HMV's future seen limited to flagship stores and internet

LONDON Tue Jan 15, 2013 6:18pm IST

A shopper carries a bag from an HMV shop on Oxford Street in London January 12, 2013. REUTERS/Suzanne Plunkett

A shopper carries a bag from an HMV shop on Oxford Street in London January 12, 2013.

Credit: Reuters/Suzanne Plunkett

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LONDON (Reuters) - HMV HMV.L, the long-established music retailer seeking protection from its creditors, is unlikely to have a future beyond a rump of stores and the internet, if other recent British retail failures are any guide.

After years of struggling as its core business of selling CDs and DVDs was hammered by competition from online retailers like Amazon (AMZN.O) and download sites like Apple's (AAPL.O) iTunes, HMV picked consultants Deloitte late on Monday to try to salvage some of its 239 British and Irish stores.

The decision, which puts over 4,000 jobs at risk, is the latest blow to an industry which has seen a string of household names like Woolworths, MFI, and Comet fall by the wayside in a prolonged consumer downturn.

"It's a shame, it's been around so long. It's like a bookstore - it's nice to go and browse and feel them (CDs and DVDs), I'd miss it," said Paul Wood, shopping at an HMV store in Canary Wharf, London.

However other shoppers, typifying HMV's problems, said they were just looking before buying from cheaper outlets online.

HMV, famous for its 'Nipper the dog' trademark, is expected to continue trading while a hunt for buyers is undertaken.

Neil Saunders, managing director at retail consultancy Conlumino, said potential buyers could be interested in running the brand online or through some of its larger stores.

"I think the brand will survive," he told Reuters. "I think it's a good brand with a good emotional connection and I think someone will want it. And someone will be interested in acquiring a rump of stores because there are some that trade profitably within the group.

"A lot of the grocers have their own download services or mail order services so there could be interest from an existing player who just wants to use that name. Private equity may also see it as an opportunity."

One that will not is U.S. private equity firm Apollo Global Management LLC (APO.N) which ruled itself out of a takeover move on Monday, a source familiar with the situation told Reuters, after it bought some of HMV's debt in December.

FAILING TO CHANGE

The support of suppliers - music labels, games manufacturers and others who look to HMV as one of the last bastions of entertainment content on shopping streets - has been crucial to the firm, and support remains.

A spokeswoman for Universal Music, the world's biggest music company, said it was working with HMV and the administrators to support the group. "We are very supportive of them because they have been great trading partners."

However, lenders and stakeholders were not prepared to strike a financing deal with HMV - whose 176 million pounds of debt as of October 27 compares with its current market value of around 5 million pounds - suggesting the company will have to shrink dramatically if it is to survive.

"I think there is probably still some traction in having a presence on the high street but it would have to be severely reduced to be much more cost effective," said Maureen Hilton, an analyst at retail researchers Verdict.

"There might be some attraction from investors if they can just pick which stores they have. Otherwise I think it will just become an online offer."

Any residual presence online would see HMV following variety stores group Woolworths and rival entertainment group Zavvi.

Other collapsed retailers have managed to sell some stores, particularly to supermarket groups growing their convenience shopping businesses, though few have survived to trade under their own brands beyond a handful of outlets.

HMV, opened on London's Oxford Street by English composer Edward Elgar in 1921, grew to become a musical powerhouse, selling records and albums to generations and had a hand in the Beatles' big break, recommending the group's demo record to publishers.

But it struggled to reinvent itself when its core markets went into decline, with expansion into books and live entertainment failing to change its fortunes and a recent push towards tablets and headphones coming too late.

"It's a sad but inevitable fate for a much-loved stalwart of the music industry," Gregory Mead at global music analysts Musicmetric said. "HMV simply failed to adapt to the changing tastes of music fans and the seismic shift we've seen as everything has gone digital." (Additional reporting by Jonathan Cable; Editing by Mark Potter)

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