Physical sales continue to tank around the world. So, how will UK retailer recover from its second jump into administration?
For the second time in five years, embattled UK retailer HMV has called in administrators.
The move places 2,200 jobs at risk.
HMV will call in administrators from KPMG following dismal holiday sales.
The retail chain’s 125 stores will remain open as company executives engage in talks with suppliers and potential buyers.
HMV first fell into administration in early 2013. The company had struggled to pay off debts following poor sales of its diversified catalog. Hilco, a restructuring specialist, ultimately brought the company out of administration.
Hilco reportedly helped the company focus on sales of its core products – CDs, DVDs, and video games. To keep costs down, Hilco renegotiated deals with music, DVD, and gaming companies. Then, HMV’s new owner renegotiated rents with landlords. Several stores relocated to keep rent prices down.
Yet, with the decline of physical formats, the chain has struggled to remain afloat.
Speaking about the decline of physical sales this past holiday season, Paul McGowan, Executive Chairman of HMV and Hilco, said,
“During the key Christmas trading period, the market for DVDs fell by over 30% compared to the previous year, and while HMV performed considerably better than that, such a deterioration in a key sector of the market is unsustainable.”
Blaming “government-centric policies” for the retailer’s demise, which has led to “increased fixed costs in the business,” McGowan continued,
“Business rates alone represent an annual cost to HMV in excess of £15 million ($19 million). Even an exceptionally well run and much-loved business such as HMV cannot withstand the tsunami of challenges facing UK retailers over the last 12 months, on top of such a dramatic change in consumer behavior in the entertainment market.”
The Entertainment Retailers Association (ERA) has also issued a comment following HMV’s decision to enter into administration.
ERA CEO Kim Baylay said,
“After what has been widely reported as a tough fourth quarter for retailers, HMV is not the only high street name facing tough decisions right now. It is a fast-moving situation and it is too early to say how it will end.”
She added “the physical entertainment market is still worth up to £2 billion a year.”
“For the sake of HMV’s staff, customers and suppliers. We are very much hoping HMV can turn things around again.”
Featured image by Kuha455405 (CC by 3.0).