HMV Goes Into Administration

HMV Group has announced that it will be appointing administrators. Does this mark the beginning of the end for the UK’s last remaining high street music retailer?

Since 1921, HMV has been one of the most prominent musical presences on the UK’s high streets. Last night it was announced that the former giant was to go into administration following a year of financial crisis. In a statement, HMV said: “The board regrets to announce that it has been unable to reach a position where it feels able to continue to trade outside of insolvency protection and in the circumstances therefore intends to file notice to appoint administrators to the company and certain of its subsidiaries with immediate effect.”

HMV Group – which operates 239 HMV stores across the UK and Republic of Ireland and also owns the eight remaining Fopp stores – is the last major music retailer operating in the UK, having seen all of its rivals (including Virgin Megastores/Zavvi, Our Price, the remainder of the Fopp chain, Music Zone and MVC) fall by the wayside over the last decade. The decline of UK music retail reflects trends around much of the world, with the US lacking a major national music retailer since the closure of the Virgin Megastore chain in 2009 and, more recently, Virgin and Fnac facing difficulties in France.

A dying breed

It goes without saying that the changing nature of the music retail industry has had a profound effect on HMV over recent years, as supermarkets have increasingly attempted to undercut competitors on chart CDs, online retail has cast its ominous shadow over virtually every physical store in existence, music consumers have shifted en masse to downloads rather than physical sales and – if you believe the recording industry, at least – illegal downloads have taken their toll on profits.

However, despite the fact that many pundits have been predicting the demise of the record shop for at least 15 years, HMV’s business remained surprisingly profitable thanks to the development of an online retail presence and a change of focus in its physical stores. Recent years have seen the physical side of the business concentrate increasingly on DVD and Blu-Ray sales, video games, books, consumer electronics and even clothing rather than music. Aided no doubt by the collapse of Woolworths and Zavvi, HMV reported healthy, rising profits as recently as 2009. The company’s decline since then seems to indicate that the model may finally have stopped working.

Outdated business model

If the worst comes to the worst and HMV does eventually cease trading, it’ll join countless other businesses which have failed to cope with the changing nature of retail around the world. Like numerous other mainstays of the British high street – from book retailer Waterstones (which was briefly owned by HMV) to camera specialists Jessops and electrical retail chain Comet – HMV has fallen victim to increased consumer savvy and aggressive price competition from online rivals. For many consumers, high street stores now act as little more than showrooms – a place where we can go and browse the available options before heading home to purchase our chosen products online at a lower price.

HMV appears to have failed to convince consumers that it offers a more attractive service than the competition. Why should the average consumer make the effort to head to HMV rather than downloading from iTunes or even throwing a CD into their supermarket trolley alongside their loaf of bread and pint of milk? Why should they browse DVD box sets in HMV rather than use Lovefilm or Netflix? Why should they go and buy a video game at HMV when they can buy it from an online retailer and have it delivered to their door at a lower price? The business model may not be entirely outdated, but it’s surely dangerously close.

HMV and its equivalents in many other fields of retail are swimming against the tide. The few retail businesses which have prospered in the online era (and, let’s not forget, during a period of economic recession) have adapted to the changing market – often either by cutting costs even further and luring customers with bargain prices, or by turning in the opposite direction and offering a premium service with knowledgeable staff and higher levels of customer service.

Those bemoaning the death of another music retail institution conveniently avoid admitting one of the fundamental reasons why such businesses are struggling: customers are turning away from many of these shops in their droves, often because they can find a better or cheaper service elsewhere. Specialist independent stores and more competitive online retailers clearly contribute to HMV’s troubles.

Like all high street retailers, HMV must try and decide what it can offer its customers at a time when choice is greater than ever and consumers grow ever more cautious against a backdrop of recession and global financial crisis.

The future

The possibility of the administrator finding a buyer or reaching any other conclusion than liquidation would seem remote based on the precedent set by similar businesses over recent years, but early reports suggest industry experts remain optimistic that a buyer or investor may intervene before it’s all too late. Retail restructuring specialist Hilco, which owns HMV Canada, is reported to have shown an interest. Nevertheless, the long-term security of the business seems tenuous at best, with over 4,000 jobs at risk as a result.

Even if a buyer is found, the HMV business model surely requires serious attention. We’d like to think that might mean a focus on specialism and increased customer service – a return to the days when many branches offered a surprisingly varied selection of music, including vinyl and imports – but realistically the likelihood of HMV heading further down the path of discounted video games and cheap iPod accessories seems far more likely.