HMV month-long sale: is this desperation?

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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?


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.


High Street casualties

High Street casualties

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