High Street Woes

I see that HMV have gone into administration, potentially to find a new buyer. I'm not convinced the administrator "pulls out all the stops" in trying to find a buyer. It is Deloittes, and their record with Comet and Woolworth does not give much in the way of grounds for hope.

Oddbins is another one that they took over. The news (as reported in the Telegraph) was that "Deloitte said that it has been in discussions with 'several' interested parties to provide the necessary funding required to recapitalise the business."  In the end, they did find buyers for some of the shops, so it fared a little better than Woolworth, which sank without trace.

Deloitte seems to be the Grim Reaper of Administration, and their appointment seems to mark the kiss of death. Although it should be noted that other Grim Reapers are around - PWC are Administrators for Jessops. Ironically, the Chief Executive of Jessops jumped ship in 2012 to join HMV as its Chief Executive. Out of the frying pan...!

How much incentive is there for these administrators to find other buyers for at least part of the business? And how easy is it for them to do so? It would be good to have an in-depth Panorama looking at this, interviewing the accountancy firms involved, and trying to tease out how committed they are, and what kind of time limits they set themselves.

Let's hope that some buyers can be found. As with the local Woolworths, the local HMV shop seems to always have been very busy, often with long queues. There's an opportunity there for someone, I'm sure.

Meanwhile, existing gift vouchers have no value, which is a bit harsh, especially as they were probably bought in the run up to Christmas and given as Christmas presents. But as the Telegraph explains, that's up to the discretion of the administrator:

"Gift vouchers are in effect a debt owed by the company. If the issuer goes bust, anyone with a voucher becomes an unsecured creditor, with a long and uncertain wait to get any money back. However, administrators have discretion to carry on accepting vouchers after a company has failed."

Part of the problem with both HMV and Jessop has been the advance of new technology.

Digital downloads have now overtaken convention music CDs, and give more choice to the consumer, who may often be able to pay for and download only the songs they want to hear.  And online shopping has cut the cost of DVDs, even with the loss of the loophole exploited in Jersey by the likes of Amazon; they have warehousing costs; they don't have shop front costs, on the high street, with commensurately high rents.

The advent of Smart phones, too, has meant a decline even in digital cameras, as a phone is much more compact, and provides a much wider functionality; it can take pictures and instantly post them online or email them.

So both the impact of online retail, and the impact of different ways of doing things, have meant that HMV and Jessops have fallen behind in terms of the products they sell, and are increasingly vulnerable across the UK. They are not the only ones, as the failure of other big names has shown, and they probably won't be the last.

But another problem which compounds their situation is rental value of High Street shops. One has only to look at the Jersey property bulletin to see how high some of the leases are, and they are geared to a society where people spent a lot of time going to town and window shopping, and buying goods. As James Hall notes:

"Landlords have come in for criticism from shopkeepers due to the high rents that they charge. Most rents on the high street are subject to what are known as 'upward-only rent reviews', meaning that they are increased every few years no matter how well or badly the shop has performed."
 
That's almost certainly on the decline, as more and more shopping is done online, but until the culture of expectation of high rents which increase every year faces facts, and settles for lower rents more in keeping with the state of the economy, I think we will start to see more and more empty shop fronts.