HMV appoints KPMG for second administration in six years

08 January 2019 Consultancy.uk

UK entertainment retailer HMV has appointed joint administrators from KPMG to oversee the sale or closure of its business. HMV’s second administration in the last six years comes after disappointing Christmas trading results and a wider market fall in British retail made it succumb to a “tsunami of challenges” facing the UK high street in 2019.

Since the global financial crisis, British high streets have taken a consistent battering – with retailers Woolworths, electrical goods provider Comet, and media stores Zaavi and HMV among the formerly high-profile casualties of the economic turbulence that began with 2007’s infamous credit crunch. Major brands have been vacating bricks-and-mortar presences for years since, a process accelerated by the boom in disruptive ecommerce platforms over the past decade.

The UK high street is enduring its most challenging period in five years, averaging 14 closures per day, and witnessing a net closure of 1,123 stores in 2018, with worse expected to come on the heels of a year which saw a seemingly endless list of once household names collapse. A potent blend of spiralling debts, climbing business rates, and crippling costs related to a weakened pound triggered by Brexit have seen multiple casualties in the British leisure and retail scene throughout the year, with no end in sight.

HMV appoints KPMG for second administration in six years

Even Christmas trading was poor in the UK, and six years after its first administration, HMV has become the first casualty of a slump in seasonal high street business, putting more than 2,200 jobs at risk. Originally named His Masters Voice – the title of a painting by Francis Barraud of the dog Nipper listening to a cylinder phonograph, which was bought by creator the Gramophone Company in 1899, eventually becoming the company logo – HMV is an entertainment retailing company operating in the UK, having opened its first store on London’s Oxford Street in 1921.

Despite new competitors eating into the market over the past decade, the entertainment retailer still accounts for almost a third of all physical music sales in the UK and nearly a quarter of all DVD sales. While this statistic remains impressive, however, it was not enough for the company to shrug off a disappointing festive campaign, in which it claimed retailers of all types were facing “a tsunami of challenges”, amid “extremely weak” festive trading.

Paul McGowan, Executive Chairman of HMV and its owner Hilco Capital, pointed out HMV’s market share had grown month by month throughout the year, but he added that the industry consensus was that the market would fall by another 17% during 2019 and therefore it would not be possible to continue to trade the business. Market-wide sales of DVDs alone plunged by 30% on last year’s levels, and HMV subsequently appointed administrators from Big Four firm KPMG, to either find a buyer or close it down. HMV’s 125 UK stores will remain open while talks with suppliers and potential buyers are on-going.

Commenting on the process, Will Wright, Partner at KPMG and joint administrator, said, “Whilst we understand that [HMV] has continued to outperform the overall market decline in physical music and visual sales, as well as growing a profitable ecommerce business, the company has suffered from the on-going wave of digital disruption sweeping across the entertainment industry… in addition to the ongoing pressures facing many high street retailers, including weakening consumer confidence, rising costs and business rates pressures.”

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