HMV - where did it go wrong?
The demise of HMV
HMV has finally died, which is very sad. It started in 1921 in Oxford Street and grew to 239 stores. The decline really started 10 or even 15 years ago, when the Internet was in it’s infancy. Back then HMV was the pre-eminent retailer in it’s sector and had huge goodwill. However they failed to capitalise by building a decent on-line presence early. Amazon and ITunes came along and took a huge bite out of their customer base. From this point it was only a matter of time.
HMV has been in and out of the news for what seems like months. It is probably the best-known example of how a once dominant brand has been destroyed by a lack of foresight and strategic planning.
The deep recession that we have been enduring since 2009 has been especially painful for the high street and I am surprised that HMV has lasted so long. It was on 13th December that HMV revealed that it has breached it’s banking covenants, which was a very serious development as it flagged poor financial performance and led to an eventual withdrawal of support from lenders.
The final nail in the coffin was the withdrawal of supplier support that led to the inevitable collapse. This is not dissimilar to the failure of Jessops – in this case the credit insurers withdrew cover on Jessops trade debt, which meant that suppliers could no longer raise finance on Jessops invoices, the knock on effect being that suppliers ceased to offer normal trade credit, in turn leading to an immediate cash-flow crisis.
There is no doubt that the root cause of the demise was the failure to build an on-line presence when competitors were doing so. The rest has really just been a process of attrition that we see time and time again – business begins to accumulate debt, debt becomes unsupportable as cash dries up, bank covenants breached, credit insurers get nervous and withdraw cover, suppliers then withdraw credit terms – game over.
If you find yourself under pressure from your lenders or key stakeholders I recommend that you open dialogue to give them reassurance and to preserve their support. I have seen instances where credit insurers have threatened to withdraw cover on client’s debts. My advice is to talk to the insurers and share financial information. If you do nothing and ignore their requests, the result is almost inevitable. I would caveat this by saying that you should always be conscious of the risks of trading while insolvent – You should not give assurances or make statements which are not supportable – always ensure that your management information is accurate and up to date.
Hawkmoor Associates Limited
This was posted in Bdaily's Members' News section by Phil Dibbs .
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