The Loss of the High Street to Corporate Zombies

Jan 15, 2013   //   by Daniel Morris   //   Breaking News  //  4 Comments

Today marks the 32nd significant retail company to bite the dust and go into administration in little over a year, with media chain HMV announcing their intentions this morning.

This move has raised concerns that all of the 4,000 employees may find themselves without a job in the very near future.

HMV (an acronym for His Master’s Voice – the title of the image that the company have taken as their logo), which has been a part of the high street since 1921, has in recent years struggled against its online competitors.

This is a problem that has affected many businesses on the high street, with Comet and Jessops suffering recent closures, and it looks set to claim more lives in the coming months.

[Update: As of 16/01/2013 the DVD chain Blockbuster has become the 33rd significant retail store to fall into administration, making it the third in less than a week.]

Infestation of Zombies

For those not versed in the terminology, a ‘corporate zombie’ (not to be confused with a subhuman zombie) is a business that has been put on life support by administrators but does not make any signs of coming ‘back from the dead’.

While this is great news for the thousands of people that are employed by these companies – meaning they can keep their jobs for a little while – in the long run this is very bad news for the economy.

This is because it preserves excess capacity which, in a way, makes it increasingly difficult for new businesses to grow and thrive, while at the same time holding back the progress of those already successful companies.

One way to think about this is as a seed trying to grow next to an oak that is still clinging onto life despite losing all its leaves and branches. The seed cannot grow because all of the nutrients and water have been absorbed by the oak, and therefore the tree cannot be replaced by something new and potentially better.

However, this latest cull of HMV may be a turning point in the road. If a massive chain like this can be put out of its misery, it could become a good thing for the economy.

Chuka Umunna MP, Labour’s Shadow Business Secretary, responding to reports that HMV is about to go into administration, said:

HMV is a national institution that has been a feature of our high streets for over 90 years, so this news is deeply worrying. For the sake of HMV’s employees, we hope a way can be found to keep the business going – the demise of this national institution would be a sad loss to British retail.

What Went Wrong?

In the case of HMV, many are pointing the blame to an archaic business model that has become vastly out-dated with the rise of online sales in the past 5 years.

With a wide variety of streaming and download services available for almost anything you could want to listen to or watch, many of which are free, the use of physical products has started to become something of a retro-dream. Why go into a store or wait for a delivery when you can download it all in a matter of seconds? (Though personally, I prefer the quality of both vinyl and CD over that of MP3.)

In an interview with the BBC, Maureen Hinton, analyst from Verdict Research, said on the company’s demise: “If it had gone online 10, 15 years ago, it’s got a very strong brand name, it could have built up a real presence, but at the moment if we think online you just think Amazon.”

Therein lies a problem faced by many markets: that single brands tend to win the day. HMV is well-established on the high-street, but its brand authority online is sorely lacking.

And with free rival services and fierce competition from vendors, consumers also respond more to pricing, with increasingly savvy shoppers being driven towards online counterparts for their merchandise.

The collapse has also reopened the debate about the longevity of the music industry, with many celebrities and artists taking to Twitter to convey their opinions on the demise of the company.

While the demise of HMV is undoubtedly sad, their business model wasn’t the strongest and their prices weren’t competitive. I’m surprised they’ve lasted this long, in all honesty. What it means for the wider industry, however, is more serious.

James Davies, The Blackout (scheduled for HMV in-store signings next week)

…Sad News about #HMV but been on cards for a while !

Theo Paphitis, Dragons Den

HMV bankrupt. We may as well just give up on any medium that involves hard copy and get on with it. #sadtimes.

Professor Green

How Can HMV Survive?

If HMV, considered to be one of the last great media stores in the UK, is to come out of this administration, it is going to have to make some big changes to its current business model and the setup of the company.

This will include: reducing the number of high-street stores; developing a stronger online retail presence; and looking into which products are not performing.

If HMV are smart and invest in becoming a streamlined, viable business, it is possible that they will be able to emerge from this financial trouble stronger than before, which is good news for consumers and artists alike.

Online Retailers Also Dropping

It would be a mistake to think that it’s just physical retail stores that are shutting up shop at the minute. Online retailers are also facing a variety of difficulties.

Popular online store, part of the Rakuten group, is to cease as an online retailer as of March and become a marketplace-only website instead.

The company has blamed the move on the ending of Low Value Consignment, a loophole that allowed the Jersey-based company to sell products with a value less than £15 without VAT to the UK, therefore allowing them to cut the cost to the consumers.

This is a huge blow for a very competitive UK retailer which, at the time of their purchase by the Japanese firm Rakuten, had around 14 million registered users.

Do you think that HMV and the high street can come back from this? Will this have a negative effect on the sales of music and film? Let us know in the comments below.

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  • daniel Edwards

    That’s a shame HMV have gone in administration, but it was always going to happen the only way i think they can come back from this is moving there focus to online sales.

  • luke hough

    They won’t be able to just move online HMV are gone for good just like Comet and Jessops, they should have gone online years ago.

  • Keith McDonald

    Nice one, Dan. This has come at quite a bad time, I think. With Play and Amazon both under the cosh for VAT and corp. tax respectively, there really is opportunity there for HMV to expand its brand authority and market share online. But it will have to work hard and allocate resources, and I’m not convinced that the free access (legal or otherwise) that has prospered with the digital revolution will allow for a turnaround of this magnitude. But it’s a wake-up call.

    I notice that Lord Peston has also spoken of ‘zombie’ firms – for which he profusely apologizes. Hence, your readers expect equal or greater grovelling. ≥!

  • Dan Morris

    Well, I guess I should face the music and apologise for using the “z-word”, but what can I say? I do enjoy the imagery that it produces.