'There is still plenty of business there': ERA boss Kim Bayley on what happens next as HMV enters administration

HMV

HMV is back in administration after being hit hard by falling physical sales over the Christmas period.

The retailer still has 125 shops – which will remain open – and employs more than 2,000 people as the last man standing in physical entertainment on the High Street.

The company had previously gone into administration in 2013, but was rescued by turnaround specialists Hilco. It seemed to have successfully turned its operation around by concentrating on its core physical entertainment business, having previously tried – and failed – to expand into other areas.

KPMG has been appointed as HMV’s administrators. Whether a rescue bid can succeed this time around remains to be seen – although with horrific trading conditions on the High Street across the board, it would take a brave firm indeed to take it on. But ERA CEO Kim Bayley remains hopeful that the miracle of 2013 can be repeated.

“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,” she said. “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.”

BPI chief executive Geoff Taylor also said he hoped the business could still be saved.

“The news that HMV Retail Limited is entering into administration is obviously concerning, not least for its dedicated and passionate staff, and for suppliers who are likely to be affected,” he said. “Everyone in the music community and music fans will be hoping that a reshaped future can be found for the business, which had been performing relatively well in the recorded music market, and has been an important part of the UK entertainment landscape for nearly a century. 

“The music industry has returned to growth in recent years, with surging demand for streaming complemented by resilient sales of physical formats which had enabled HMV’s owners, with support from music labels, to restore the retailer to profitability following its earlier administration in 2013,” he added. “However, fragile consumer confidence and challenging trading conditions on the High Street have clearly made life particularly difficult for many retailers in recent months. We hope that Government will look at whether there is more that can be done to help businesses like HMV confront these challenges, including by looking more closely at the impact of business rates on High Street retail, so that a vibrant High Street can be maintained in our towns and cities.”

But, while HMV had increased its market share of physical music sales, and received a fillip from the vinyl revival, the seismic shift to streaming services such as Spotify and Apple Music left it exposed. It has also faced competition from Amazon for physical music sales, although it recently reclaimed market leadership of that sector from the online giant.

“During the key Christmas trading period the market for DVD fell by over 30% compared to the previous year and, while HMV performed considerably better than that, such a deterioration in a key sector of the market is unsustainable,” said Paul McGowan, the executive chair of HMV and Hilco.

“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.”

Figures from the Official Charts Company show that paid-for album sales – traditionally at their strongest in the run-up to Christmas – were down 28.82% in the week before Christmas, to 2,149,061. Even in that week, streaming-equivalent albums accounting for over one third of the total market (most normal weeks it's now double that) and there was a year-long absence of blockbuster physical albums from the likes of Ed Sheeran and Adele.

Nonetheless, HMV representatives had rebuffed persistent rumours that the business was in trouble in recent months. Even as recently as Music Week’s physical music roundtable, published in our December 3 issue, HMV was singled out by other retailers as “doing better than other people having a go at High Street retail”.

In that roundtable, HMV head of music John Hirst criticised the rise of D2C physical sales by labels for hitting bricks-and-mortar stores but added: “The customer demonstrates week-in-week out by buying millions of CDs that they still very much want a physical product. Indies, High Street shops and supermarkets all have a role to play”.

As revealed by Music Week earlier this year, supermarkets have already significantly cut back on their physical entertainment retail space in the light of falling sales. If HMV fails to survive, it could mean the UK business moving to an almost fully digital music market much quicker than anyone would have wanted. Watch this space…

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