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HMV and the future of music sales

HMVHMV will embark on a massive sale next week, with experts suggesting it marks a crucial period in the venerable old chain’s fight for survival. Last month the company admitted they will most likely breach their banking covenant, which would seriously impact their ability to carry on trading. Banks, let’s be honest, are not the most helpful when they feel you aren’t financially healthy, after all.  And when you seem to be staggering from one quarter to the next in ever more battered condition, they are probably right to ask questions.

A failure to fulfil lending requirements often signals a company is close to administration, retail analyst Robert Clark told Sky News. “A lot becomes clear after Christmas – the sale suggests that they didn’t have a good one and are trying to reel in as much cash to tie things over,” he said. “I’m not sure how much time they’ve got. I don’t think they’ll be able to sway their bankers. Financial institutions are less likely to show patience in this climate.” HMV claim that a sale at this time of year is unusual, and they’d be right. But it still looks pretty bleak for the long-term.

In December, despite numerous promotions,it announced total sales had fallen 13.5%, while like-for-like sales were down 10.2% in the six months to October 27. HMV reported a loss before tax of £37.3m – an improvement on the £48.1m loss over the same period the year before. But net debt at the 91 year-old company increased from £163.7m to £176.1m. You don’t need to be Robert Peston to see that those figures are simply unsustainable.

So what are HMV doing wrong? They are far more expensive than online retailers generally, but that’s understandable given their overheads being significantly more. You could quibble at the extent of the differences, however – 50-70% is not uncommon – and this may explain why they have gained the reputation for being pricey. This has also negated the one true advantage they have over online retailers – the ability to be instant, to complete the transaction there and then. But as important as pricing has been, it’s not the key point in HMV’s continuing demise. It’s far more simple and, sadly, far harder to put right: not enough people want what they are selling.

People are increasingly moving to wanting to be able to access content instantly. They are not as concerned with having a physical copy of a product as they once were. Given that in the age of streaming, mp3s are becoming old news, it’s hardly surprising that a company trying to sell something even further behind in technological evolution are struggling.

There will always be people who want to buy hard copies of albums and movies, in the same way that there will always be people who want to buy vinyl. There just won’t be enough of them to sustain an organisation the size of HMV. It’s sad, but it is inevitable that they cannot survive in their present guise and that it’s highly likely the time when they could have embraced a new model of trading has long since gone. They may keep battling on for a while, but if HMV is still selling you albums in 2020, it will be a minor miracle.

 

 

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