David Prosser: Give HMV a chance to find the right tune
Friday 21 January 2011
Outlook It is time to back off HMV. Contrary to the impression givenelsewhere – including in the stock market, where investors continue to mark down its shares – should you go in search of, say, the Bruno Mars album today, you will not find branches of HMV boarded up. This is a retailer that will remain on our high streets for some time to come.
This is not to say HMV does not face real problems. By its own admission, the credit insurers have been scaling back the cover they offer its suppliers – one wonders what the point is of these firms if they are only prepared to insure risk-free companies – and earlier this month it issued a profits warning. It also has to contend with the structural challenges posed by the emergence of online retailers and supermarkets, plus the growth in digital music and film sales.
To suggest, however, that HMV is on borrowed time, as some analysts now seem to be doing, is to grossly exaggerate the scale of its woes. Even if fails the covenant tests that fall due in April, the banks are extremely unlikely to force its closure because HMV remains profitable and has already begun restructuring.
Losing the support of credit insurers is sometimes a signal of impending doom for a retailer, but not in HMV's case. Its suppliers will not sever their ties with the retailer because, following the demise of Woolworth's and Zavvi, they have no other national chain of music shops to sell to. The supermarkets are an important sales channel, of course, but best of luck to any supplier who wants to bet the ranch on them.
This is one reason why the big music labels were busy rallying round HMV yesterday, alongside a number of big suppliers who gave it a public show of support.
Should Simon Fox, HMV's well-regarded chief executive, make no changes at all to the current business model, he is likely to be the last boss the company ever has. But there is time yet to modernise and Mr Fox shows every sign he understands the need to do so.
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