Updated with comment from BASE: Blaming an “extremely weak” Christmas footfall and a further deterioration in the UK market for CD and DVD, HMV has appointed administrators from KPMG, putting 2,200 jobs at risk for the second time in six years.
HMV’s 125 stores across the UK will continue to trade while negotiations are on-going with the major suppliers in the music and film industries. Buyers are also being sought for the business as a going concern.
Warning signs appeared before Christmas when HMV advised suppliers it would delay a key payment by one week, citing the need to pay off a major debt financier.
Paul McGowan, Executive Chairman of HMV and its owner Hilco Capital said: “In the six years since the HMV business was rescued from a previous administration process the entire team has been immensely hard-working and engaged with the business and has captured market share from all of its competitors. As such, it is disappointing to see the market, particularly for DVD, deteriorate so rapidly in the last 12 months as consumers switch at an ever-increasing pace to digital services.
“Over the last six years HMV has successfully implemented systems to maintain the lowest possible cost base through consensual arrangements with landlords and the use of technology to reduce other operating costs in the business. However, during the key Christmas trading period the market for DVD fell by over 30% compared to the previous year 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 £15 million. 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.”
Sports Direct founder Mike Ashley described November trading as the “worst on record” for retailers and would “literally smash them to pieces”.
A report by KPMG and Ipsos Retail Think Tank warned there will be “more casualties to come” on the high street as the battle to win customers and stay afloat will intensify in 2019.
Retail Economics CEO Richard Lim said HMV was the “first victim” of poor Christmas trading, as the industry faces a major shift in consumer behaviour, fiercer competition and spiralling operating costs.
HMV said it sold 31% of all physical music in the UK in 2018 and 23% of all DVD and Blu-ray with its market share growing month by month throughout the year.
However, the industry consensus is that the market will fall by another 17% during 2019, it said: “As a result the Directors have concluded that it will not be possible to continue to trade the business.”
Competition ranging from online specialists to streaming sites such as Netflix, which now has nearly 10 million subscribers in the UK, are being blamed for the demise of the high street entertainment specialist.
McGowan added: “The last few years have seen a unique partnership forged between the HMV retail business and its major suppliers in the music and movie industries across the UK, USA and Canada. The company has enjoyed the support of the industry as it has tried to manage the transition from the physical market to the digital world of the future and in return has paid over £1.3 billion to the principal music labels and movie studios in the UK alone over the last six years.
“The Board is grateful for the support received to date and is proud of the achievements of our teams up and down the country in implementing this unique arrangement. Unfortunately, the switch to digital has accelerated dramatically this year creating a void that we are no longer able to bridge.”
Asked by Cue Entertainment whether HMV would survive, McGowan said it was “too early to say”.
Commenting on the news Entertainment Retailers Association CEO Kim Bayley said, “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 £2 billion 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.”
British Association for Screen Entertainment CEO Liz Bales said: “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.”
Abbey Home Entertainment’s Dan Harriss said of the news, however, that it reflected both government inaction and the increasingly “digital first” emphasis of the entertainment sector: “We are deeply saddened to see HMV go into administration again and it will be a tremendous loss to both the industry and the high street. A business that was well run by an enthusiastic and knowledgeable team harshly illustrates how difficult/ impossible it is to operate on the high street against fierce online competition.
“It is a shame that the government has not acted in the preceding years to help level the playing field for bricks and mortar retailers, who employ thousands and try to keep town centres alive. While the industry has fought hard to keep HMV in business with improved terms, pushing a digital agenda with reverse windows can only have accelerated consumer demand to digital and not helped HMVs cause.