HMV enters administration
January 2, 2019
By Colin Mann
UK entertainment retailer HMV has entered administration for the second time in six years.
A Statement from HMV’s owner Hilco Capital said the HMV Board had resolved to appoint Administrators from KPMG to the business following extremely weak Christmas footfall and a further deterioration in the UK market for CDs and DVDs.
HMV’s 125 stores across the UK will continue to trade whilst negotiations are on-going with the major suppliers in the music and movie industries. Buyers are also being sought for the business as a going concern.
“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,” commented Paul McGowan, Executive Chairman of HMV and Hilco Capital. “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 per cent 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.”
HMV sold 31 per cent of all physical music in the UK in 2018 and 23 per cent of all DVD and Blu-ray with its market share growing month by month throughout the year. However, industry consensus is that the market will fall by another 17 per cent during 2019. As a result HMV’s Directors concluded that it will not be possible to continue to trade the business.
“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,” noted McGowan. “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,” he concluded.