Move follows collapse of Jessops on Friday with loss of 1,400 jobs
HMV has been hit by migration to buying music, films online
Closure of HMV could strike damaging blow to UK retail market for games, CDs, DVDs
HMV warned last month it was poised to breach banking covenants
HMV is to go into administration, delivering a further blow to Britain’s embattled high streets after suppliers refused a request for a £300M (US$482M) lifeline for the struggling retailer.
Deloitte, which has been advising HMV’s lending banks, was last night appointed as administrator to the chain and the company said its shares will be suspended. The move puts 4,000 jobs at risk though HMV said Deloitte will attempt to find a buyer for the business.
The move continues the grim start to the year for the high street following the collapse of Jessops, the camera retailer, which closed on Friday with the loss of 1,400 jobs.
Late last week, HMV asked its suppliers, which include music labels, game-makers and film companies, for about £300m in additional financing to pay off its bank debt, and fund an overhaul of the company’s business model. However, the proposal was turned down.
The retailer, which has 230 stores, has been hit by the migration to purchasing music and films online. It sought to combat this trend, diversifying into live venues and consumer electronics, but this was not enough to stem the decline in its core market.
A year ago, suppliers stepped in to support HMV, taking a 5 per cent equity stake in the company to secure its position as the UK’s leading entertainment retailer.
Neil Saunders, managing director of Conlumino, the retail consultancy, said: “It has been a long time coming, but everyone has known that the writing was on the wall since the day someone first downloaded a digital song.”
He added: “People will be very sad to see it go because it is a very emotionally connected brand, which most of us have used and have a lot of resonance with. But the truth is it is just not a part of our purchasing habits as much as it used to be.”
The closure of HMV could strike a damaging blow to the UK retail market for video games, CDs and DVDs. According to Verdict, HMV’s share of the combined music and video market, defined as physical and downloaded products bought on and offline, was 22.2% in 2012.
HMV’s market share and its sales peaked in 2009, following the closure of Woolworths in 2008. Its market share remained steady for the following few years, despite falling sales, as other competitors such as Zavvi fell by the wayside.
Chuka Umunna MP, Labor’s shadow business secretary, said: “HMV is a national institution that has been a feature of our high streets for over 90 years, so this news is deeply worrying. For the sake of HMV’s employees, we hope a way can be found to keep the business going.
“The demise of HMV – a national institution – would be a sad loss for British retail.”
HMV warned last month that it was poised to breach its banking covenants, sending its shares down 40% on the day and putting its future under threat.
Concerns about HMV have intensified in recent days, after the company launched a big promotional sale at the weekend.
The company said in December it was facing a “probable covenant breach at the end of January 2013” and blamed poor sales in the run-up to the crucial Christmas trading period.
It looked at options, including a company voluntary arrangement – a deal with creditors to prevent administration – as well as the supplier support.
Trevor Moore, chief executive of HMV, is the former chief executive of Jessops, while non-executive director David Adams is the former chairman of Jessops.
The collapse of HMV would deal a further blow to the high street. Last year saw the failure of JJB Sports, Clinton Cards, Game Group, Peacocks and Blacks Leisure, although most were subsequently acquired in a slimmed-down form.