ANALYSIS: How HMV is hanging on

We are barely a week into the New Year and once again there is much talk about HMV’s financial troubles.

The firm recently warned that it may breach lending agreements this month, and has been in constant talks with suppliers, banks and lenders over Christmas.

And in what is becoming an annual tradition, MCV suggests that the retailer still has some strengths worth remembering.

Let’s start with some number crunching.

HMV posted a 36.1m loss for the 26 weeks ending October 27th, 2012. That is unwelcome news for any retailer, but this is not as severe as the 50m loss HMV posted in 2011.

These numbers don’t include the firm’s Christmas takings, which are due to be announced later this month and may show that HMV is slowing its decline.

True, HMV’s debts rose to 220m in 2012 but ten per cent of this was acquired last month US private equity firm Apollo Global Management, removing strict bank deadlines.

Reports suggest the chain also received 40m from music and film firms keen to maintain a crucial channel for physical product. Understandable, given that discs still account for the majority of sales in films, as well as 62 per cent of music.

REACHING OUT
This boost from suppliers shows how their relationship with HMV has improved.

The retailer turned to music, film and later games firms for support in early 2012. Music and film firms rallied behind HMV, reportedly allowing greater access to back catalogues and the option to buy stock on consignment: concessions that have made life a little easier for the specialist.

Games firms have aided HMV with more activity at its Oxford Street branch, such as official launches for Black Ops II and Wii U.

Head of technology and games Ewan Pinder told MCV: It’s amazing how things can change. Our relationship with key partners has become much stronger and more positive over the course of the year.”

The collapse of major rival GAME last year was also a blessing, helping HMV’s market share in the games space rise by six per cent. Again, the Oxford Street branch benefitted greatly from the absence of GAME.

PART OF THE PLAN
There’s no denying HMV is in a dangerous position.

Reports suggest the Royal Bank of Scotland, one of six banks supporting the retailer, is sounding out administrators in case HMV’s Christmas takings fall below expectations.

And conflict is arising around HMV’s remaining debt: lenders are reportedly planning to sell their loans to prevent Apollo from taking over the company and selling off its assets.

But it’s important to remember that HMV’s plight is part of overall decline seen on the High Street and in entertainment.

The retailer has previously explained that its has a long-term plan to return to profitability.It has had another bump in a long and arduous road, but HMV remains resilient in its determination.

Said Pinder: Any transition takes time, not least in entertainment which is undergoing huge change in the way that it’s distributed and consumed. But we have a strong brand and we have faith in our future prospects.”