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Retailer HMV saved by Hilco

The collapsed retailer and iconic music vendor HMV has been rescued, as predicted, by restructuring expert Hilco. Although no figure has been announces officially, the deal is expected to be worth around £50m, and by itself will save 2,643 high street jobs and 141 stores. When the music giant went into administration – overseen by Deloitte – the firm employed 4,123 people spread over 223 stores: employees and stakeholders might say it could have been worse.

For those unfortunate employees being made redundant or being given the ‘opportunity’ to relocate – e.g. those employees in the Luton branch – the outcome, it seems, could have been better. And this should be interpreted as a comment on management and strategy.

HMV floated on the LSE in 2002, and, having had around 100 stores open prior to flotation, was quickly up to 200 stores by 2004. The capital a flotation unlocks may seemed to have been necessary to a long-term strategy of expansion at the time, but, somewhat contrarily, the regular excuse propounded by outgoing executives is that the firm was killed off by fast-moving consumer trends into digital downloading, especially black markets, and the cost-cutting, do-it-all supermarkets. Looking back, investment in the traditional high-street music sector during the beginnings of the millennium was sure folly: as such, the excuse of unstoppable consumer trends betrays the lack of insight executives of the British firm had exactly when they needed it, i.e. when they were investing.

Capitalism has been said to be characterized by such a phenomenon as “creative destruction”, where the releasing of resources any bankruptcy necessitates will allow for the more efficient allocation: out of the destruction of HMV’s administration and store closures will come a more creative market(s) and economy. On this principle, there is nothing inherently wrong with HMV simply disappearing; however, it is in negotiations with administrators where the lack of information about just how potentially profitable the firm is can be levered against stakeholders, in order to favour the (often institutional) investor.

It seems that Hilco have stolen the firm for £50m. Although losing £16.2m in 2012, the firm also collected sales of £923m. Furthermore, there are the intangibles, the global brand strength, and the fact that for the past five years the company have not been doing business on fundamentals – stores are doing business on the visual and not the audio consumer experience (quite simply, a music specialist is now selling books). Not to mention all those unprofitable stores, which Deloitte and Hilco have in good-sense divested. All this seems to allow the possibility of a much slimmer, more profitable HMV, and no doubt Hilco saw this proposition, as they make preparations to perform the successful turnaround they performed on HMV Canada here on the UK business.

Find this interesting. You may also like Play.com Case Study: The Rapid Rise of the Internet Retailer

 

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