HMV month-long sale: is this desperation?

HMV store

Bargain-hunters may be celebrating, as HMV has announced a month-long sale starting on Saturday. It will see 25% wiped off a huge range of products - from DVDs to CDs and games, and the store says it's all in the name of offering great value to customers.

So is this something to celebrate? Or is it a worrying sign?
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The group is talking up the positives. A spokesman told the BBC: "It's what retailers do at this time of year, and any other interpretation is just the usual media speculation." He added that at this stage the company usually ran multi-buy offers, but it's trying something new this year.

Speculation

The speculation has indeed been rife. Retail analyst Robert Clark told Sky News: "A lot becomes clear after Christmas - the sale suggests that they didn't have a good one and are trying to reel in as much cash to tie things over."

The problem is that HMV has been struggling. Just before Christmas it released disappointing figures, and Chief Executive Trevor Moore admitted: "HMV has had a difficult first half." It reported that total sales were down 13.5%, and that it had made a pre-tax loss of £37.3 million.

The real concern is that is has bank borrowings of £176.1 million (up more than £10 million from a year earlier) and it warned that: "Current market trading conditions result in material uncertainties facing the business," including a "probable covenant breach at the end of January 2013."

It is in negotiations with its bankers, and is keeping in close contact over trading developments and initiatives. It has confirmed that administration is not on the table right now. However, it remains a risk that its banks could pull the plug.

Will it survive?

The question is whether it will weather the storm. The company's losses are a major concern. Likewise it's not a great sign that elsewhere on the high street Jessops has closed its doors, and music chain Virgin France has just filed for bankruptcy.

However, the fact that the VAT loophole has made life more difficult for online competitors could help provide a boost to the business. Certainly news that Play.com is closing down its retail arm must come as welcome news, with the closure of a vital competitor.

It may come down to the question of whether it can sufficiently differentiate itself. Can it offer enough customer service and high street value to make it worth paying slightly more than online?

For consumers, the level of risk would certainly make it well-worth considering whether now is the time to use any HMV vouchers you got for Christmas, or any credit on the HMV reward card scheme. If the company was to go into administration, typically these would not be accepted, so it may be worth erring on the side of caution.

But what do you think? Can HMV survive? Let us know in the comments.


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High Street casualties
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HMV month-long sale: is this desperation?

Administrators sounded the death knell for Woolworths in December 2008, leading to store closures that left 27,000 people out of work. Since its collapse former Woolworths stores have become a blight in many town centres and more than 100 of the large stores still lay vacant in January 2012.

Loyal customers didn't have go without the family favourite store for long however as it reappeared online as Woolworths.co.uk in 2009, after Shop Direct Home Shopping bought out the Woolworths name.

The greetings cards specialist became the latest highstreet casualty in May with 8,000 jobs on the line when it was forced it into administration. Its biggest supplier, American Greetings, then bought Clintons out of administration and put the retailer through a rebrand including a new logo and complete in-store revamps.

Its contemporary format includes new fixtures and fittings and easier to navigate stores, and will be rolled out to all 400 UK stores at the cost of £16million. Bosses aim to bring the brand back to profit within two years.

Poor sales in the run up to Christmas was the final nail in the coffin for several struggling chains, including lingerie retailer La Senza, which went bust in January 2012 with 146 shops and 2,600 staff. Kuwaiti retailer Alshaya bought part of the business, which saved 60 shops and 1,000 staff.

La Senza has been struggling in a similar way to other specialist shops such as Game and Mothercare, which have been hit by cut-price competition at supermarkets and have no alternative products to help shoulder losses.

Stricken retailer Blacks Leisure, which employed 3,600 staff across 98 Blacks stores and 208 Millets stores, went into administration in Janurary 2012 after failing to find an outright buyer.

Soon after its stores were bought by sportswear firm JD Sports in pre-pack deal - an insolvency procedure which sees a company being sold immediately after it has entered administration – which saw most of Blacks' £36 million of debt wiped out.

Fashion chain Bonmarche, which was part of the Peacock Group, was sold in January when the group collapsed due to unsustainable debts, resulting in 1,400 job losses and 160 store closures. Private equity firm Sun European Partners bought 230 stores, which continue to trade with 2,400 staff.

Peacocks collapsed under a £740 million net debt mountain in January 2012 in the biggest retail failure since Woolworths. Despite being sold out of administration to Edinburgh Woollen Mill in a deal that saved 380 stores and 6,000 jobs, administrators from KPMG were forced to close 224 stores with immediate effect. This lead to 3,350 redundancies from stores and Peacocks head office in Cardiff.

The high street name continues trading as bosses work to stabilise the situation, yet a further blow was dealt this month with news that the firm's pension fund is in £15.8 million shortfall as a result of the collapse.

Game buckled under its £85m debt pile in March 2012 and was placed into administration after being unable to pay a £21m rent bill. Administrator PwC immediately closed 277 shops, with the loss of 2,000 jobs. Soon after, investment firm, OpCapita bought 333 Game stores, saving more than 3,000 jobs.

Game's demise followed a string of profit warnings and the failure of nervous suppliers, including leading names Electronic Arts and Nintendo, to go on providing the latest games, further damaging poor sales.

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