfect storm of retail pressures coupled with the physical decline had caused the issues. “During the key Christmas trading period the market for DVD fell by over 30 per cent compared to the previous year,” he said in a statement, “and, whilst HMV performed considerably better than that, such a deterioration in a key sector of the market is unsustainable.

“HMV has clearly not been insulated from the general malaise of the UK High Street and has suffered the same challenges with Business Rates and other government-centric policies which have led to increased fixed costs in the business. Business rates alone represent an annual cost to HMV in excess of £15m.
“Even an exceptionally well-run and much-loved business such as HMV cannot withstand the tsunami of challenges facing UK retailers over the last 12 months on top of such a dramatic change in consumer behaviour in the entertainment market.”

Now the newly-appointed administrators are seeing what can be done.

There’s negotiations ahead, of course, plenty of them.There has been a further outpouring of love for the retailer, which, again, is good news. If anything – and there is not necessarily any empiric evidence for this – HMV’s potential disappearance from the high street is feared now even more than it was when Hilco saved it from bankruptcy. A piece in The Guardian, continuing what seems to be an ongoing battle against physical media, bemoaning the retailer faced much online scorn and anger, as did the writer’s suggestion that people could open their own record shop in a town. The Guardian eventually commissioned a pro-HMV feature to try and turn things around.

With distributors, suppliers and, hopefully, landlords and more, rallying around, the entire industry is hoping things work out for HMV.

“Fingers crossed for the retailer,” was one of the key messages The Raygun received from distributors and studios.

ERA’s Kim Bayley was widely quoted with a statement saying: “After what has been widely reported as a tough fourth quarter for retailers, HMV is not the only High Street name facing tough decisions right now. It is a fast-moving situation and it is too early to say how it will end. What is clear is that following its first move into administration in 2013, HMV has enjoyed a remarkable turnaround and it is conceivable that this will happen again.  The fact is the physical entertainment market is still worth up to £2bn a year so there is plenty of business there. For the sake of HMV’s staff, customers and suppliers, we are very much hoping HMV can turn things around again.”

BASE’s Liz Bales further noted: “”The potential loss of any fondly regarded name from the high street is further evidence of the challenges facing the retail sector as a whole. Evolving consumer habits and routes to purchase continue to have an impact upon bricks and mortar sellers but even as digital and online sectors develop, BASE and its members remain committed to supporting physical formats and ensuring they are accessible for the millions of consumers for whom they remain the format of choice.”
As ever, our thoughts are with the staff at the retailer, especially those experiencing this again.
Stay tuned to The Raygun for our weekly newsletter, on Twitter and here on our website for updates on what is happening at the retailer.

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