HMV – ducking and diving as a business model

When Hilco bought HMV in 2013 it wasn’t a viable business as things stood, a position reinforced by the fact that none of the 30+ other interested parties made an offer. Hilco already owned the debt so sought a way to turn things around. Regular readers will know what transpired so keeping it short for those who aren’t aware they decided they couldn’t afford to pay market rent or pay for stock before sold. A few landlords and suppliers refused these terms and HMV lost maybe a dozen shops this way but generally it was very successful. Many shopping centres became rent free for a year and other places like Princes Street where it would be hard to find a new tenant for were taken on at greatly a reduced rent. After a year of course all those “saved” shopping centre sites in Edinburgh closed as soon as rent became due.

HMV nipper-the-dog classic logoIn a final cost cutting measure Hilco negotiated to be absolved from paying for stolen stock and immediately got rid of most of their security ! Now this is a perfectly good medium term model but is not good for the long term future of the music industry. If HMV had been allowed to go to the wall something would have taken its place which hopefully would have had more of a long term future. Some thought I was being pessimistic but then of course Hilco closed down their entire HMV Ireland operation in one go doing exactly what I had predicted albeit elsewhere and even quicker than I had expected.

So the ducking and diving continues. The unexpected happened and Sports Direct bought the building HMV was in. The sale was no doubt partly a result of the fact the owners couldn’t get the full rent. Of course if HMV had committed to a long lease as is normal for Princes Street the building being sold would not have affected them. In Brighton they have closed their remaining shop having lost their other shop because of their rental policy. Their view is simple if a shop isn’t making a profit they close it and generally it is the rent that will cause that though of course sales are gradually dwindling too. Now their Preston shop is closing with plans to move elsewhere but no date. It is rare for a month to go by without something happening.

I’d been asked a lot whether HMV being banished to Ocean Terminal would make any difference to my thoughts on Avalanche’s future and  the answer is no, something I explained in my Edinburgh Evening News column (link below). FOPP of course is owned by HMV and enjoys all the advantages that involves so HMV leaving would have little affect on Avalanche. As HMV has to give up more of its best shops as time goes on and album sales drop year by year there is an inevitability to their demise. The only question is how they will put that one last positive spin on it all !

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