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End of an era as HMV calls in the administrators

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On the day that HMV has called in the administrators, we take a look at what went wrong for the last big high street entertainment retailer of the 20th century.

When HMV this morning suspended its shares on the stockmarket and said it was calling in the administrators, it confirmed a long-standing suspicion that the company would not survive in a digital era.

With its famous gramophone logo, the retailer, which would have celebrated its 92nd birthday on July 20 and employs 4,000 people, prospered in an age where records and later CDs were bought in high street shops. But it never caught up with the rise of digital technologies that meant first that CDs could be sold over the internet as well as in shops, and later that music could be downloaded, rather than bought on a disc.

In recent years, HMV looked for new ways to adapt to what was fast becoming a revolution in retail as consumers moved towards shopping online. In 2010 it launched an online download store, in 2011 it announced an online film rental service, and in 2012 it went up against Amazon with the soft launch of a marketplace.

It experimented with its stores, with the launch of a social media café last year at a new-look Cambridge store, where customers could charge phones, surf the internet over free wi-fi and also collect online orders. It also changed the products it stocked, emphasizing technology sales by stocking both headphones and tablets.

But, it seems that these changes were too little and too late to have the transformative effect on its finances that would have been necessary for survival. In November HMV said in a statement that “current market trading conditions” left it faced with “material uncertainties” and the probability that it would breach banking covenants at the end of January.

Today HMV said it had continued discussions with banks and stakeholders but was unable to reach a solution. It would therefore call in administrators from Deloitte. In a statement it said: “The directors of the company understand that it is the intention of the administrators, once appointed, to continue to trade whilst they seek a purchaser for the business.”

Analysts agree that the news is far from surprising.

Jon Copestake, retail analyst at The Economist Intelligence Unit, said: “The loss of this iconic retailer from the UK high street will sadden many but can come as little surprise. The endless speculation over the last year or more highlights the degree to which they were living on borrowed time.

“The decline of CDs and DVDs can be largely attributable to HMV’s collapse but many will point to the decade-old failure of the firm to head off price competition from supermarkets and Amazon as well as downloads from Napster and iTunes. Although the music chain did belatedly try to tackle these strategic challenges, the entrenchment of Amazon and iTunes ensured that by this stage HMV was far from being the go-to source for music.”

Rupert Eastell, head of retail at business adviser Baker Tilly, said: “As one of the best-known household names, the closure of HMV is likely to damage consumer confidence even more in the coming months.

“However no one can say that this has come as a surprise. The failure of the only surviving national music store comes hot on the heels of the administrations of a list of established retailers including Comet, JJB Sports, Clinton Cards and, most recently, Jessops.

“There is a clear parallel here with the failure of Jessops where, put simply, the consumer no longer wants to buy what they sell. Coupled with a falling number of shoppers with less cash to burn, and intense competition from the internet and supermarkets, I don’t think for one moment that HMV will be the last household retailer that will fight to stay alive in 2013.

“The bad news is that this year is predicted to be just as bleak, if not bleaker than the last 12 months, and to ride out the storm successfully companies really need to be fit for purpose and evolve with the times. They simply cannot just rely on outdated and broken business models.”

But Dharmendra Patel, managing director of in-store digital technology provider PlayNetwork says that HMV’s failure is not solely down to its slow uptake of digital technologies. “E-commerce companies may have contributed to HMV’s demise but it’s certainly not the only reason for the retailer’s collapse,” he said.

“When the music giant opened its first store in Oxford Street in 1921 the customer experience was the core focus. It offered an experience that no-one had seen before – shoppers tuned into gramophones and stood in listening booths, allowing them to interact in an engaging environment. It’s fair to say that HMV was once the most interactive store in the country.

“In time, the household name became no different from any other music store on the high street and lost sight of what it originally stood for. Because HMV failed to develop its in-store experience the brand image suffered and consumers felt out of touch with the retailer.”

Deloitte was appointed administrator on Tuesday afternoon. In a statement, Nick Edwards, joint administrator and restructuring services partner at Deloitte, said: “HMV is an iconic retailer and continues to be a very popular brand, but as we have seen with many high street retailers, the market is changing rapidly and conditions are currently very tough.

“Following our appointment, we are working closely with management and staff to stabilise the business in order to continue trading whilst actively seeking a purchaser for the business and assets. We appreciate the cooperation and support from the staff, customers, suppliers and landlords at what is clearly a difficult time.”

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