Tuesday, 15 January 2013

HMV Reaction

This is a very delayed reaction given I heard about the administration a good few hours early on Sunday! Such is the state of my work situation currently that blogging output has to take a secondary place to merciless capitalism; c'est la guerre.

I do wonder though about the future of the high street, Bill Quango has written some excellent posts here recently. of course HMV was a business whose time has passed. We are not going to but CD's and DVD's in shops when you can download them at home, its just a societal change and companies will go with it.

However, the sheer cost of high street space with rents and other taxes means that the Internet always wins. And the Internet creates fewer jobs and destroys our high streets. On the one hand, I think this is a sign of progress, times change with technology and no doubt people moaned about the passing of the horse and carriage as a form of transport 100 years ago. So be it.

But could we do something to change the terms of the tax incentives which are so skewed against bricks and mortar businesses? Would this help a create a better society with more jobs and social interaction? I doubt for example that grocery home delivery will ever approach 100% of the market, the scale of the producers is such that it can withstand the competition from dark stores, the internet won't always win.

So how about an enquiry into retailing off and on the net - should we push for one?



 You beat me to it CU..So busy at the moment..not busy enough mind. Trade shows mostly.

As for HMV we looked at it properly almost exactly two years ago.
Here

The consensus then ... 'They were doing the right things but had too little time to achieve them'..And we should have added , if we had known, the recession, triple dip will drag them down quicker.

That was the big, big problem. Something we discussed way back in 2008. A long recession is not survivable except by the strongest or newest or richest. Comet, HMV and even Jessops could have survived a shorter one.

Improved cashflow would have helped them continue with their transition to multi platform retailers.
But they've been getting a smaller slice of a smaller cake. It was not enough.
And the government hasn't any money either. The Portas money had 12 towns being given £100,000.
A tiny drop in a large, leaking, bucket. It won't achieve anything, even if it really knew what they wanted to achieve.

If you look on local papers websites the employees of both Jessops and HMV have generally only good things to say about their companies. Unusual for businesses that have struggled for years. Shows that the chief execs carried their people with them.
A real shame.

And a big problem that hasn't been much discussed is that each failing chain,especially specialist chains, gives one more reason not to visit the high street at all. If its all just Primark, Cafe Nero and The British Heart foundation, why go at all?

BTW - Who knows the link between Jessops and HMV ?

24 comments:

Anonymous said...

There is no need for costly enquiries. Someone has to pay taxes and the tax laws will change accordingly, as sure as night follows day.

asquith said...

Have you all seen this?
http://www.philipbeeching.com/2012/08/why-companies-fail-rise-and-fall-of-hmv.html?m=1

My biggest concern is for the empty buildings. The main shopping centre in Stoke, it's a miracle anyone buys anything there (though a lot of people do) and I've got no idea who will want to replace HMV or its neighbour WH Smug if that goes the same way.

As I believe I have said, I got some vouchers as unwanted presents, so I ordered some stuff in, at a high cost I might add, though I didn't mind so much beccause I paid nothing myself. The vouchers had to be spent in store (why? search me) and I ordered in because what I wanted wasn't on the shelves. So it had better arrive before they close altogether. I've waited a week already. And as for me buying anything else while I was in store, you can forget all about that.

I accept that these businesses have to close down and were pointless in their own right but this city isn't exactly thriving or optimistic and who knows what's to come?

Antisthenes said...

If you are going to be a capitalist@work then you need to know a little bit about economics. Keeping shops in bricks and mortar creating jobs when it is cheaper to do it on the internet with less jobs is a cost not a benefit. The latter makes us richer the former does not.

Bill Quango MP said...

I think you misunderstand CU's point Antisthenes. The loss of just these two chains will put some 6 - 10 THOUSAND people out of work.
The news the other night babbled on about the Honda car plant and the 800 job losses.

Retail has shed almost 200,000 jobs since 2007. And with them the ancillary jobs. For instance Woolworths alone had 800 stores. The contract just to carry out fire extinguisher testing employed 30 people from the servicing firm. Add in the shopfitters, auditors, accountants, lawyers, surveyors, drivers etc from the agency and contract companies, plus all those firms that supplied these chains that now have no clients and the job losses are probably pushing 1/2 a million.

If the government can pay the BBC £3.5bn a year to make TV, or bung 100's of millions into arms sales {that we never seem to make any money on} or enterprise zones...digital cities..arts centres etc why not a rates reduction to allow high street retailers to remain, providing an on and off line service and employment for very many?

Anonymous said...

Deloitte seem to be saying that we need to reduce retail space by between 30 -40 % in the coming years.
I suppose that HMV can be turned into some kind of temporary doss house for Bulgarian slave workers. Jessops will obviously be used to hire Romanians.

andrew said...

I am not sure about 30-40%, but consumers have a finite amount of money and if the share of that money not spent in a shop goes up (and it will) then the amount of money spent in shops goes down.
This does not necessarily mean shops get turned into flats, but it does mean the amount of money available for rents will fall a lot.
This does not mean all rents will fall.
Following the Taleb barbell model, people will always want to have a shop in Oxford St / Bond St and will pay almost any price. Rents for a little shop in the middle of nowhere will be quite low already (outside the pretty areas).
What will be squeezed will be the 'average' middling places.

Roger said...

Tax eBay et al or cut the things taxes paid for.

Taxing eBay merely puts up the cost of buying things - and so preserves the inefficiency of shops. We should recognise that we cannot usefully employ a large part of our population.

Blue Eyes said...

Sensible discussion on Newsnight last night. One chap agreed with the earlier discussion on here about rents and more proactive management by councils to ensure that the overall retail experience in town centres is good. He complained that landlords were unwilling to accept that rents must fall and that banks were unwilling to accept that high street land is not as valuable as it says in their books. His words "someone has to take a haircut".

The current top dog at HMW used to run Jessops.

Kynon said...

Link: Same CEO - HMV appointed the ex-Jessops CEO in the summer IIRC.

Bill Quango MP said...

Andrew is quite right. Rents in a village in Yorkshire will be very low. Lower than the cost of someone to staff that shop. And rates will be low to zero. So in a good sized village of 2-3,000 people, its possible to have a pet shop or a convenience store, chemist,building society, travel agent, takeaway, coffee shop, optician without any trouble.
But actual product stores, clothing, toys, video games, shoes, books, beauty need a higher footfall.

I expect a resurgence of shops in small , 3-6,000 people towns.

These small shops used to be a drain on a chain store. minimum staffing of 3 people, + cover. But for private individuals and online/onstreet hybrids they are looking pretty attractive.

Its the big rent, big towns that are going to have to take a hit.

Sadeqyar said...

"The latter makes us richer the former does not."

Antisthenes, I'm not a regular Capitalist@Work, but would you be able to expand on this assertion, please? Preferably, with special emphasis on who the 'us' in your sentence refers to. Many thanks.

Electro-Kevin said...

What is a nation of shopkeepers without shops ?

I expect these empty lets will become temporary emporiums for the sale of shiny leather jackets and iphone covers.

SumoKing said...

The HMV issue is just the tip of the "how does the music industry respone to the MP3 format" iceberg. I am guessing an increasing majority are going for £1 MP3 singles over £12 albums with the obligatory 3 good songs and 7 piles of crap (granted a segment of the population will always buy the Top Gear driving songs album for use in their estate)

The book industry should surely be looking worried and even the like of shoe retailers should be thinking "what happens we 3D printing gets cheaper".

I doubt that the trend for ramping up VAT and crucifying pubs is going to do much to make any other business step into the high street's retail vacum.

Antisthenes said...

@Bill Quango MP
I do understand CU's point but what I am pointing out is that CU's and everyone else's argument is purely a societal one not a sound economic one. That is the socialist route one that we have been following for decades now and which is leading us to ruin. There is of course room for social engineering but that has to be affordable and not overly counter productive. The loss of thousands of jobs in one sector because it is no longer productive should be addressed by opening up opportunities in other sectors that are. That is the proper capitalist system and it bye and large works socialism and other ways have been proven not to.

Bill Quango MP said...

Antisthenes

The problem here in retail is that there is an opportunity for government,councils, banks and landlords to address a problem that they are going to have to face one day soon anyway. But by largely ignoring this serious issue in the belief that the good times will come again they are causing 100,000's of jobs to be shed prematurely.

HMV couldn't compete with amazon sellers because 7 years of a VAT tax loophole through imports through the EU/channel islands. Excessive rent rises on their units, and not being properly set up to be a digital first, rather than a customer first seller, and rising rates.

If a high street trader can cover just their costs from their shop, then ALL of their online sales, less associated costs,postage etc, is PROFIT. That SHOULD put them at a serious advantage over their online only rivals. The problem is just recently some cannot cover their costs. That may have been their own fault..poor technology, weak marketing, unwillingness to fight the online corporate war, but it is undeniable that high streets are at a disadvantage.

Waitrose -brick built shops, their own home shopping service is profitable. They already have the food. They already employ people to pick and pack the bags. their cost is the website, a man and a van and associated costs.
Its main online only rival, recently floated, makes loss after loss year after year.

That is a high street supermarket chain outperforming its digital only rival. And the strong likelihood that that trend will continue.

And we are capitalists here. We aren't saying Blockbusters needs its 1980's model of trading propped up by subsidy as if it were British Leyland and the unions were back in power.

But by in action, jobs are being lost that may not have needed to have been shed.

And, as with the coalmines, where do these low skilled workers now go to get jobs? China? Or, as in the 80's, actually..nowhere.

Its not a call for subsidy, or special treatment. How much tax has been lost this week in vat and NI alone this week? How much tax will amazon be paying to make up the difference?

level the playing field or face the fact that as each of these chains fail, they further damage the remaining profitable ones by making the high street a less attractive place to visit with every passing month.

CityUnslicker said...

Antishenes,

BQ makes the point well.

In your terms, online with warehousing is more efficient, so that is they way forward.

But it is not a free market, online is new and the taxing of it weak compared to high street - there is a competitive tax advantage, the market is not open and flat.


BQ said in an earlier post something that has stuck with me. barns and out of town lwo rent commercial property with lwoer taxes will be busy, whilst expensive high streets will go empty. Due to tax policy, not nescessarily market forces.

of course the internet is revolutionising the world and HMV etc have had it coming for a while. But the tax position means they may have had less time to adapt as the competition quickly swallowed their business.

I am certainly not a schumpterian believer in burning everything to start again as this has high costs - socially and economically.

Why would not companies have a mutli-channel approach with shops and internet - they would sell more and the supermarket example abaove is a good one. That they can't at the moment suggests something else maybe at play.

Equalising the tax rates across the retail industry - that would create a fair market and then we can be happy that we have the best winners and losers.

Anonymous said...

BQ's correct, it's not a level playing field because of the tax situation. Did you see that poster in Liverpool Jessops? twas on alphaville ML.

http://pbs.twimg.com/media/BAuLhH6CAAEDSAu.jpg

Laban

Antisthenes said...

BQMP & CU

Indeed we do not have a proper capitalist system and government interventions and manipulations do much distorting. If we did have then the job losses would still occur in one sector but more easily open up in another. Rents, tax regimes and other incentives would ebb and flow dependent on supply and demand. It would not immediately compensate for social dislocation but would eventually. What you want is your cake and eat it you want prosperity but without the social consequences. The name of the game is to create a vibrant high wealth creating economy so that as the necessary changes occur to keep it that way there is the financial means to keep the pain of it to a minimum. What you are asking here is to put the cart before the horse trying to avoid the social pain without first accepting and putting in place the means to do that. Because we have been doing that too much for some considerable time now we are paying the price and we are declining as a nation economically,socially and politically. To reverse that we have to accept that we must change our thinking and accept that economic reality has to take precedence over everything else and that does mean a very large dose of very unpleasant medicine. We are not going to do any changing of thinking though so the arguments of the rights and wrongs of something are always going to hover around dealing with symptoms and never causes.

Anonymous said...

It's just inevitable that given there was a bloody great bubble there will be a bloody great pop.
I wonder how many of those that have left the High St and indeed out of town, have been burdened by insufferable debt burdens borne out of the op-co/prop-co fad and the various leveraged buy-outs and take-overs.

Anonymous said...

This all boils down to one thing and one thing only - property values and excessive speculation.
I live in a small town in the NWUK and looked and renting a shop/office last year. The prices I was quoted were sheer lunacy: £12-15k!!!!
To me these places are worth about 3k max.
I didnt bother, continue to work in my (albeit very cold) garage/shed and the place is still up for rent.
Its real, down-home, genuine-article lunacy. No other word for it.

Electro-Kevin said...

BQ - It isn't just a loss of custom to internet because shoppers becoming more discerning...

It is a contraction in shopping full stop. A shortage of money.

High house prices (unaffordability)

Expensive and crowded trains (unaffordability)

High petrol costs (unaffordability)

Boarded up high streets (unaffordability)

Isn't this what a country sliding towards third rate status should look like ?

andrew said...

I think it is what a country that has too many shops and not enough imagination to decide to spend its money on something other than land/bricks.

CityUnslicker said...

Andrew - there is truth to that...but it is up to the Government to sort the planning/zoning/taxing to make sure the fewer shops we need are in fact in the right place.

Antisthenes - You are correct that we need economics to trump politics more often if we are to turn things around. Neither BQ or I are saying save the high street at all costs; what I am unsure of its that its demise would be so quick were it not for the tax position or that the internet model is really the right answer as sole channel for much retail- but that skew in the system has made it so.

Antisthenes said...

CU

You and BQ make a valid point. If the market place is skewed then of course it is not market forces that are driving the cost cutting exercise. So without totally free markets then best outcomes are not necessarily being achieved. QE, bailouts and other government incentives and interventions are skewing markets on a massive scale which I believe are producing outcomes that we are all going to live to regret. As for high street over internet I believe that the movement towards the internet was going to happen regardless as costs savings are patently obvious. Whether that movement proves to be the right one only time will tell and if it is not then the market will find other means. Of course eventually anyway more efficient means of retailing will be found and the loss of jobs etc., will occur all over again. It must be hoped that there is sufficient wealth being created elsewhere to soften the blow to society.